Q2 2021 Wingstop Inc Earnings Call
Good morning, ladies and gentlemen, and thank you for standing by and welcome to the Wingstop incorporated fiscal second quarter of 2021 earnings Conference call. Please note that this conference is being recorded today Wednesday July 28.2000.
And at 21 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 second quarter 2021and.
Earnings release of coffee is posted under the Investor Relations tab on our website at IR Wingstop dotcom our.
Our discussion today includes forward looking statements. These 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.
Poor results prepared in accordance with GAAP.
Reconciliations of comparable GAAP measures are contained in our earnings release.
Lastly for the Q&A session. We ask that you. Please each keep to 1 question and a follow up to allow as many participants as possible to ask a question with that.
I'd like to turn the call over to Charlie.
Thank you and good morning today, we are excited to come to you live from New York City of market with a lot of potential for Wingstop and 1 that many of you and the investment community call home.
We are excited by the reopening of this vibrant.
And we along with a continued return to our everyday lives as we attempt to gain better control of the pandemic and the U S. We.
We hope at the same can be said for all global markets and the coming months.
A year ago in the second quarter of 2020, we all face the challenging situation as we began sheltering at.
At home as COVID-19 affected all of our families.
The Wingstop was well positioned for this unforeseen event by way of our investment and technology and delivery platforms that we believed would create growth well into the future yes.
Yet we saw a significant acceleration and our business achieving our highest domestic same.
Store sales on record for a quarter at 31, 9% during that time.
I'm pleased to say in the second quarter of 2021 our domestic same store sales grew an additional 2.1% on top of that to lap that successful quarter in 2020.
This translated to a 34% growth rate on a 2 year basis, and an increase from our 2 year comp in Q1 of 36%.
The average restaurant and our system is now generating annual sales volumes approaching $1.6 million compared to $1.4 million at year ago.
This topline growth has provided relief from the record high prices, we have seen and bone in wings as our brand partners are able to leverage fixed cost and their P&L and maintained strong unit level economics.
Managing the cost volatility of wings has been a focus for us for a number of years, we know that the key to unlocking.
And of less volatile food costs for the brand is predicated on the utilization of more parts of the chicken.
And as many of you know we have tested the use of dark meat products for some time and at the end of the second quarter, we put those insights to work and launched a virtual brand called by stop.
The clever approach the launch was positioned.
As a unique and creative way to capture the attention we believe chicken thighs deserve.
As a virtual brand Tai stop can only be accessed through thigh stopped dot com and door dash and is available for carryout and delivery only.
In addition to what we're calling bone and thighs, we're also offering boneless.
Unlock yards, which are a juicy or flavor full complement to our traditional boneless wings.
Just as we pioneered wings as a center of the plate item. We believe we can also make size of center of the play at item and make them a fan favorite for a long time to come.
With our focused approach on ties as of virtual brand.
And we generated more than 4 billion media impressions with 3 billion impressions generated and just a few days after the launch.
We are just over a month in and are pleased with the performance of stopped so far and the response, we have seen from our customers is very positive.
Given the challenge.
Scott, It's all poultry producers continue to face with staffing and we anticipate wing prices to remain elevated for the balance of the year.
And our expectation is that cost of goods will operate at approximately 45% and the second half of the year.
And we anticipate restaurant margins of the promise of approximately 20% for the.
And second half of the year, which at this level. We believe represents the uniqueness of our operating model through the high productivity at generates due to our simple labor model.
While it has not been easy. Unlike other restaurant concepts, we have very streamlined kitchen operations with small roster sizes, which.
Of enabled our system to better weather the severe labor challenges some of our peers are facing.
This coupled with leverage familiar of vs approaching $1.6 million will help our brand partners continue to navigate this current inflationary environment in.
In fact, with this growth and average unit volumes up almost 5.
$500000 the cash flow at the restaurant level is even stronger than it was when we last experienced this elevated level of wing inflation in 2017.
And that strength.
<unk> generated another record quarter of net new openings of 45 restaurants, which translated to euro.
Year over year growth of 13.1% over the last 12 months, we have opened over 200 restaurants, the first time and our history. We've done so and a 12 month timeframe truly a testament to the strength of our model and our brand partners continued excitement to grow with wingstop, despite the cost headwinds.
We are facing we are confident and our ability to exceed our original unit growth targets for the year and as such we are updating our guidance for restaurant development growth to 12% plus.
Digital sales mix increased Q2 in Q2, reaching nearly 65% of sales.
Headwinds customer acquisition and retention has continued at strong levels with nearly 25 million customers and our database.
We are excited to see growth and our medium and heavy cohorts as we move new and light users of the frequency curve.
Digital sales continue to grow and are on pace to exceed 1.5.
Dollars annually.
These results have been due in part to our commitment to developing a best in class Tech stack.
As we communicated last quarter, we are doubling down on our tech and digital efforts and are investing to elevate our global capabilities in this area.
We have embarked on a multiyear.
Billion project, and we'll take our digital and tech capabilities to the next level as we continue to work towards digitizing every transaction and expand our fast growing customer database.
We continue to see growth and the delivery channel as well and it now represents 27% of our total sales.
The year up from mid twenties in Q1 of this year.
While the pandemic continues to pose challenges and all markets worldwide. We are pleased with the performance and continued recovery of our strategic international markets, the shifting consumer behaviors and 2020 validated our growth strategy, which is focused in.
In markets, where we believe we can have a premium brand positioning and can operate a high off premise and digital focused business and as such we continue to be very strategic and the markets, we focus our resources and efforts on.
1 of those key strategic markets as the U K and.
Market.
And with tremendous long term potential and of model market for our Western Europe expansion.
And the second quarter, we signed a minority investment deal with our brand partner and the U K. We believe this strategic use of our capital will strengthen the development pipeline in that market and we're excited to support our brand partners.
We work to achieve the potential for the Wingstop brand in the U K.
The validation of the strategy and success and strategic markets has translated into encouraging progress in business development and other parts of the world and we are confident and our ability to grow the brand globally and opportunity.
We believe comprises over 3000 restaurants.
Another key step and the international strategy was the announcement of our plans to enter Canada.
During the quarter, we announced the signing of a 100 unit restaurant development agreement and our hopes are to open the market by early 'twenty 'twenty 2.
As I'm also thrilled to announce that we have completed the remodeling of our new headquarters and Addison, Texas located just 5 minutes from our prior office and our corporate team members have now returned to the office.
Our people are the foundation of our strategy and this new state of the Art office space provides an environment that will support.
Next phase of growth and positions us to live our core values and attract top talent.
We're all incredibly excited to have a space that aligns with the strength and runway for growth from the Wingstop brand.
I'd like to come back to where we started today and discuss our excitement and bringing wingstop.
Art Aragon Hatton.
The New York market is 1 with a lot of white space for our brand.
In Manhattan, specifically, we've identified approximately 25 trade areas for our restaurants and we believe this is an opportunity to invest our capital to open company owned restaurants and deliver a great return for our shareholders.
This will be a combination of ghost kitchens, and traditional street side locations.
And a few short weeks, we'll have our first ghost kitchen opened here in Manhattan.
Kitchens will play a key role and the build out of our footprint and we're excited about the potential of this new restaurant format can offer.
In fact, we now.
Now have 15 ghost kitchens opened globally and while our brand partners enjoy best in class sales to investment ratios for traditional wingstop locations. We've.
We've seen ghost kitchens have ratios at 3 to 4 times stronger than our traditional locations.
I would also like to comment on our sustainability efforts and I'm pleased.
Since the launch of a webpage on Wingstop dot com dedicated to communicating our environmental social and governance efforts.
You've heard me talk about the Wingstop way of set of values of guides us and everything we do and this extends to our ESG practices.
At Wingstop, we are not just making.
And a pledge to improve we're proud to demonstrate our commitment to our community.
At 50% of our board of directors, 60% of our brand partners as we call our franchisees and the majority of our corporate team members all identify as diverse.
We are proud to.
2 of net of these metrics on our new site and I'm proud of the progress we have made and areas of diversity equity and inclusion energy and waste management and in our communities through the continued work of Wingstop charities and our team member of foundation, all of which will expand their reach outside of the U S.
And display since our IPO investors have enjoyed a total shareholder return of over 700%.
Our balance sheet is and a very strong position and we remain committed to returning cash to our shareholders and to that end our board of directors approved a 21% increase and our quarterly dividend to.
17 cents per share of common stock, which is a demonstration of our confidence and the business and the strong cash flow generation of our asset light model.
The future for our brand is exciting and we continue to position the business for the long term.
We remain confident in our strategies that will.
To say to reward our shareholders brand partners and team members as we are on our way to becoming a top 10 global restaurant brand and with that I'll turn it over to Michael.
Thank you Charlie.
We are pleased to report solid second quarter results, particularly when you consider.
At the comparison of Q2, 2020, we grew royalties franchise fees and other revenue by $5.3 million or 19%. The increase was driven by domestic same store sales growth of 2.1% and 184 global net franchise openings since the year ago comparable period.
And by the continued strength, we are seeing and non comp restaurants, which are now producing <unk> of $1.2 million as they enter the comp base.
Just a couple of years ago, our 2019 vintage generated $900000 and agencies during their first year of operations truly a testament.
Estimate of the strength of our model when you consider the initial investment of approximately $400000 has remained the same over that time period.
And just to reiterate this growth on top of of a 31, 9% comp last year resulted in a 2 year stack same store sales growth of 34%.
It's these best in class unit economics set of fueled the 45 net new restaurants opened and the second quarter and as Charlie noted over 200 gross openings over the past 12 months.
Company owned restaurant sales were flat year over year of due to a 1 year same store sales decline of 3.1%.
Net offset by 4 net new company owned restaurant since a year ago comparable period on a 2 year basis company owned same store sales grew by 21, 6% and unit volumes increased by more than $100000 now averaging $2.1 million.
<unk> beverage and packaging costs.
Cost as a percentage of company owned restaurant sales increased by 11, 4 percentage points compared to the second quarter last year, which at the time benefited from very favorable cost with wing prices as low as 99 cents per pound.
And and wings on the spot market have increased approximately.
<unk> of 125% year over year, but thanks to the price mitigation strategies in place with our largest poultry suppliers, our restaurants, we're able to minimize some of the inflation and saw and effective year over year increase and the price of wings of 65%.
The leverage you saw.
Both labor and other operating expenses as well as lapping team member incentives pay helped offset more than half of the increase and food costs as Charlie mentioned, we expect wing prices to remain elevated for the balance of 2021 and food cost as a percentage of sales to be approximately 45% for.
The second half of the year.
And the E U V growth and of coupled with our efficient operating model. We anticipate sales leverage will partially offset cost of these cost pressures and hold company owned restaurant margins at approximately 20% and the second half of fiscal 2021.
In conjunction with the Thai stopped.
On much of the first $100 million and Backstopped sells a royalty free as we build excitement and support to drive by stopped sales and position us to execute our whole bird strategy. The food costs for thigh stop is accretive even when compared to our long term target for food cost and we believe by stop.
Our of highly incremental occasion.
Moving to SG&A, we saw an increase of $2.7 million over the prior year, mainly due to investments and people to support our growth.
We are reiterating our guidance for SG&A as we continue to expect cost of $64.8.
Sales of $66.8 million inclusive of stock based compensation expense, which is estimated to be between $9, 7 and $10.2 million in 2020.1.
And that's where the cadence for the balance of the year, we expect SG&A to be more heavily weighted towards the fourth quarter and anticipation of increased <unk>.
<unk> hiring as we continue to execute against our previously stated strategy to invest and people as our foundation as we build towards becoming a top 10 global restaurant brand and.
Adjusted EBITDA grew 9.5% to $22.9 million and we recorded adjusted earnings per share of 30.
8 cents compared to 34 cents and the prior fiscal second quarter. Please.
Please refer to our SEC filings for a reconciliation between non-GAAP measures and their most directly comparable GAAP measures.
We remain committed to driving shareholder value and returning capital to shareholders through our quarterly dividend.
Levels at which is targeted at approximately 40% of free cash flow and.
Charlie mentioned, our board of directors approved a 21% increase and our quarterly dividend from 14th of 17 cents per share of common stock. This is a demonstration of the robust cash flow generation and strength of our business this dividend totaling a.
Ultimately $5.1 million will be paid on September 30 to stockholders of record as of August 13th of 'twenty 'twenty 1.
Our results from the second quarter continued to demonstrate the strength of our brand and growth strategies. We believe we are well positioned to execute against our strategic long term growth initiatives.
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. Please press Star then 1 on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys and to withdraw your question. Please press Star then 2 and.
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 congratulations on another strong quarter.
Charlie.
And you've had 2 straight quarters with.
Same store sales.
More than 30% over the last 2 years I guess 2 year basis.
And I just wanted to get your sense on the sustainability of that of that volume increase and and whether you think that this is just a new layer of business.
That you're gonna grow from from here or or whether you think there is something temporary and the first half of the year that might of elevated that trend.
Good morning, David Thank you.
It's interesting.
I think this is a new layer of business and I think it's best evidenced.
By the continued increases we see and our customer database and.
And all of the first party data that we have in front of US now exceeding 25 million unique users.
That gives us confidence that.
These new customers are coming in we can watch and monitor them carefully.
Because of our.
Business and digital presence and market to them to continue.
Continue increasing their frequency and at a minimum retain them as future customers. So.
And what we did see from quarter to quarter was an increase and the pace of.
Of our 2 year same store sales growth, which we were very pleased with and of course.
Rolling over of 31, 9% comp was no easy task, but we have the confidence we can do at and I think it just continues to boost our confidence and our ability to grow. This brand. We have so many levers in front of us the continued growth and digital.
The continued focus on CRM and working directly 1 to 1 with.
With this huge database of customers.
And then of course expanding into new markets additional advertising resources, we have all the right levers and there for this to be long term sustainable growth.
Great. Thank you very much.
The next question will come.
Pre Bernstein with Barclays. Please go ahead.
Great. Thank you very much at.
Question, and then part of your suggestion and just 1 follow up from.
Question standpoint, just looking at the unit gross and.
And so you're now talking about 12% plus this year up from 11 up from the long term turn.
From Jeff I'm, just wondering if you could provide some context for us and especially when you're talking about 200 at openings over the past 12 months, maybe context and to what discussions are like.
Yes.
Wondering is it as simple as you know strong comp momentum and the element of that you'd be at lead to more immediate excitement and push for greater openings kind of hub.
That comes about.
Whether inflation impacts of those discussions at all and then I had 1 follow up.
Thanks, Jeff it at.
I appreciate the question because it is the constant conversation with our franchisees about their economics and as you said and I'll repeat our <unk> now are approaching.
<unk> and bridge $1.6 million per restaurant, if you think back to 2017, when we saw.
Cogs inflation that kind of size of 43% food cost our cash flow characteristics of these restaurants are substantially stronger than they were then and.
And so we are having more of a cash conversation and then we are a margin conversation.
<unk> and I think it's important that we turned and our industry to get locked in on margins and percentages, but we take the dollars to the bank and if you look at the 4 wall economics of our average restaurant.
You see quickly that the returns are still quite strong.
During the last year, we saw such strengthening and the brand.
On average is 34% 2 year comp that our brand partners are excited about continuing to develop.
And we know that we've seen the cyclicality of wing volatility over the years and we will navigate through this 1 just the same end to end up on the other side looking fantastic, but I can't stress enough.
That even with these elevated food costs, we still are seeing extraordinary restaurant level cash flow, which is leading to our strong development and the pipeline and we anticipate and the future.
And then just a follow up on the.
And the XI launch and it's a pretty big deal.
For a brand name Wingstop and.
Our country and infatuated with wings to shift focus to price, we know, it's not new and that you've been testing and for some time, but I'm. Just wondering if you can give any day.
No color on whether it's feedback from customers and franchisees are.
What do you expect at the sales mix or maybe how you price at the cost structure.
Or anything along those lines to give some color.
The Si business were to succeed whether or not you'd be at.
I'm pleased with the accelerating mix on that front from a sales or at cost perspective.
Well definitely it has a real benefit from a cost perspective, because it helps us.
Achieve our goal of.
Of utilizing more of the chicken, which is critically important to our long term.
Supply chain strategy and as you know we've talked about this for years for the from the consumer standpoint, they are there they love the product.
As you said they are infatuated with this product. So we're excited about what the potential.
<unk> holds we did launch it and a very limited format. So it is only available.
For delivery or carryout through our through our partner at door Dash, we do anticipate that we will fold this product into our.
Wingstop menu in the second half of the year.
And then make this available to all of.
And whether you come in through Wingstop Dot com, <unk> dot com or in the restaurants themselves. So.
And we're excited about the launch as we mentioned we had a huge splash when we launched this <unk>.
Generally at a lot of traction against what would be of traditional launch of a new product and so I think it's going to build just as.
Of our GAAP the idea of chicken wings at the center of plate item built 27 years ago.
We're going to build this into our brand much the same.
Thank you very much.
The next question will come from Andy Barish with Jefferies. Please go ahead.
Hey, guys.
Okay.
Nice job Comping the comp I guess, it's always about the next quarter and just.
And wondering what we should expect.
In terms of at 2 year kind of deceleration as you know some of that.
And the check last normalizes and dining rooms reopen.
And.
And just give us a little a little color on kind of.
What what youre seeing and the business.
And as things.
Start to get back to a little bit more of a normal.
Good morning, Andy.
You know it's I.
And Buddy.
And my position or any of our peers and others and the industry would like to figure out what that idea of when do you get back to normal.
And because things seem to.
Continue to change every day, but we.
We do anticipate.
Still seeing a strong 2 year comp for the balance of.
The year certainly there is the potential for that to moderate just given our 2 year performance and the 1 year performance, but overall a lot of that has to do with macro events I think and the other piece that I would call out from Wingstop benefit.
Is that.
Last year we.
And we banked a lot of extra advertising dollars.
For the year that we've put into this year, a big chunk of those went and the first half to comp the comp as we just did and demonstrated we would.
We have more of those available and the back half of the year as well we continue to get much more premium placement of our advertising.
And then with this.
Growing very large database of new customers that are coming into the business our ability to continue to market to them and drive the business all become opportunistic for us in terms of driving our comp performance. So.
And I'm comfortable with where we've guided but I'd also say.
We are of a lot of levers as I mentioned before when I was talking to David a lot of levers in front of us and I think this brand has always been and a good position of having plenty of levers to drive growth as we continue to expand our footprint.
Thanks, Charlie and then just a quick follow up on.
Do you think.
Yeah.
Say that as the menu price.
<unk> is these days just given.
These increases and your main commodity but also just the industry.
Generally taking more price than we've seen historically.
Yeah, I mean, we have been.
Over the past few years taking.
<unk>.
<unk> thoughtful a series of price increases that get us 1 to 2 points of price a year.
At this year with the commodity inflation and generally with our pricing power that we know we have we have taken some additional price and I would expect that franchisees will continue.
And to do that.
In the coming quarters in reaction to the overall inflationary environment that exists today.
Thank you.
The next question will come from John Glass with Morgan Stanley. Please go ahead.
Thanks, very much Charles.
And just maybe expand on your your entry into New York I guess at.
And the urban core first of all do you expect that to be and entirely of company operated market are mixed market.
And then my impression was it was company led and why is that and.
And remind us how many of your stores are in urban core.
Of course, as part of that and experiment and think about how you can be more of an urban brand is at historically has been sort of suburban whether markets led you to this or is this sort of the first entre into at urban core market.
Hi, John Yes, let me, let me clarify your last comment because I think wingstop has always grown up as a very urban brand even since.
And if you always talked about and inside out strategy to our development and.
And New York, you would expect that we would start in Manhattan and work our way out, but instead, we've been in Brooklyn, and the Bronx, Queens and other markets long Island we've.
We've always had Manhattan sitting here and I think 1 of the challenges to Manhattan for anybody is and it's.
Since our IPO nearly high price real estate market.
But to answer your first question we.
We believe that it's well suited to be of company owned market.
We love the economics of Wingstop, and we love the economics.
Even more of that ghost kitchen concept and it's been our desire to hold this market.
Store for a company expansion, which we've done over the years.
And we wanted to make sure that we had.
Access to real estate that was.
Reasonably priced which we believe exists right now and this market and we also most importantly wanted to make sure that we had a good strategy and partnership.
Opportunity for ghost kitchen expansion as well as delivery.
And this market obviously has extraordinary density.
Delivery focus market that makes sense for us of what Youll see us doing is incorporating street site locations to demonstrate the brand, but really factoring in ghost.
At Baxter as a real key to our strategy the investment costs and those ghost kitchens is substantially lower than what it takes to open a new restaurant.
And so we think that this approach is going to be great and as a company owned market. It's a great use of our capital we think it'll have a fantastic return and we're.
Kitchen, and I did too.
And finally be in Manhattan, and very soon.
Thanks, and then.
Just on price up why did you launch that is of virtual brand at the intention was to integrate it back into the stores was at to generate sort of the buzz that you did was at more of that.
And it was maybe that you wanted to separate channels and does it at.
At any complexity to restaurants, and you are cooking to different parts of the birds cooking times is there any added complexity to adding size to the menu from an operational standpoint.
Yes, I appreciate that.
And it certainly was launched to make sure that we generated a lot of news and noise. As many of you have asked me over the last year or so.
And what's going on with all of these virtual brands that are popping up and and so we said you know what we can do that too and.
And we launched <unk> as a way to demonstrate that wingstop in effect is of great virtual brand concept.
We still have not opened all of our dining rooms. In fact, the vast majority of them are still closed and so our brand does operate primarily.
And a virtual sense and we're happy with that.
This is a great way to do at generate a lot of press as we talked about over 4 billion impressions and a 1 week time period was just amazing and I think it's good for the brand. So it worked.
<unk> felt that it was right to fold it back into the Wingstop brand.
As we establish the product and the positioning and and I think what we're hearing from our fans is bring it into wingstop, let's let's take this thing and run with it. So we're very excited about that.
The challenge of operations is zero, almost we had to add a couple of small wares.
Just to process the product but.
And once we cook and about the same amount of time as of bone and chicken wing. The boneless product Cook is exactly the same as our boneless white meat product.
So it fits beautifully into our workflow no hang ups right now, it's just about maximizing volume and using that to.
And I really free up the opportunity to get much better.
Pricing on chicken long term.
Thank you.
The next question will come from Nicole Miller with Piper Sandler. Please go ahead.
Thank you so much and just on the point of marketing and advertising he could just walk us through that the cadence of.
National TV advertising.
And maybe we could get the context of the base for 2019 weeks and then you had just mentioned a couple of questions ago of pull back in 2000 Twenty's of how many weeks.
And 2020, and then where do you stand year to date this year. Thanks.
Yeah, I would say.
And number of weeks is probably less relevant.
And then is the quality of the media that we're buying.
So we might be since 2019, 2 or 3 weeks greater than we were at that point in time.
But the depths of the advertising and measured by either how many.
And the piece, we are delivering and then the quality of the media that we're buying which is very premium this year. So premium when I when I say that means and this particular year. The best place to be is live sports and sports events.
And around content that is fresh and new of.
Theres very little so we.
TR careful and strategic and or by this year to make sure that we were showing up and the places we needed to be so in the back half of the year Youll, certainly see us prominently positioned against football and.
And the NBA has been strong for us we've been in and around soccer.
Over the summer months and.
We will continue that so it's less about the weeks and it's a lot more about the depth and the premium nature of the buy that we're focused on.
And then just as a follow up can.
Can you talk about how that's coming and not into the stores, but into the sales pace and I was looking back and I think.
Customer boxes, 3 and 4 and 7 and 8 where like the vast majority of it at 60% of sales and.
Box I think you call them 12, and 13 of our heavy <unk> users that you could tap into.
Ah you're accessing of those customers.
Absolutely we are in fact this database that we're building.
And that is 25 million people strong now in this database.
You can see clearly that the new customers that are coming in are those box 12, and 13 and for the benefit of everyone else that essentially equates to these heavy <unk> users that are not wingstop users of historically have not been they may be aware, but they they demonstrate.
Or light frequency with us and so our job and this premium placed marketing is to continue to drive awareness for those customers and a reason if you will a reason to convert and try and utilize wingstop and so once we get them now they can start to establish at 1 to 1 relationship and continue to grow that long term so that is.
And definitely working as we had planned that over the past couple of years.
Thank you and congrats on the quarter.
Thank you so much.
The next question will come from Jon Tower with Wells Fargo. Please go ahead.
Great just a few from me.
If I.
First a clarification, sorry, Mike I Might've misheard. This earlier can you give US you had mentioned that there is some royalty free sales on the Si stopped with the franchisees and I'm just curious I couldnt hear the exact level of sales that was and then just.
Following up on the on the food cost side I appreciate you guys offering.
I may have insight into where Cogs are going up.
Take out for the balance of the year.
And that does that contemplate.
And the mix of size sales kind of staying as is or moving higher as we move throughout the year and then just broadly speaking in your conversations with suppliers.
Are you getting any sense as to these wing costs easing as we move into 'twenty, 2 or is there a very limited visibility into any sort of.
Pricing beyond what we've got and 21.
Hey, John Thanks for the question and.
As it relates.
And to backstop sales, we did extend to our brand partners and agreement to offer them royalty free first $100 million and sales and that was really done just to create excitement within the brand partner community and a lot of support from what we think is going to be a long term win.
Brand and it and it plays a little bit into some of your other questions, but obviously as Charlie mentioned earlier selling.
Selling more of the byproduct back half of the bird really helps us lean in and advance that long term strategy, we have for supply chain around around whole birds.
And as it relates to the margin information.
And we provided for the balance of the year that does contemplate.
By stop sales mix and.
It won't be a material number.
And if it mixes of significantly different number from where we are today, but it is contemplated there and then lastly, I think we.
As we mentioned and are prepared.
For the remarks, we do expect to see the price of wing sustain through the balance of this year, hence the updates to food cost and 4 wall margins.
Okay, but you haven't had any conversations with suppliers about perhaps as being temporary beyond meaning and.
And it starts to improve and 'twenty 2 as perhaps.
Okay understood maybe this isn't a supply issue, it's more about potentially just getting the product out and about or is it more of a supply issue.
And there's 2 things and we've talked about it at a little bit before it's it's 1 of is obviously a challenge around labor within.
And plants and processing and the number of birds at the demand is therefore, but then secondarily. It's also of hatch ability issue that we are having those conversations with suppliers that they expect hatch ability rates to improve and 2022. So there are those conversations being had and the expectation is that.
At wing prices will improve.
And when we get on the other side of 2021.
Got it thank you very much welcome.
The next question will come from Andrew Charles with Cowen. Please go ahead.
And Michael just on I, just want to follow up on that last point just on the cost of goods guidance that was raised to 40.
4% from 42% I know last quarter, you talked about how this is a function of poultry plants not being fully staffed due to the supplemental uninsured and unemployment insurance.
From benefits and.
I would of thought that would of kind of continued to ease of stimulus that's being removed and several states with the federal curtailment of the supplemental fringe dollar week coming in September.
Are you seeing.
Turing wing competition weighing on wing costs versus your expectations from 90 days ago, and and I've, a quick follow up on that as well.
Hey, Andrew It's Charlie I'll grab this 1 just for a second.
I don't think the supplemental unemployment impact is being demonstrated in the market at this point at.
And it's very difficult to find people and I think we hear this from our suppliers you hear it from any industry everywhere you here at about microchip shortages and so on and so while it may appear that we should expect that to relax, it's not demonstrating itself and I think there's more money coming into the market by way of the.
It is tax credits and other ways to stimulate and stimulate the economy and that's presenting of the challenge for everyone on hiring and I think people's behaviors are changing as well so.
We haven't seen it come back yet we're not we're seeing some trickle effect and a few markets, but not overall.
And so.
So I just I wanted to clarify that particular point and then do you want at yes, no and I think beyond that Andrew there's been more of that we've gathered and learned from our conversations with our supplier partners just around as Charlie mentioned, the lack of progress that they are seeing around staffing levels, but then in addition to.
I'm, just learning more about hatch ability rates and and if you think about the overall supply of.
Birds in the market from that poultry industry to take 3% to 5% out and a short period of time on top of demand.
Outpacing supply it's going to result.
<unk> and what we believe will be sustained prices for wings for the balance of the year, but they are working on improving the breed stock for birds. The rooster stock. That's technically just underperforming these days and not being able to achieve the hatch ability rates at the industry has enjoyed over the years.
That's.
That's helpful. And then just a follow up on the on commodities as you hit the 1 year anniversary of the pricing mechanism.
Look ahead has there been any change and the structure of the price mechanism that you're utilizing I mean, obviously tremendous benefit.
And brand partners only recognized about half of the inflation on chicken wings for what it could have been.
Yes, Andrew.
No significant change to call out it's definitely a demonstration of the strategic partnerships that we have these supplier partners, we've been doing business with them for over 27 years now and it just really speaks to the how they reward wingstop for being a buyer of wings year end and year out not jumping into the mark.
Market, when it's on trend or popular and.
And we expect to continue to benefit from competitive pricing arrangements that we have today and Andrew I would add 1 more comment just to clarify from your earlier point, we don't see this this impact of wings as being of competitive pressure issue at all.
It is purely.
Bill has described.
The actual supply of birds is down because of these 2 factors you mentioned I just think it's important that we we just reinforced that message to all of you.
That's very helpful. Thank you.
The next question will come from Jeff Farmer with Gordon.
And what market. Please go ahead great.
Great Good morning, and thank you on the.
Last call I believe you guys mentioned that your franchisees were you said leaning into smaller restaurant designs.
With a greater focus on off from us So the question becomes or <unk>.
And you're beginning to see that work its way and.
And through the current restaurant design or are any 2021 and openings and the back half of the year gonna be and some form of of new designer or what can we expect heading into 2022 as it relates to the core prototypes.
Yes. It is definitely a trend we're seeing as we add new real estate of the pipeline.
And I'll call out of our Manhattan expansion and tell you that the average street side restaurant that we're going to be putting into Manhattan. Currently based on the leases. We have is about 3500.50 to 2500 square feet.
A lot smaller than what we're typically doing and I think youll see that trend continue.
<unk>.
And the country.
Okay, and then just as a follow up Charlie I think you were asked about this earlier and the call but on menu pricing.
Can you provide some details on hopefully at least where the company average menu pricing levels currently stand and and thoughts on private pricing power.
Moving forward.
Well I definitely believe that the brand has adequate pricing power to.
Continue to follow the inflationary trends that are in the market I think our approach will still be 1 that's a little more surgical it won't be.
Big chunk.
Price increase we've seen some other brands take but instead, we'll continue to do this very carefully and thoughtfully.
And with frequency at least through the next 6 to 12 months.
But our historical pattern has been to price increases of year as I mentioned before yielding 1% to 2 points of price that's been consistently and the.
Of a price.
That we've discussed over the course of the next 6 to 12 months that can pick up and frequency and a little bit and size just to accommodate some of the inflation, we're seeing alright.
Alright, thank you.
And.
The next question will come from Andrew Charles with BMO. Please go ahead.
Hey, good morning, I have a question on scale.
System sales of essentially doubled over the last 3 years and so.
And I'm wondering how that added scale and impacting our business and what types of unlocks of opportunities, it's creating for the system, maybe that we could think about.
I really appreciate that comment it is absolutely.
Correct, and we intend on continuing to see our scale grow and develop and I think.
When you think about <unk>.
Some of the current situation, we see in terms of commodities.
And the influence they have and our focus on for instance, and the supply chain yielding.
Absolutely whole bird strategy instead of just buying the commodities, what we want to make sure of is with our size and scale that we don't let and inefficient market dictate our margin structure and so we are going to be really focused on making sure that we put this brand in the position that it deserves with its size and scale.
And our whole nearly $2.5 billion of system wide sales.
And we should be in a position, where we can start to control more of that and.
And that's where our heads are focused I think that scale also plays itself out and technology and the advancement of technology as we mentioned, we're making a big investment.
And again, it's centered.
Gail and on control and making sure that we can.
The adjustments, we need to do to our systems too.
Consistently.
Deliver upon the expectations of our consumers and not just here in the U S, but on a global scale.
3 of our big strategies incorporate.
Our global supply chain, which is a key focus of global Tech stack, which we've already started the investment in and making sure that we become 1 global brand as a company.
And youre going to start to see this continue to evolve certainly we want those international markets to open back up.
And gain more traction as we.
Centered at but we've lost over the last 16 or so months.
And then Youll see wingstop really start to evolve into that global brand well on our way to be and 1 of those top 10 global brands, where system wide revenue should be substantially greater than where they are today. So hopefully that gives you some context on that.
Really helpful.
Colin and I appreciate and thank you very much.
The next question will come from Michael Tamas with Oppenheimer and company. Please go ahead.
Hi, Thanks, and you guys talked about your digital evolution and you gain more customers and launching sky stopped virtually so can you maybe first remind us where does your 20.
5 million customer database stand compared to a year ago or maybe at the beginning of this year.
And then what's shifting and your digital strategy and if you could highlight maybe some of those levers that you believe you have left at all thanks.
Yes that database and I don't have a specific number but I can tell you that even since the pandemic started back end.
At April of last year, we were adding new guests said at rate of over $1 billion of months, that's tapered a little bit over the course of the last few months, but nonetheless, it's been a substantial increase and.
So it's growing very rapidly I think the last report out we had a little over $20 million, we're now up to 25.
So you get a feel for and I think important.
Important to recognize to our digital mix is maintained and actually increased sequentially quarter to quarter, which we think is unique in the marketplace and worth worth discussion. So as we continue to evolve our approach we're going to behave a little.
Little bit more and of platform manner, and making sure that we bring guests closer to us that we spend more time, 1 to 1 engaging with them we've put a robust CRE.
Crem system on top of this to make sure we understand a lot more about who they are and driving.
Driving additional business and the future the way we can expand on that digitally.
As to identify their patterns of their preferences understand more about those customers and bring solutions to them that they that are tailored specifically to them so less of perhaps of a promotional.
And I'll approach, where we have to bring products to the table to demonstrate news and instead focus.
Pension 1 to 1 with each and every guest and that's where the future will be for this brand as we continue to invest heavily and our technology.
Got you. Thanks, and then just a follow up I think of as John's question on your New York City plant. You know are there other markets similar and New York City, where you're planning to do this strategy.
And how many units do you think annual and that that might be.
Hard to say on how many.
New units, we get but I think the demonstration of a partnership approach with some of the key.
Ghost kitchen providers is going to be to our advantage and we fit beautifully.
Those models, we can obviously expand them very rapidly because it doesn't take very long once once they've got the kitchen and place where in and they're they're yes. It takes us maybe 6 weeks to actually get of restaurant opened so we've really compress the timeline.
We already have a lot of experienced London is a great example, what we've done and London.
And to expand that market as rapidly as we have with both street side and Ghost kitchens is a playbook that we're using here in Manhattan.
Other markets with the potential for that Boston Philly San Francisco, we're already doing it.
Densely populated areas of Los Angeles, we have of ghost kitchen, and north and North Hollywood.
And we have 1 and San Francisco and Theyre doing great. So.
And we're really bullish on this opportunity, we like and we like what it presents for US it's a way to grow with scale quickly, but also we're going to be thoughtful we're not going to go swing the pendulum too far we like the balance of having some street side and these ghost kitchens complementing.
Element of complementing each other.
And creating some brand presence so.
Very excited it's a fun time, that's why we're here in Manhattan today, and we're going to we're going to spend some time with these restaurants and and getting this market open and operating.
Awesome. Thank you.
The next question will come from.
Chris <unk> with Stifel. Please go ahead.
Thanks, Good morning, guys.
My first question relates to just a development.
Do you believe the system just to kind of the worst of the delays from a construction and permitting standpoint, Charlie or franchisees still seeing those delays at various stages.
Yeah, we're not seeing delays.
In any markets I mean, we've had actually believe it or not and we've had 1 or 2 here in Manhattan, and quite frankly, but otherwise I think everything has worked out just fine and I think we're moving along just fine there is no real delays and those were those are a thing of kind of April may June last year, where people were struggling.
Struggling to kind of figure out how do they get out of.
They're they're local municipalities and get to work inside the stores and we use some very clever ways with our team to get permits taken care of but right now at all seems to be moving along just fine.
And labor shortages have been causing any issues with construction.
No.
No no we haven't seen at now we have.
We've got a really good group of contractors, we work with across the country that have been able to maintain staff levels and theyre busy but.
No we haven't seen any challenges on that yet.
And then just 1 last 1 on <unk>.
The strength Youre seeing from the ghost kitchens and I'm just curious if you could talk about the.
Strategy, where maybe franchisees might deploy those assets I was just wondering if you envision franchisees use and ghost kitchens is kind of of release valve for demand in certain markets just to improve throughput.
Well they already are I mentioned, a couple of them 1 in North Hollywood, 1 and San Francisco, We've got them all over the country. They are using.
And I think what we're going to do is be very careful about where we place the ghost kitchens and various markets throughout the U S versus our street site locations you have to have the proper balance sheet can't just drop them and everywhere we've learned that.
So look I think they're very excited about them for obvious reasons, you can invest and these things for.
A fraction of the cost of of street side location.
With comparable if not better rent structures and generate the same if not more volume and so the sales to investment ratios on ghost kitchens as we noted can be 3.
And 3 times better even even in some cases substantially.
Standard better than that of of traditional street site locations. So we are going to make those available and are making those available to our franchisees to continue their development.
Great. Thanks, guys.
The next question will come from James Rutherford with of Stephens. Please go ahead.
Thanks for getting me and I appreciate it.
You mentioned last quarter that you want to gradually migrate to more of a unified proprietary digital ordering platform versus I think some of the third party tools that you're using today and just hoped.
Hoping to understand where some of the tangible benefits that you hope to see in terms of customer experience or or.
As at a cost efficiency dynamic.
And from that rebuild over time.
Yes, you.
Articulated that quite well. Thank you. It is about scale. It is about globalization there is not a player today and some.
Some of the third party applications that has a.
True global scale out there and our goal is that whatever the wingstop presence is here and the U S would be comparable anywhere in the world and I think as Digitization is growing and becoming.
So much more prominent that's going to be important for us I think also we've seen.
Before us that have not invested in the global platform early enough and so theres little retooling that has to happen. If you go country by country. This approach allows us to scale globally, a comparable platform everywhere I think the other thing Thats important is control of speed, while we love the.
At.
And the stack, we have and it's been very effective for us sometimes speed to market on changes adjustments modifications that we need for our brand.
Tend to get dropped into the bucket that satisfies everyone not just what we need and so now we are we do believe that that's going to be of long term benefit from the brand as well.
Appreciate that as well.
Do you think about where this brand can go or is going over the long term and the aspiration to eventually be at 100% digital business.
What do you think the mix of ghost kitchen and versus traditional will be over the next 5 plus years.
And would you expect some potential conversion from traditional.
<unk> restaurants to go and ghost kitchens as leases naturally expire across the portfolio. Thank you.
Well I think the answer to that question is at an ever changing target.
And historically, we've identified what we call non traditional locations, which these ghost kitchens would be.
As being a meaningful.
But still a small portion of our overall mix.
Think of what we've learned and London.
What we expect to do and other markets around the world.
And I can change that mix over time.
But.
A market like Manhattan will be.
A 60.
At 40 split of retail sites to go and kitchen, and something like that more to come on that we may we may modify that London is following a similar footprint, but we still have all of the.
Markets out there that are not as densely populated as these are where that may or may not work for us.
So it would be of speculative answer to give you to tell you what the mix is but I think they have a real presence and <unk>.
And our desire by becoming a top 10 global brand is to get towards 6000 restaurants.
And theyre going to be a lot of ghost kitchens, and that 6000 and no doubt about it how many we just don't have a number on just yet.
<unk> very much.
The next question will come from Michael Ross <unk> with Goldman Sachs. Please go ahead.
Hi, Thanks for question and you guys touched on at really quickly there on the digital mix and pretty impressive. This accelerated can you dig a little bit more into the drivers of that specifically and and I know you mentioned.
And that delivery kind of uptick as well and and where do you think this might satellite as you kind of.
Go forward the back half of this year into 'twenty 2.
Yes.
We're really excited.
About our digital mix, increasing but it's been a part of our plan for a long time, we fully expect it to continue to increase.
As we go forward, bringing delivery onboard and effectively that was launched nationally just before the pandemic started and of course at accelerated but we didn't expect it to taper off we've anticipated that it would continue to increase and if you look back and time for Wingstop on our digital.
Journey.
Historically, we were increasing our digital mix about.
400 bps a year.
And it was sequential quarter to quarter increases just happening organically.
I think that's going to continue to be the case the more we focus our efforts on.
Our partnership with door at Ash.
Expanding the brand and markets, where that are more digitally focused and savvy.
And continuing to make sure that our technology.
Is right at the forefront in terms of.
It's it's relevance to the consumer and keeping the application.
Our key focus.
We will continue to drive and enhance digital into the future I think it's an important little stat, but I believe our total cash.
A portion of our total revenue now the mix of cash customers is down and surround <unk>, 15% of our total sales I think thats indicative of how this.
And this brand can really evolve to be a fully digital brand long term.
Great. Thanks, and then and 1 really quick follow up have you guys seen any change in transaction sides behavior is reopening has ramped or has that been pretty pretty steady since maybe earlier this year or even last year.
Well I mean, you do see a little bit of mix shift associated.
Individual transactions, we've said that many times when you reopen the restaurants however, the.
And the impact of reopening has been.
Minimal if anything may be slightly accretive to the comp, but overall, it's been pretty much of wash as we've seen these restaurants reopened and as of today.
And we're still only a couple of hundred restaurants that are actually reopened out of the <unk> thousand 500, and the U S.
The next question will come from Brian Vaccaro with Raymond James. Please go ahead.
Thanks, and good morning.
Today, there is Charlie 2 questions, if I could but first Charlie I was intrigued by your comment on you mentioned that the progress you made on international business development and it sounded like that might be and Asia or other regions could you just expand on that given how important of global development as to your long term story.
Well I think.
And I would call out 2 specific areas, although we're seeing interest all over the world.
Asia certainly is in a market that has a great opportunity for us we've talked about our desire to expand and China long term that doesn't happen overnight as we all know so it's going to take at some time.
But the other part is western Europe, we really believe what we've learned.
Already with our market entries and France, and the U K is that we have a great opportunity to expand this brand and those are markets that.
We can offer a premium price with a heavy digital focus.
And I think the focus on digital from the.
Expansion through the pandemic is going to be to our benefit long term and a lot of those markets and then obviously, we announced that we signed a deal in Canada for 100 locations that will start in Toronto and other city that fits the model.
And perfectly so.
We've we're continuing to add.
Engage with the leads and and hope to the biggest challenge or if there is an obstacle is just reopening these markets and getting people.
Back its not like the U S right now and so there is a lag but once that lag is.
Is addressed I think you'll see wingstop continue to expand quickly.
Alright, that's helpful. And then a follow up can you just expand a little on how Si stop is performing since its launch about a month ago, perhaps you could ballpark weekly sales run rates or when you expect to begin collecting royalties versus that 100 million threshold.
And how will you report so I stopped from results starting in the third quarter. Thank you.
And we historically don't provide specific product and are reporting or mixed reporting that's just been a staple for us for a long time I think the key the thigh stop is.
Every order is benefit.
Official to our long term strategy for our supply chain and.
And making sure that we focus on the whole bird I think as it relates to the revenue. We're very pleased it's it's in line with where we expected the product to be and a very narrow focused channel through door dash. So we expect to bring this back into the Wingstop brand and make it available.
<unk> through our App and I think that's going to really continue to drive that revenue.
For XI stop but at this point, we're very pleased with where it stands.
Thank you.
The next question will come from Jake Bartlett with true of Securities. Please go ahead.
Great. Thanks for taking the question and my question was about the company owned development and in New York City, and I believe you mentioned that theres twenty-five trade areas that you've identified and just to clarify that that would that would imply 25 openings just just want to make sure.
That is the case, including ghost and retail.
Our stores and then also I know it's.
I know you haven't.
And any yet but.
Any idea on what that does and the margins. If that's the kind of addition, certainly its going to of a big impact on company sales and company margin.
Given the high margins and it seems like Youre going to get at the Ghost kitchens.
<unk>.
Much of this kind of changes.
The restaurant level margin profile of the company and the next year or 2.
So the answer to the first question is yes. Those 25 are anticipated to be 25 openings and we'll get them open as fast as we can.
And I think as it relates to the margin structure.
It certainly has the potential to be.
Accretive and.
And supportive of higher margins for the for the company owned operations, we have already 30, plus company owned restaurants out there and they're very strong volumes.
With a lot of leverage through the P&L. So.
I wouldn't.
I wouldn't look to a meaningful change and that for for some time in terms of the overall margin structure, but yes, they do have the potential of delivering.
Better outlook, what I would say is in some cases compared to markets like Texas and other markets were replacing some.
And.
Some of the overhead costs with some.
The rates of rent and this particular market. So we have to factor that and as well, but for now I'd just assume it's.
Similar to what we've expected all along.
Great and if I could just ahead of time from a follow up on and those kitchens.
In general what kind of unit volumes are you seeing out of the ghost kitchens that you have are they.
And do they kind of drag down the average unit volumes or are they situated so that the volumes are going to be similar total retail store.
Yeah, what we've experienced so far although the number of them is small compared to the size of the footprint of the brand overall, but they've been similar to our average unit volume.
Pretty harvest Street side restaurant.
Great. Thank you very much.
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.