Q1 2021 Wingstop Inc Earnings Call
Good morning, ladies and gentlemen, and thank you for standing by and welcome to the Wingstop incorporated fiscal first quarter 2021 earnings Conference call. Please note. This conference is being recorded today Wednesday April 28 2021.
On the call, we have Charlie Morrison, Chairman and Chief Executive Officer, and Michael Skipworth, Executive Vice President and Chief Financial Officer, I would now like to turn the conference over to Michael. Please go ahead Sir.
Thank you and welcome everyone should have access to our fiscal first quarter 2021 and earnings release.
A copy is posted under the Investor Relations tab on our website at IR Dot Wingstop Dot com.
Our discussion today includes forward looking statements. These forward looking statements are not guarantees of future performance and are subject to numerous risks and uncertainties that could cause our actual results to differ materially from what we currently expect our SEC filings describe various risks that could affect our future.
Operating results and financial condition.
We use certain non-GAAP financial measures that we believe can be useful in evaluating our performance presentation of such information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP reconciliations to comparable GAAP measures are contained in our earnings release final.
We will discuss preliminary sales results for the first four weeks of the second fiscal quarter. We have not of course completed closing procedures for the second fiscal quarter. So preliminary sales results discussed today are subject to change pending finalization and actual results could differ materially.
Lastly for the Q&A session. We ask that you. Please each keep to one question and a follow up to allow as many participants as possible to ask a question.
With that I would like to turn the call over to Charlie.
Thank you Michael we had a fantastic first quarter for Wingstop and a carryover of the incredible momentum we experienced during 2020, while the COVID-19 pandemic is far from over we are glad to see that and economic recovery appears to be well underway and our long term growth strategies continue to fuel strong.
Results for the brand.
During the first quarter, we opened 41 net new Wingstop restaurants, and all time record first quarter the translated to year over year unit growth of 11, 7%.
This growth is representative of our strongest new restaurant development pipeline and the history of our brand with over 700 commitments at the beginning of 2021.
This compares to 610 development commitments a year ago.
We anticipate our new unit growth to achieve record levels. This year and as such we are providing guidance of 11% plus unit growth for 2021, highlighting our confidence and this acceleration.
Same store sales grew by 27% and the first quarter, which represents a 36% two year comp and acceleration from the fourth quarter of 2020.
Our average unit volume of $1 $5 million combined with an average initial investment of under $400000 can generally yield cash on cash returns in excess of 50% for our brand partners fueling the acceleration and restaurant development.
The growth and our average unit volume has created efficiencies and our restaurant P&L that have resulted in growth and four wall profits for our franchisees despite record high bone and chicken wing prices.
We value the strong relationships, we have with our supplier partners, which have allowed us to successfully mitigate this inflationary period with landed prices for our wings that are well below the spot market prices.
We believe that these prices are likely to continue to be elevated in 2021 as suppliers are struggling just as many in our industry are to hire people to process chicken, thus, placing unexpected pressure on the amount of birds that can be processed and negatively affecting supply of all parts of the chicken and the U S.
Not just swings.
However at these current higher wing prices, we believe our brand partners have seen an increase in profit dollars. Thanks to our strong two year same store sales growth of more than 30%.
While there is a significant amount of government stimulus and the economy right now driving people to avoid accepting open positions for employment and fueling our near term sales tailwind for almost all restaurant brands. We remain focused on our long term strategy as we continue to pull a number of levers we have to drive.
Annabelle growth and deliver on our three to five year target of mid single digit domestic same store sales growth.
Our digital mix of over 60% has fueled the growth of a database of unique users to wingstop totaling over $20 million.
Which enables us to leverage our robust CRM architecture to increase customer retention levels to a 12 month high and the first quarter.
We also put our multibillion dollar surplus of advertising dollars from 2020 to work at the end of the first quarter to deliver more trp's and premium national advertising placements focusing those ads on moments, we all know that drive the crave for wingstop and pointing guests to delivery as a convenient channel to get.
Their wings.
And we know these drivers are working and coupled with the significant amount of government stimulus support our domestic same store sales have remained positive during the first four weeks of our second quarter, which represents an acceleration and the two year comp.
We are also pleased with the performance and continued recovery of our strategic international markets, which like other global brands have been more impacted by the pandemic over the past year.
Our timely investments in 2020 and have helped position in these markets to emerge in a position of strength.
The events in 2020 validated our growth strategy, which will be focused and markets, where we can have a premium brand positioning and care and can operate.
High off premise business.
As such we will continue to be very strategic and which markets, we focus our resources and efforts.
And example of this is the exciting announcement yesterday of our plans to take Wingstop to Canada.
This new development agreement is intended to yield 100, new restaurants over the next 10 years.
Canada is a market very similar to the U S debt has seen high growth and off premise and supports our premium brand positioning.
Canada will be the first market to take our domestic digital platform global something we expect to pay significant dividends and the future.
The validation of our international strategy and success and our strategic markets like Mexico, and the U K has translated into encouraging progress and our business development pipeline and other parts of the world.
A significant contributor to our results has been our leading restaurant technology platform.
And over the past few years, we've been making investments and our digital platform to sustain a best in class infrastructure, which have paid off well and digital sales mix has sustained above 60% over the past year, demonstrating a high level of stickiness with our guests and the high quality of experience they have with our digital platform.
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But we won't stop at 60% plus we have a stated goal of digitizing every wingstop transaction and believe it is important to protect our investment and digital foundation to operate a global restaurant brand.
We believe having a global mindset and approaching these solutions from a global standpoint will give us a competitive advantage.
As a result, we are doubling down on our technology efforts and we will be investing to elevate our capabilities in this area.
We are embarking on a multiyear project that will take our digital capabilities to the next level.
During the next five years, we plan to invest significantly to execute initiatives that center around first globalizing, our best in class domestic digital platform to ensure a blueprint for success for our international business.
Second modernizing and building, a leading business intelligence platform and.
And third elevating and advancing the into and customer experience.
In 2021 alone, we expect to invest over $10 million and capital to establish the foundation for this transformational approach now.
Now is not a time to rest on our laurels, but instead, we must invest.
We believe that brands that have gone before us regret not making such an investment and realize how hard it is to unwind multiple platforms all over the world. After the fact.
We're at another inflection point on our business and believe this critical investment will protect and grow our leading digital position well into the future.
I'm really excited about the future of our brand and our continued efforts to position our business for long term growth.
Our two year same store sales growth of more than 30%.
Strong <unk> of $1 5 million and opening 100, net new units and just the last two quarters gives us confidence and the road ahead.
We remain confident that our long term strategic focus will continue to reward our shareholders brand partners and team members as we continue on our journey of becoming a top 10 global restaurant brand.
With that I'd like to turn the call over to Michael.
Thank you Charlie as you saw on our press release and from Charlie's remarks, we had an outstanding first quarter, we grew royalties franchise fees and other revenue by $7 $4 million not only was this due to domestic same store sales growth of 27% and 165 net.
Franchise openings since the year ago comparable period, but also due to the strength, we are seeing and non comp restaurants, which are well above $1 $2 million and average unit volumes as they enter the comp base to put this into perspective, the 2019 vintage generated year, one average volumes.
<unk> of just over $900000 all while the investment has remained relatively the same.
Company owned restaurant sales increased $2 $3 million due primarily to the same store sales growth of 13, 4% driven by a healthy mix of both transactions and ticket growth.
Cost of sales as a percentage of company owned restaurant sales increased by 220 basis points compared to the first quarter last year bone in wings on the spot market increased more than 50% year over year, but the combination of our data driven approach to menu pricing.
And the wing price mitigation strategy in place with our largest poultry suppliers helped to effectively lowered the cost of wings relative to the implied market value.
The effective year over year increase and the price we paid for wings was 25, 8%.
Importantly, we were very pleased to see leverage on both labor and other operating expense lines, helping offset some of the inflation and food costs and demonstration of the strength and efficiency of our model.
And until we see on marks change and the availability of labor for poultry producers a labor shortage that we believe is largely fueled by the amount of government stimulus, we anticipate that wing prices could remain elevated for the balance of 2021 for modeling purposes, We expect food cost for our company owned.
Restaurants to be approximately 42% for fiscal year 2021.
As you likely saw on our release, we have made a change and our reported SG&A numbers to provide more clarity into our core SG&A. We have reclassified head count related expenses associated with our national advertising fund into the advertising expense line on the P&L both for the current period.
As well as prior periods to provide apples to apples comparison also moving forward the revenue and expenses for our annual brand partner Convention will no longer be presented growth on the P&L with an equal and offsetting amount and both revenue and SG&A again, and an effort to provide a clear picture of core <unk>.
As for the first quarter SG&A came in a little lighter than we had anticipated as we see a competitive environment out there for top talent, particularly in the area of technology and area, where we are investing.
However, we expect SG&A for the year to fall within our prior guidance when adjusted for the National advertising related head count re class to advertising expense previously mentioned.
We do not provide quarterly guidance, but as for the cadence throughout the year, we expect SG&A to be relatively consistent for each quarter for the balance of the year.
Please refer to the Investor toolkit under Investor resources, and our IR site for additional information and a reconciliation of prior periods to conform to this presentation.
These recast amounts had no impact on consolidated operating income balance sheets or statement of cash flows.
Our ability to build cash on the balance sheet as a result of our asset light model combined with industry, leading results enables us to continue to make the necessary strategic investments in technology and people to grow the brand and maximize shareholder value.
The investments and our technology stack have enabled a world class digital platform, which now handles over $1 billion and annual digital sales and.
And you heard from Charlie we have kicked off a multi year project that will significantly boost our digital tech and business intelligence capabilities and 2021, we expect this investment to be approximately $10 million largely in the form of capital expenditures to support these initiatives our SG&A.
<unk> has contemplated expenses associated with this technology project.
As we have noted over the past year, it's not just the strategic tech investments we've made over the years.
It's our people who are behind Wingstop stellar performance and 2019, we acquired a 78000 square foot state of the Art Office building and then 2021, we are investing approximately $10 million and capital to ensure this space is an environment that supports our next phase of growth position.
For us to live our core values on a daily basis and attracts top talent. We are excited to have a space that represents the growth and pride, we have and the Wingstop brand.
Now turning to guidance as noted in the release. This morning, we are reaffirming our target of mid single digit domestic same store sales growth for the three to five year outlook.
And we are adding unit growth guidance of 11% plus for fiscal year 2021, we.
We estimate reported SG&A to be between $64, eight and $66 8 million compared.
Compared to $61 1 million for 2020 note. These estimates and prior year amounts now exclude brand partner convention and advertising expenses, but continue to include our stock compensation expense, which is estimated to be between nine 7% and $10 $2 million and 2020.
One.
We remain committed to driving shareholder value and returning capital to shareholders through our quarterly dividend, which is targeted at approximately 40% of free cash flow.
Our board of Directors has declared a dividend of <unk> 14 per share of common stock. This dividend totaling approximately $4 $2 million will be paid on June 4th to stockholders of record as of May 14th 2021.
We are extremely encouraged by the continued strength of the Wingstop business model as we look ahead to the balance of 2021 and beyond we believe we are well positioned for continued growth and achieving our vision of becoming a top 10 global restaurant brand and with that I'd like to turn the call over for Q&A.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.
And the first question will come from David Tarantino with Baird. Please go ahead.
Hi, good morning, and congrats on a great start to the year.
My question is about the.
The dynamics around wing costs and your supply arrangements, so I guess.
Michael I think you mentioned that you expected your food costs to be around 42 per cent for the year and thats.
Most of what you did and the first quarter. So is that meant to imply that the supply arrangement you have and.
And place is expected to continue for the balance of the year and and if so could you talk about kind of win win that contract might.
Might expire or that arrangement might change.
Good morning, David Thanks for the question, Yes, I think I think for US obviously, we're going to do everything we can to mitigate the impact of inflation on on food cost. Obviously these are unprecedented times that we're in and I think the real question for us is around.
Whether or not there's going to be additional stimulus and the implications of that on the labor market, particularly the labor market for our poultry suppliers, but we feel confident that we.
We've got the right strategic partnerships with our suppliers and we have assured supply and we're going to continue to lean into that but we feel comfortable as we sit here today with our ability to to manage to manage to the number we guided to on food cost of roughly 42%, but again I think.
The X factor, if you will is whether or not theres any further stimulus.
Fair enough and then Charlie.
Sure Michael.
The elevated wing costs, obviously, some of that's being offset by by.
And by leverage and the rest of the P&L.
For your franchisees, but can you just maybe talk about how wing cost inflation is.
Affecting or not affecting the psyche of franchisees and their willingness to continue investing and new unit development.
Hey, Good morning, David I think a couple of things to keep in mind. If you look if you reflect on Michael's comment about what we expect the balance of year to be as it relates to food cost.
Those that level is not something we haven't seen before we've seen that in prior years and in fact, we have seen more impact to the P&L and prior years associated with wing inflation and I think the work we've done to mitigate.
The earn and Bury cost of chicken wings with our strategic suppliers is important.
And recognized by our brand partners I think second to that the <unk> growth and achieving our $1 $5 million Adv genera.
Generates a lot more cash dollars to the bottom line, which we believe is significantly different from what we saw on prior years, when we had inflation like this.
And is continuing to fuel growth.
And the business so.
I think the combination of both of those as important and yes, there is leverage but I think the substantial growth and the fee and the absolute dollars to the bottom line are what give us confidence and the continued growth algorithm that we're seeing.
Makes sense. Thank you very much.
The next question will come from Andy Barish with Jefferies. Please go ahead.
Hey, guys.
Congrats on the development pipeline building wondering if you can offer.
A little bit more color on.
And of that the cadence of development. This year I know typically thinking about the domestic business and <unk> is the highest but you're off to a good start as you mentioned it.
Even if you straight line the first quarter year.
Through every quarter, you are still well above.
The 11% plus target. So just kind of wondering if there were some pull forward or pull back I guess from last year and for the first quarter and then things moderate just a little bit more color on the on the cadence of openings this year domestic wait place.
Good morning, Andy Yes, the cadence obviously is a little different at the start this year there was.
Some expected pull forward in Q1 associated with the complete shutdown in Q2 of last year and we saw some of that but we also would reinforce the fact that our pipeline for development at the beginning of the year was extremely strong a record high of over 700 restaurants and the pipeline.
So that is fueling our strong.
Strong development and our guide towards the 11% plus number.
And we won't see and even balance throughout the year, we never do we usually see a little softening and that around the third quarter, but a strong fourth quarter as typical for us. So how do you think the cadence is a little different than last year and hence why.
Guide us on the plus side of 11%.
Okay, and then just a quick follow up on.
And the international side of things, which was off to a little bit of a slower start.
Do you still expect gross openings too.
Exceed last year's levels or kind of get back to that 30, Mark you were running at prior to prior to the pandemic.
Yes.
And excellent question, we do expect the gross openings to be consistent with what we've seen in prior years. The pipeline is still strong and as these markets are emerging.
And now and starting to pick up their pace, we're seeing development activity follow suit with that we did note some closures in the first quarter.
We would expect more of those to get the net number.
Down a little bit from what we've done in the past, but some of those are specifically associated with the impact of the pandemic and the prolonged closure of the restaurants.
On a gross basis, which I think is the most important metric we expect it to be consistent with prior years.
Okay. Thanks, guys.
The next question will come from Andrew Charles with Cowen. Please go ahead.
Great. Thank you Charlie last quarter, you spoke about your aspirations for mid single digit comps in 2021, and curious how you rate your confidence and this aspiration now versus 90 days ago, recognizing as you said that theres been a temporary cho from stimulus impacting the industry over the last months.
Well, yes, I'm still confident and our long term.
Near term guide of mid single digit comps for the year.
Yes.
Made note and the commentary that we've seen positive results to date this quarter.
And and acceleration in the two year quarter to date as well, which are indicative of what we believe is one pulling all the levers that we knew we could just to reinforce we had a surplus of advertising dollars coming into the year, we strategically place those during this timeframe to make sure that.
And we really pushed hard during this really tough lap that we had from last year's performance, especially in Q2.
And then of course, the we couldnt predict exactly what or when the stimulus would occur, but obviously as youre seeing with so many other brands. It's fueling strong performance and I think our only caution there is to make sure that everybody knows that some of that stimulus is fueling not only the top line.
But it impacts.
So many other parts of the industry right now and so.
We feel very confident and our long term outlook.
Especially even related to this year, but note that not knowing when we're going to stop providing stimulus into the market will have an impact on.
And how the topline will look for the balance of the year.
Okay. That's helpful. And then just one follow up on that long term outlook. What was your mix of apologize I missed this but what was the mix of delivery sales and <unk>.
And we saw better than expected other operating expenses <unk>.
I was curious if that meant that the mixed decelerated from 25% you saw on the back half of 2020 and just.
Longer term, how do you foresee the mix of delivery sales and settling out relative to the 15% or so that was running immediately before the pandemic.
Well, we've been running and the mid twenty's ever since the beginning of the pandemic and that was also our launch of delivery nationally. So prior to Q2 of last year, we were still ramping up delivery.
We did not see any sort of shift and the delivery mix during the quarter.
And that would have an impact on the P&L.
P&L results are strictly because of our strong topline performance and the mitigation strategies.
Strategies, we put in place too.
Food costs, so long term.
Notice the investments in technology that we are going to make to continue to drive a digital transaction of which we believe delivery will be a sizable portion of those digital transactions as it already has been.
And expect it to grow over time, we don't expect it to subside back to where we were pre pandemic for any reason.
Thank you.
The next question will come from Michael Tamas with Oppenheimer <unk> Company. Please go ahead.
Hi, Thanks, good morning.
You mentioned that the first quarter selling your highest customer retention through your digital platform and is there any way to put that into context has it been building over the last couple of quarters or was this really a big change and that trend.
And then part of that can you talk about maybe what you've changed to allow you to achieve that and what does it tell you about how you can sort of manage your business going forward. Thanks.
Good morning, Michael Thank you.
Yes, the retention levels, we are seeing higher retention levels now and the way we measure that is.
And how often they come back within 90 days, if they're a new customer to the business and I think we mentioned last over the last few quarters that we've had a substantial number of new customers coming into our business that are fueling this database and that's growing so fast so our efforts have been placed on making sure that we.
No a little bit about who they are so in many cases, we will append information to them. So that we can understand their preferences better we'll invite them back more aggressively than we have before and I think we are starting to see albeit very early signs that we are seeing some momentum gaining because we believe.
<unk> that if we can get those guests not to just be a.
Once a quarter, but even more frequently than that a guest of wingstop. It can have a meaningful impact on our top line performance. So it is a big lever we're pulling.
And we're applying a lot of resources to it and we have seen the effectiveness of that strategy start to take place during the first day and early second quarter.
Awesome. Thanks for that and then you talked about using some of that advertising surplus leftover from last year and the early part of 2021 here and certainly way you can frame up how much of that extra surplus you've used.
Whether either qualitatively or quantitatively.
Yes, qualitatively a big portion of it I'd say, if we carried that roughly $11 million into the year from that surplus on.
On the balance sheet.
More than half was used and the first.
Media window, which is what we're in right now and we do two large windows a year one starts right around March madness and carries through and into June and then the other one starts later in the year around September late August September and carries into.
Late October early November so we've deliberately put more of those dollars and this quarter, but we have moved them throughout the year.
Perfect. Thank you.
The next question will come from Brian <unk> with Morgan Stanley. Please go ahead.
Hey, good morning, guys.
Maybe just first question on the Canada agreement.
Well those stores kind of look similar to the U S and well kind of the market on trade approach be similar to the U S. Obviously I know you you approach certain international markets very differently and the stores look different but just curious on how kind of the approach. There compares to some of the markets you're already on.
Good morning, Yes, I think there'll be similar.
In terms of their look and feel to the U S. I think there'll be a blend of for instance, what we've experienced in the U K in terms of the strategy for penetrating a market like Canada and the major metros first.
Youll see perhaps a high street location like we did and the UK followed by a series of restaurants that surround that and those could include alternative formats like ghost kitchens, and so we're adopting a strategy that not only is one we've always had and the U S, but applying as well some of the strategic thinking.
And that we've learned in Europe as well.
Great.
Maybe it was the question and then on the technology investments you talked about.
And what will that kind of cover in terms of.
And what kind of software where you'd be buying versus perhaps what would you be building is it a pretty substantial head count increase and is that something youre going to do kind of mostly this year or will it be more spread out.
Yes, we want this well we know this to be a multi year approach.
And we this is the first year it will involve capital expenditures to develop software.
We may acquire some component parts.
Or develop Apis that connect with.
Leading software providers for component parts of our tech stack as we move forward.
And it will involve additional head count, which Michael called attention to.
And is factored into our SG&A outlook for the year already.
But yes, I mean, we expect that we will be in a sense rebuilding the stack.
To make sure that it is one that is scalable globally.
Much of our component parts and the domestic platform do not scale internationally and we want to develop a single global Tech stack with this project. So it will take US a few years to get that done and the investments and that will continue for the next couple of years as well.
And incorporated into that will be some head count necessary to support the component parts of that technology for our brand partners, both here and the U S as well as overseas and I'll I'll.
Say that some of this is the customer facing applications and the infrastructure underneath that also parts of this will incorporate <unk>.
Robust business intelligence platform that.
Will make us a best in class brand as it relates to the information that we can gather from our systems as we continue on our journey towards digitizing all of our transactions.
Thank you.
The next question will come from Chris <unk> with Stifel. Please go ahead.
Thanks, guys. Good morning. This is Patrick on for Chris I was curious if you could maybe give an update on how youre thinking about the reopening of dining rooms and within that Michael if it's possible to quantify the rough sales and margin impact and the quarter from from lower beverage attach.
Yes sure.
As it relates to dining rooms, I think the Q1 results and the comment we shared earlier about.
Quarter to date being positive I think really suggest and support the case that we're not really and a rush and we do have.
Roughly 100 restaurants, and the system, where brand partners have requested and we've improved them to open dining rooms. The results there on the overall business I share mix theres not a material impact that I would call out so to your second part of your question.
I don't know that I would model or expect a material change to the results and if anything it's really supported the case for kind.
And kind of what we're seeing and hearing from brand partners about even a smaller box and leaning into off premise as the future for our business and so we're not in any immediate rush or hurry to reopen our dining rooms, and we're going to continue to monitor the situation and assess as we as we progressed through the year.
Great. Thanks, that's helpful. And then just one follow up pertaining to potentially delivery, we heard a lot about staffing issues and just curious if youre seeing anything within door dash and in terms of not having the delivery drivers and drivers available to meet demand or anything else that might be causing any issues there.
Yes.
We are certainly aware that.
The market is difficult for staffing on all fronts.
Driven by the fact that and we have this huge stimulus.
Creating challenging wage rates comparisons if you will by way of it and so.
And with door Dash in particular, we're we're not experiencing anything that's impacting the business I know they've been challenged by it but overall our business performance I think demonstrates that they've been able to keep drivers staffed.
And supporting our business.
The next question will come from Michael <unk> with Goldman Sachs. Please go ahead.
Hi, Thanks for taking the question so I had a quick.
On the learn a little bit more about the menu and we saw that you guys had a launch that 60 and 99 bundle of boneless wings and I was wondering how does that how has that affected your shift maybe and bone and mix amongst consumers and whether you guys are looking more kind of to the menu.
Now you guys have done the test on size.
Continue to offset that volume pressure. Thanks.
Yes, we've had that bundle and bundles like that in the mix over the years. It does have an impact on driving more of a mix of boneless wings over the bone in wings.
And that's been effective it's been in place for cash a little over a year, if not two years on and off and our system. So it's.
It's a good driver of mix shift to help take some pressure on food cost, but at the end of the day, our customers still see us as wingstop and they like the bone in wings and so.
It's embedded the impact of that is embedded in our food cost numbers that we project going forward.
Thanks.
The next question will come from Joshua long with Piper Sandler. Please go ahead.
Great. Thank you for taking the question was curious if you could comment on your progress.
And attracting or getting access to some of those more heavy <unk> customers or users of the <unk> segment that might not have frequented rings wingstop and the past we've talked about this at the analyst day, and there was a nice opportunity for that and so curious if you.
Leaning into the digital and then also with the Inc.
Increased <unk> and <unk>.
Placements, if that's allowed you to get access to them at the same rate that you expected if you've been able to accelerate that and you sort of update there in terms of that customer segmentation would be very helpful.
Yes, definitely our growth over the last year or two has been driven primarily by.
Acquisition of new guests and our clear target for our advertising was that heavy <unk> user that just either hasn't tried wingstop or doesn't use us as frequently and so our frequency rates are pretty consistent quarter in and quarter out, but what we're seeing is all of these new users coming in and then our job.
Now as to leverage that platform, we've talked about our CRM platform to engage those new users and bring them in and increase their frequency, which is part of our it's not only a key part of our strategy, but it's also something that we believe is working really well as demonstrated in the first quarter, our retention rates have improved to 12 month highs.
So.
That is clear our advertising is clearly pointed at those.
And those heavy <unk> users and bringing them into wingstop as an alternate alternate occasion for their for their dining needs.
Thank you for that and one follow up if I might just to clarify the positive comps to date here and the second quarter, which is obviously very exciting when we think about the prior year period, the QQ and <unk> can you remind us the cadence of kind of progression of debt near 25% comp that you posted for the quarter.
Yes to give you a perspective last year. We did note in April our same store sales grew by 33, 4%.
And during that timeframe, we experienced extraordinary.
Comps and.
Some of that carried through the rest of the second quarter, and then into Q3 and Q4, it started to taper off but that second quarter comp being north of 30 was a big.
Mountain to climb for us this year and I think we've been able to demonstrate that we had all the right levers in place so far to do that.
Great. Thank you.
The next question will come from Jake Bartlett with true Securities. Please go ahead.
Great. Thanks for taking the question.
My question was about check and traffic and.
And whether youre seeing any change there is the check starting to normalize a little bit kind of being made up by traffic or any any change and those dynamics.
As expected Jake we have seen when we started rolling over the.
The impact of the pandemic and the shift away from dine and occasions.
We immediately saw a check lift last year that was associated with that because we had for all intensive purposes eliminated a bunch of smaller transactions that were dine in but replace those with.
Higher ticket average carryout and delivery transactions. So as we're lapping that performance, we did expect to see the check growth.
Slow down, but we are seeing good strong transaction growth and the business is.
Well today.
And I'll note without open rate on.
Great and then my follow up is on anything you can you can say regionally.
And markets, obviously are different points of the reopening.
And if the economy.
And any any variances there and then maybe in the context of debt.
You could comment on maybe why the company same store sales is materially below where the franchise franchisees are doing.
Yes, yes, so I would say very typical for wingstop over the years, we don't see much regional variation the only wanted to call out in the first quarter would be the winter storms that impacted primarily Texas and the southern plains.
Had a negative effect, but I think a lot of that was reversed by the stimulus. So we didn't see that the net of those two was meaningful to the performance of the company during that timeframe, but regionally otherwise everything is pretty consistent I'll call attention to the company owned restaurants, we consistently see positive <unk>.
Rose across all vintages of our restaurants and that has continued to play out.
Through this timeframe.
However, these company owned restaurants tend to be older.
And then most of our average restaurants, just because they are in mature markets like Dallas and.
Las Vegas.
Their performance, maybe a little bit softer, but I don't think thats indicative of anything otherwise as compared to the rest of the business.
Great. Thanks, a lot.
The next question will come from James Anderson with Norse Northcoast Research. Please go ahead.
Okay. Thank you for the question I wanted to drill down a little bit more on the growing number of clients and your digital database I Wonder if you could give us a sense of who these clients are whether they are heavy users.
Users, new users and what strategies, you're going to deploy to try to increase free.
<unk> for your engagement, especially as we lap or get through some of this government stimulus and then I do have a follow on.
Thank you Jim to reiterate what I mentioned earlier and I think the question was asked about these heavy <unk> users as a target for our business. We have definitely seen a lot of net new users that fit that profile. So a heavy <unk> user tends to be a little higher and income than our core user.
And and uses <unk> platforms more so than our even our core user does those were and attractive target for the brand and we're bringing them in and.
Large numbers, we're growing just pure new customer counts.
Our strategy to retain them as mentioned before is to incorporate our CRM platform, which provides one to one messaging to those guests to encourage them to repeat that first occasion and come back to Wingstop and our goal is to get them in and certainly within 90 days, but to convert them into a heavy user which might use us.
As many as five times and a quarter. So our strategies are well in place. They are effective and as we noted a 12 month high on our overall retention rate.
Okay. So these are these new.
Wingstop users are coming into your system is relatively light wingstop clients and the idea would be to move them up to heavier engagement overtime is that the right way to look at it yes.
Yes.
Okay and I just wanted to clarify the comp to date for company operated stores.
And the current period is that also flattish.
Per the prior year.
Hey, Jim This is Michael we didn't disclose the company quarter to date number obviously.
And an area, we want to highlight our focus primarily because its 30 restaurants out of the whole system and Theyre doing $2 2 million and <unk> and so really what we're focused on is the broader system. The health of our franchisee base, our brand partners, which is really kind of the long term story here, that's going to continue to help feed the unit.
Development pipeline that we talked about earlier.
Understood.
And I can just add one more quick question regarding your Canadian development are the royalty rates on that.
<unk> comparable to the rates we see.
To date.
And they are yes.
Alright, thank you.
The next question will come from Todd Brooks with CL King and Associates. Please go ahead.
Hey, Thanks for taking my questions first and this follows up on the Canadian deal that was announced this week and Youre looking for the other countries that were highlighted as kind of early access to drive international expansion are you looking to structure those with this type of larger and <unk>.
Astro franchise type of structure after striking the deal on camera.
We are we would call it a master development agreement. So it's one single operator that opens and develops restaurants and the market. There are no sub franchise specific considerations and these deals.
Okay, great. Thank you and then.
Second question, if I may.
You talked about your success and mitigating wing cost inflation and interest.
And that raw, 50% type of increases that you've seen and the R&R Barry.
When and.
And it's turning that discussion about new entrants theres been asked over the couple of quarters.
Into a different type of discussion the competitive advantage that the Wingstop brand has.
With the ability to mitigate those wing cost and how do you think new entrants are.
Dealing with this do you expect to drive some people out of the wing category that kind of flooded and do it with vertical brands and this persistent pressure on wing cost across fiscal 'twenty one.
Yes, so excellent question.
Again, I would go back to the competitive dynamics and if I were in the shoes of some of these other brands I would probably do something quite similar but we do expect that at these elevated prices it will be very difficult for them to blend that into their mark their desired margin structure.
And if that's the case then should take some pressure on chicken wings for the balance of the year, but I will say that one of the other material factors is not just the competitive nature.
And as much to do with the impact of the government stimulus and <unk>.
Creating an artificially high wage rate that is competitive to the people that are necessary to actually process chicken and so the absolute number of chickens that are being processed as down that's why you see pressure, even and the sandwich business and everywhere else on chicken right now.
Labor shortages are the are the real challenge for dealing with and so.
Dealing with that and and of itself would would alleviate some pressure on the market on its own.
And because theres just not the volume of product out there before but I think our strategic positioning.
Positioning our great partnerships that we have with.
And so very large chicken suppliers affords us the opportunity to make sure that we have adequate supply to us to drive our business at a at a reasonable price.
And when the market does subside and demand for those wings goes down as we reopen the economy and get restaurants back operating again wink.
Wingstop will always be there with them to continue to not only grow but be buyers of chicken wings.
Okay very helpful. Thanks, Charlie.
The next question will come from Peter <unk> with BT and EE. Please go ahead.
Okay.
Great. Thanks for taking the question I just wanted to come back to the conversation around delivery.
You give us an update on on how much of the delivery mix now is coming through.
Your own website your own App versus your third party partners.
Yes, it's been hovering around 70 30.
The marketplace too.
Wingstop wingstop so.
That's been a consistent mix.
Great and if I could just follow up on that do you guys see any crossover and customers and I don't know if you get the data to see are there any crossover between those are the customers coming through.
Door Dash are they are the unique or do they do you see them come to the Wingstop website as well.
Well I think our peer desire is that they come through the Wingstop website, but the way we've established this.
And we're a little bit agnostic as to which which platform they come through what I will say is.
And that they enjoy a more competitive price if they come through wingstop dot com and through the marketplace and so our price differential creates an incentive.
For them to use the Wingstop platform and I also would submit that it through our CRM outfits efforts, we will be pushing more and more of them into that Wingstop platform then through the marketplace.
Excellent. So just lastly, so you will be will you be marketing that going forward to try and kind of shift that is that how we should shift and mix a little bit more towards wingstop is that how we should understand yes, yes, we've always market and anything we market directly from Wingstop is always pointing to wingstop dot com.
That would be in television advertising as well is in.
Our paid social and also our CRM platform. So we always point them there first.
Excellent. Thank you very much.
The next question will come from Chris <unk> with RBC. Please go ahead.
Hi, good morning, Thanks for taking the questions. So I wanted to ask about capacity and throughput and any updated thoughts on those topics specifically clearly the GAAP between system AAV company AAV implies significantly more capacity remains and the restaurants and curious to hear any updated thoughts around throughput and any efforts to <unk>.
Proved throughput now that system movies are above the $1 $5 million level.
Yes, we've we've commented many times in the past that we believe our restaurants have the capacity to go well above even the $2 $2 million, Mark where we see our existing corporate owned restaurants as our restaurants mature over time. They continue to grow it's a very unique curve applicable to wingstop and this industry.
What I can tell you is at our highest volume levels, we are operating.
Right at or above $3 $5 million out of the same platform annually. There are a handful of restaurants that can do that so we know that we don't have a capacity or a throughput issue.
We can as we get more volume, we can increase the number of deliveries each week to the restaurants and leverage that small space that we have very efficiently. So we have a long way to go and that domestic AAV before we'll hit a capacity constraint.
Got it thank you and then.
Just on SG&A and could you help us frame up how you're thinking about this line item longer terms relative maybe the total system sales just in light of the reclassification of expense related to advertising noted. This morning, and then just the commentary around investing in technology and growth.
Yes, Chris this is Michael.
We've historically shared the comment around anchoring.
Expectations around core G&A, where we've.
Historically had as you pointed out we backed out any head count related to national advertising.
As well as any convention related expenses now those have been removed from the number but we do also back out noncash stock based compensation as well and so when you get to that core SG&A number how do we think about that longer term is really a number that we've benchmarked to more mature brands, but it's roughly around two 5%.
System sales as is the target we kind of guide to.
Got it thank you.
The next question will come from Brian Vaccaro with Raymond James. Please go ahead.
Hi, It's Dan Docherty on for Brian. Thanks for taking the question I just wanted to circle back on international growth for a second.
You mentioned, the prolonged pandemic conditions as sort of a driver of the closures are you adapting your prioritization of certain geographies internationally as market dynamics kind of remained pretty fluid with the pandemic.
Yes, that's a fantastic question the answer is yes.
You may recall that a year ago, a little over a year ago, we did a big strategic study.
Globally to identify a few things number one and <unk>.
Markets fit the right archetype for us to go and.
<unk> develop in and which ones should we shy away from.
And our efforts and markets like Canada, the U K, our work, we're doing and China to continue to prepare for expansion. There all highlight what we talked about and Canada, which is the ability to have a premium positioning with a very high off premise mix, that's our sweet spot and we know just are.
Our early indications and the U K and the great success, we're having there would lead to that now some of these markets, where we are experiencing closures where markets that didn't fit that mix perfectly and.
And so we've had some challenges.
<unk> restaurants that are sit down oriented.
Or are in markets, where we don't enjoy that premium price position had been the harder challenges for us and Thats, where we are experiencing some closures, but for the most part markets like the UK, Mexico, our entry into Canada further expansion in Europe.
And parts of Southeast Asia, where we enjoy that price premium will be the markets that will stabilize and continue to grow for us long term.
Great. Thanks, so much on that and then just one item apologies if I missed this but did you guys provide any color on the cadence for sales within the first quarter.
We did not no.
Okay, great. Thank you guys.
Thank you Brian.
This concludes our question and answer session as well as our conference call for today. Thank you for attending today's presentation. You may now disconnect.