Q2 2022 Wingstop Inc Earnings Call
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Good morning, ladies and gentlemen, and thank you for standing by welcome to the Wingstop, Inc. Fiscal second quarter 2022 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist.
By pressing Star then zero on your telephone keypad.
Please note. This event is being recorded today Thursday July 28 2022.
Now I'd like to turn the conference over to Susana.
Our revel, though vice president of E. P N a investor relations. Please go ahead.
Thank you and welcome to the fiscal second quarter 2022 earnings conference call for Wingstop.
Call today are Michael Skipworth, President and Chief Executive Officer, and Alex Collider.
And your Vice President and Chief Financial Officer.
Our fiscal second quarter 2022 results were published earlier this morning and are available on our Investor Relations website at IR Dot Wingstop dotcom.
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 for results prepared in accordance with GAAP.
Reconciliations to comparable GAAP measures are contained in our earnings release 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 Michael.
Thank you Donna and good morning, everyone. Thank you for joining us our second quarter results demonstrated the resiliency and underlying strength of the Wingstop brand and continue to give us confidence in our long term growth strategy to expand wingstop into a top 10 global restaurant.
Yeah.
Our <unk> remained at $1.6 million fueled by our three year same store sales growth of over 30% and we have in unit economics strengthen as we have progressed through 2022.
It's generated quite a bit of excitement with our franchisees, whom we affectionately refer to as our brand partners.
Assignment has been showcased in two consecutive record development quarters. Wingstop is currently in a unique spot where we are one of the only brands benefiting from meaningful commodity deflation, while the rest of the industry navigates record inflation against the challenging consumer.
Backdrop this coupled with our AUC growth is translating into strong cash flows for our brand partners.
At the beginning of the second quarter, we experienced a bit of a perfect storm, we were lapping over $400 billion in stimulus money, leading to some really tough sales comparisons.
Pent up consumer demand around dining out.
40 year high inflation and unnecessary war in Ukraine.
Gas prices hitting record highs and early signs of deterioration in consumer sentiment.
As we stated last quarter. This caused a marked change in our same store sales beginning in March and we saw that trend continue into April .
However, with 2021, marking our 18th consecutive year of positive same store sales wins.
[noise] Wingstop has demonstrated an ability to grow through various cycles and we have a proven playbook. One we began to deploy in the second quarter.
Or behavior shifted towards dining occasions, we reopened all of our dining rooms and have in that business organically build as we progress through the quarter. We also leaned in value acknowledging that the lower income consumer would be focused on seeking value when pursuing restaurant occasions.
Early in the second quarter, we launched the boneless Millville Ah.
Our bundle consisting of 20 boneless wings for flavors to dibs, a large fry all for only $15.99 a compelling value. We have been extremely pleased with the boneless meal deal with it being the highest mixing bundle we have launched with approximately 7% cells.
That said our domestic same store sales declined three 3% for the quarter. However, the cadence of the comps improved as we progressed through the quarter in line with the timing of the boneless meal deal of launch and that's the compares eased.
Over the last 18 years, we have seen various cycles that when consumers start to pull back on the restaurant occasions. They tend to do so more with frequent U S. R occasions, and remember our average frequency is about three times a quarter. So what we have seen in past cycles is that gas will pull back.
On these more frequent she was search agents, but save up for that indulgent occasion with Wingstop, a unique position, we have and with consumers and how they engage with us as a brand.
Presenting guests with value both in the form of price point with a bundle like the boneless meal deal and with that call. It high quality made to order wingstop experience positions us well to retain those indulgent wingstop occasions.
On the new restaurant development front quarter to Mark another record we opened an all time high 67 net new restaurants. This included our first restaurant in Canada, and a total of 16 net new restaurants internationally, which is the continuation of the exciting growth and momentum in our international.
<unk> business I had the opportunity to see firsthand the excitement for wingstop at the opening of a restaurant in Toronto during the second quarter. We believe Canada has the potential for 150 to 200 Wingstop restaurants. We also signed a development agreement in the second quarter for the rights to South Korea with an.
Various multi brand operator, and see long term potential for 200 to 250 total restaurants in this market. We expect the first restaurant to open in early 'twenty 'twenty three I believe South Korea will further unlock restaurant development in the Asia Pacific region.
Our business development conversations with perspective International brand partners continue to gain momentum with active dialog for development opportunities in Europe Asia and other key growth markets. The momentum we have in our international business continues to build and we believe our international expansion of the brand will become more and more of.
The growth story as we continue to serve the world flavor.
At this point in the year, we have visibility into our construction pipeline for new restaurant development for the balance of the year, which supports our updated range for our development outlook for 2022.
Our updated guidance reflects approximately 13% unit growth, which we're really proud of and well above our three to five year target of 10% plus.
As you saw on our release, we are reiterating our same store sales guidance for 2022 of low single digits, which would represent our 19th consecutive year of positive same store sales growth.
The trend we saw during the second quarter, coupled with the growth levers, we have to pull as a brand give us confidence to deliver on our guidance for 2022, despite the challenging consumer backdrop, let me walk through the growth levers that I'm referencing.
Just over a week ago, we expanded our delivery service provider base by adding Uber eats nationwide, we have known for a while but this would be a self driving lever for us and we are in the lift it provided other brands who have made this move in the past well, it's only a couple of weeks into their Uber eats.
National lunch and without any advertising support we are encouraged by the early results.
In addition to expanding our delivery service provider base. We also have a meaningful increase in the amount of dollars. We can deploy from our National AD Fund.
If you recall beginning in the second quarter of this year, we started to consolidate in the local 1% AD spend into our National AD fund, taking our national contribution rate to 5%.
This benefit the.
The benefits of this increase was somewhat muted in the second quarter as we were lapping the 2021 investment of the surplus we had in our AD fund to help support lapping 'twenty 'twenty comps a 32% during the onset of the pandemic. This translated to a relatively flat.
That's been year over year in the second quarter as we look to the balance of the year, we expect an increase of over 35% and the amount of AD dollars to be invested providing us with the firepower to drive top of mind awareness and consideration that as consumers become more discerning with their dining choice.
Yes.
Lastly, we just completed our market tests of the Wingstop chicken sandwich.
Not just the plane and the spicy chicken sandwich as you see on most other restaurants.
But over a variety of 12 chicken sandwiches, sauced and tossed in Wingstop bold distinctive flavors and of course served with our iconic scratch made ranch or blue cheese for dipping.
The results of our market tests showcase the opportunity to launch that sandwich nationally.
Our targeted sales mix levels of approximately 4%, while my maintaining the simplicity of our operations.
But what we're really encouraged by that these chicken sandwich occasions, we're highly incremental and mixed very nicely over the lunch day part we are excited to announce our national launch of the Wingstop chicken sandwich, which will hit restaurants in early September .
These strategic Els drivers in addition to our ability to lean into bundled present, the consumer with the value give us confidence in our ability to deliver on our guidance of low single digit same store sales growth.
But what further strengthens the wingstop back half of the year story, it's the current commodity environment.
Wind is a year ahead of other brands, we navigated record wing inflation in 2021 and our brand partners took the appropriate level of pricing that year to navigate that inflation and manage margins.
Fast forward to today, we are experiencing meaningful deflation in our business as the price of wings has normalized from unusually high levels in 2021.
This is against a backdrop, where the industry is navigating 40 year I inflation forced out of the brands to take price to manage margins, while consumer sentiment is shifting.
Wingstop is different.
We are in a position, where we do not really have to take price and in fact, we have the ability to return some of this deflation in the form of value to the consumer in order to retain those indulgent occasions or even take share.
Through a unique position to be in.
I couldn't be more excited about what's in store for Wingstop in the second half of this year.
These sales driving levers we are executing are the same ones. We recently discussed during our Investor day, a few months ago. While we are navigating this environment and pooling strategic growth levers to sustain same store sales growth, we remain relentlessly focused on executing our long term strategies.
We continue to make investments in building, our proprietary tech stack, which will protect our digital business, which is now 1.1 point 5 billion dollar strong.
And we will also enable us to scale, our best in class digital platform outside of the U S.
Our first party digital database continues to expand and is now 30 million users strong.
In addition, we continue to work against our supply chain strategy, which is to take greater control of our supply chain in an effort to minimize the volatility we see in food cost and maintain our best in class unit economics of which our brand partners have enjoyed returns on their investments of more than 50%.
These unit economics continue to fuel a strong pipeline for development, which gives us confidence in our ability to continue to deliver industry leading unit growth.
Lastly, at the foundation is our people and our culture.
Something that we believe is a competitive advantage for wingstop and something that we will continue to invest in and preserve.
Despite the challenging macroeconomic backdrop, wingstop is well positioned to deliver another industry, leading year driven by our best in class unit economics, sustaining growth levers and record restaurant development.
We believe this really highlights the opportunity we have in front of us here at Wingstop and our long term growth story.
Before I hand, it over to Alex I want to thank our brand partners. Our team members in the restaurants and the team at the global support center for all their incredible work and commitment that has put us in a strong position to execute these strategies and deliver a strong back half of the year with that I'd like to turn.
The call over to Alex.
Thank you Michael.
Second quarter marked another record for development with 67, net new restaurants, showcasing our momentum and our focus by our brand partners to expand Wingstop globally.
We also delivered seven 5% growth in system wide sales in the second quarter, which now total $2 $5 billion on a trailing 12 month basis.
On our way to $3 billion in system wide sales.
We grew royalty revenues franchise fees and other revenues by approximately $3 million in the second quarter, driven primarily by 229 net franchise openings since the prior year comparable period.
This was partially offset by domestic same store sales decline of three 3%.
But you heard Mike will explain in detail as well as the sales drivers were executing to deliver a strong second half.
In the second quarter company owned restaurant sales totaled $18 $7 million up about 3%, primarily due to six net new restaurants versus the prior year comparable period as we continued to invest in building out Manhattan.
This was partially offset by a four 9% decline in same store sales.
Cost of sales as a percentage of company owned restaurant sales increased by one eight percentage points compared to the prior year driven by increases in labor and other operating expenses inclusive of Preopening expenses totaling one percentage point, which were partially offset by lower food costs, driven by a 19% reduction in the cost of bone in wings.
As we began to see deflation progressed through the second quarter.
Comparing the first quarter to the second quarter of 2022.
Cost of sales declined by 480 basis points, highlighting the effect of improving food costs and labor, which was the result of an improved labor environment and training Gilliam efficiencies within labor.
We are also encouraged by the deflation we are seeing in our business.
Looking at the leading indicators such as frozen wing inventory levels, which are near 2018 levels. The highest in five years and record breast meat prices that are motivating suppliers to substantially increase production levels provide us the confidence in a favorable commodity outlook for the second half of the year and into 2023.
As Michael mentioned in his comments the deflation we are seeing is unique the wingstop, while many in the restaurant industry are facing significant inflation.
Based on what we know today, we anticipate food costs for the average for our partner restaurants to be near the midpoint of our targeted range of 34% to 38%.
Which is an 800 basis point improvement versus the second half of 2021.
We believe the significant deflation in wing prices and our sales drivers will further strengthen brand partner unit economics.
For modeling purposes, the company restaurants, given our higher bone and mixed relative to the system average, we anticipate seeing through costs of approximately 38%.
In addition, the second quarter labor and operating expenses as a percent of company owned restaurant sales.
Line with what we expect to see for the balance of the year.
As a result, when you add this all together, we anticipate company owned restaurant cost of sales in the second half we will see an improvement of approximately 900 basis points versus the second half of 2021.
Shifting to SG&A expense.
In the second quarter, SG&A decreased by $2 $1 million versus the comparable period.
By Forfeitures of stock awards, partially offset by travel expenses and continued investments in strategic projects to support the long term growth of the business.
Adjusted EBITDA, a non-GAAP measure was $23 $7 million during the quarter, an increase of three 4% versus the prior year.
Adjusting for nonrecurring items, we delivered adjusted earnings per diluted share a non-GAAP measure of 45 cents, an 18% increase versus the prior year.
Our highly franchised asset light model continues to deliver strong free cash flows.
This coupled with our debt transaction in March of this year has increased our cash balance to over $165 million.
And as we shared at our Investor day in May.
This cash positions us to be opportunistic to support our supply chain strategy as we explore options to take greater control of our supply chain.
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 approved an 11% increase in our quarterly dividend to <unk> 19 per share common stock.
A demonstration of the strong cash flow generation and the strength of our business.
This dividend totaling approximately $5 $7 million will be paid on September 2nd 2020 to stockholders of record as of August 12 2022.
Now onto our outlook for 2022.
For the full year, we are reiterating our guidance for same store sales growth of low single digits.
And S G&A of between 70, and $72 million, including stock based compensation expense of between seven five and $8 $5 million.
When adjusting for the impact of the 50 <unk> week in the fourth quarter, we expect SG&A expense to be more evenly distributed in the second half.
We are also reiterating our diluted earnings per share guidance of between $1 55 to $1 57.
In addition, we are updating our guidance for net new units to a range of 220 to 235 from prior guidance of 220 plus for the full year.
Our strategies remain consistent and we are focused on execution, we truly have a lot to be excited about at wingstop as we move into the second half of 2022, we saw is well positioned to deliver against our vision of becoming a top 10 global restaurant brand.
With that I'd like to now turn to Q&A operator, Please open the line for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
If at any time your question has been addressed and you'd like to withdraw. Your question. Please press Star then two.
Please limit yourself to one question and a follow up after.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from David Tarantino with Baird. Please go ahead.
Hi, good morning.
First question relates to your commentary about the trajectory of the sales trends as the quarter progressed and.
I appreciate that commentary, but I was wondering if you could maybe update us on what you're seeing so far this quarter and how that plays into your confidence in.
And the outlook for the balance of the year.
Hey, David Good morning, It's Michael I. Appreciate the question you know I think that's as we talked in our prepared remarks are as we shared in our prepared remarks, we we clearly have some pretty strong levers that we're pulling in and as I mentioned earlier that the early results have us expand.
In our delivery provider base to include Uber eats nationally. The early results have been encouraging so I think when you couple that with what we saw in our market test with the chicken sandwich and how that mixed as well as just the elevated level of advertising that we're able to spend in the back half of the year up over 35.
5%. So a couple of those things with the trend I think it's really what gives us confidence in and sitting here today and being able to to really reiterate our guidance for low single digits and I think if you.
I reflect back over the years, David we've been a brand that has has been pretty thoughtful about when to pull levers and clearly as we as we saw the environment. We were navigating through and we knew this lever we had with with the expanding our DSP base was what's going to be a powerful one for the brand.
And we do now is the right time to pull that lever and so all of that supported with the trend that we referenced in the in the second quarter gives us confidence in reiterating.
That low single digit same store sales outlook.
Okay and Michael.
On that last point of lung delivery.
Or would you be wrong in this journey and any sort of context on what your what you do see from OLED perspective, when you added Uber you just order of magnitude what what that could do for the vehicles.
Yeah, I mean, I'm I'm, a little a little cautious being a little over about two weeks in but I'll tell you. This is David what we've seen in those first two weeks.
Our encouraging if not at or above our expectations and that's without really any any advertising support behind us being on ubers platform and so I think you can look back at other brands, who have expanded their their delivery base beyond one provider and and have.
In a pretty pretty meaningful lift for them in their cells and so we would expect.
Something similar but obviously it'll take a little bit of time for that to build as as awareness around wingstop on ubers platform builds.
Great. Thank you very much.
Thank you.
The next question comes from Jeffrey Bernstein with Barclays. Please go ahead.
Great. Thank you very much.
First question was just on franchise sentiment I mean, all things sound. Good based on your prepared remarks, but I'm just wondering.
Conversations since they are the driver of the brand.
I mean is there any talk that the difficult operating environment or perhaps rising interest rates are.
The most recent negative comps or anything along those lines that might temper the appetite for unit growth I mean, seemingly you've reiterated a bracketed 2022 but maybe looking into 'twenty three it seems like those are a lot of potential headwinds just wondering what the sentiment is like and in those conversations over the past quarter and then I had one follow up.
Jeff Good morning, and thank you for the question. We've obviously in an environment like this where we're in constant dialogue with with our brand partners and and I would say the conversation has been extremely positive. The sentiment is really encouraging those conversations Jeff arent really.
At all about that.
The comp trends in the second quarter, what they're what they're looking at and what they're focused on is really two things. The fact that over the last few years they've seen there as these grow by over 30% to the tune of $400000 on average and they're looking at food costs right now that's false.
Right in that sweet spot for our model and that compares to a pretty challenging year in 2021, where we experienced record inflation in our core commodity and so as they look at their P&L today as they look at the cash flow, they're generating it's creating a lot of excitement a lot of excitement for development. We can say is we.
Sit here today, the the total pipeline we have right now of sold commitments is stronger than it was this time a year ago. So I think that just supports the statement around brand partners' sentiment around the the opportunity we have to continue to deliver on the unit growth story here at Wingstop.
Understood.
Just following up I mean, clearly from a comp perspective cause everyone, we'd like to see positive comps and it seems like that's what you're forecasting in the second half and it seems like you have the drivers there but are there any early indicators, such as slowing traffic or lower check or maybe lower attachment to demonstrate that there is a headwind in terms of broader consumer.
Pending slowdown again, maybe you were able to mitigate that and you'll be able to deliver net positive comp growth, but is there any indication, especially as you do have a you know.
And elevated mix of lower income consumers just trying to get a read for what you see through the through the comdata in recent months. Thank you.
Thanks, Jeff.
You know as we mentioned on our last call and in our prepared remarks, we clearly did see a pullback in in frequency, particularly with that lower income consumer, but as we mentioned we were able to lean into a proven playbook, that's allowed us to to grow our business through various economic cycles, which.
As demonstrated by over 18 years or 18 years of positive same store sales growth and so when we leaned into value presenting the value focused consumer with with a bundle like the boneless meal deal at $15 99, which can be two to three people. So our price per person, it's a really compelling value.
You couple that with the the the quality occasion, a consumer gets with Wingstop.
And that it's it's that indulgent occasion once once a month three times a quarter that they almost save up for and that's not where they want to find ways to cut back and save and so as long as we're presenting them with value. We haven't we haven't we've demonstrated an ability to retain those occasions and so we did see that improved throughout the quarter and then as we obviously.
We pull some of these growth levers that we've referenced in the back half of the year, we fully expect to see transaction growth in our business and again, we're in a little bit of a unique spot. If you take a step back and think about the gap. We have that we've talked about before in brand awareness to other mature brands we referenced.
The growing.
User first party user database that we have now over 30 million strong. So we're continuing to bring in a lot of new guests into the brand and have a big opportunity. There, we know that adding a platform like Uber.
Allows us access to a completely different consumer segment as these DSP platforms have created loyalty to each one of their platforms. So again another opportunity for us to bring new guests into the brand that werent, perhaps accessing us before and so I think all of these working in concert give us confidence in the ability to.
Deliver on that reiterated guidance, which would include.
Growing transactions.
Understood. Thank you.
Thank you.
The next question comes from John Glass with Morgan Stanley . Please go ahead. Thanks.
Thanks, very much Mike I was intrigued by your comments about being able to lean into value given your commodity situation, which is unique and how do you think about that in the second half are there ways you can expand value bundles at different price points, maybe to encourage individuals to come in or is this good enough and how did the franchisees feel about.
Expanding value are they excited about it or is it or how does that conversation go yeah. Yeah. It's a great question, John and I. It's one thing that we're trying to make sure we're pretty clear on is when when we talk about value often people interpret that to mean discounting and that's not how we approach value.
You as a brand.
And so the bone to smell of the deal is as an example is that of food costs that still comes in at within that targeted range for for our brand partners and so it's it's presented is value, particularly with the price points of the consumer but my comments that I shared around willing to invest some of that deflation.
And if it called for it if we saw further deterioration in consumer sentiment and we needed to lean in a little bit and do something that or where we're just now piloting for the first time as an example is another bundle that again, it's still at a nice food costs, but includes our our premier product the classic wing it.
With boneless with tenders and in a in a triple mill deal is an example of where we can lean in and present, the consumer with value and we're able to do that and not have to take price, which is the key differentiation, but then as we fast forward and look at the chicken sandwich that were excited to launch that's something that we're able to present again.
At a nice food costs for our brand partners, but present at a compelling value we have a chicken sandwich combo that we'll be launching at 799, which includes the sandwich sauced and tossed in one of our bold unique flavors with a dip for dipping and then includes Fry and a drink again a compelling value.
<unk> for our high quality occasion that we think is going to resonate really well, particularly based on what we saw in our market tests and so we're encouraged by the various levers we have to pool for when the consumer needs us to lean in and play to their value needs or focus.
Thanks for that and then just on development I appreciate the update on the units I still think though if you even at the high end of that range you might expect lower development in the second half on a unit basis versus the first half is there any reason that would actually occur and may be inside of that can you maybe a little color on those internationally and it has that picked up nicely where those.
We're in if that if that pace can be continued as well. Thanks.
Yeah, John It you know actually the the point you bring up about the cadence of development throughout the year is actually something we've we've been working on for a while and I think that's kind of the.
Maybe it was the Genesis of the question as we've typically had a pretty heavily weighted back half of the year and we've been working hard to to balance out the development throughout the year and so what we're seeing in 'twenty 'twenty. Two is a much more balanced cadence of development, which is which is great for our brand partners because they're getting restaurants.
Opened earlier, making a return on their investment sooner and then its good for us as we're getting those.
And the royalties on those and so I think we will see a much more balanced.
<unk> and developments, which obviously isn't implied in the guidance that we provided based on what we see in the pipeline this year and that's where the as far as the international development.
You know, it's pretty balanced throughout the markets.
We had a handful of openings in and some of the markets that we're really excited about it obviously, we profiled our first opening in Canada and that that that market and our partner there is actually on track to be ahead of their development schedule. We believe we have another three.
Three openings potentially coming this year in that market, which I think really goes to the second part of your question around our confidence in that continuing and we shared this for international we shared this earlier and I think in the last call, where we do expect this to be a record development year for our international business, which I really think speaks to.
The excitement and momentum we have around that the strategy the proven playbook the markets. We're in how we're showing up and how that's going to become a bigger part of our growth story as we look into the outer years.
Got it thank you.
The next question comes from Andy Barish with Jefferies. Please go ahead.
Yeah. Thanks, just quickly on.
The earnings guide for the year.
The numbers for <unk> certainly.
Ahead of consensus.
The guide the same is that just something to do with G&A timing as we go through the year or we should be aware of on you.
You know on the earnings for for the full year.
Good morning, Andy This is Alex on Yeah, I think you're spot on it's really just a function of how the forfeitures remodeled in the consensus numbers.
That was really just more of a timing aspect that was contemplated in the guidance, we had both last quarter and in this quarter.
Okay. Thanks, and then just a quick question.
Can you help us a little bit I know, Michael you talked about positive transactions in la.
A lot of changes going on with the dining rooms reopening now delivery.
I assume was kind of drifting or but just can we level set on kind of how much prices running through the system right now and what you think.
You know we go on with mix.
We forward.
<unk>.
You know all these moving pieces, including chicken sandwich.
Yeah, no absolutely Andy and I can appreciate your question because I know.
With a lot of other brands, who had a much bigger than dine in business I'm seeing that come back and you know, whether it's smaller group sizes or just a smaller check impacting their business quite a bit what's what's interesting about wingstop is are we were over 80% off premise before the pandemic.
And so our business was what was if you will kind of built and designed for for for this and so we haven't seen.
A lot of what other brands have seen are our dine in business. I'll tell you is is growing back nicely at a nice organic rate I think by the end of the quarter. We were at about 5% mix if you remember.
Pre pandemic that was what that was about 20% what's interesting, though Andy is with that dine in business, returning we haven't really seen.
What was maybe a pre pandemic average check size, it's much closer to our average check the mid kind of call. It $22 range. So were not seen in our business a lot of mixed shift as as we as we navigate through this environment. We're in right now and so.
I wouldn't really over contemplate anything as it relates to mix shift in in your model for the back half of the year and again as we think about mapping our way through the about the back half of the year and delivering on our on our outlook of low single digit same store sales growth. We think a lot of that is just gonna be transaction.
Growth.
Yeah.
And where do you think pricing is currently in the system roughly yeah.
Yes, sorry about that that consistent with what we said last quarter. We saw in the second quarter about four to five points of price flowing through the comp and so we would expect that to tail off kind of ratably as we move through the back half of the year.
Thanks, Michael.
Youre welcome.
The next question comes from Andrew Charles with Cowen. Please go ahead.
Great. Thank you Michael what gives you confidence that after you launched chicken sandwich, and presumably put some of that 35% year over year increase in the National AD fund budget towards building more awareness for the product that you won't see any mix deterioration from the guest who is going to order a higher ticket bundled wings instead getting the sandwich.
Yeah, Andrew it's a good question and really what we're anchoring too is what we saw in our market test we did not see in the in those in the in the four markets, where we tested this a meaningful impact to mix shift what we saw was a lot of incremental <unk> chicken sandwiches.
Being added to existing check sizes orders and so it was encouraging what we saw and obviously the mix.
Around lunch day part is really encouraging for us to see an opportunity to grab new occasions. There and then you know as we take a step back and kind of what we've thought about as we we we planned the the launch of the chicken Sandwich was we've heard over the years.
The concept of a veto vote, where you've got a group and not everybody wants wings and and what we think we believe we saw on some of the consumer feedback.
Our market test was this chicken sandwich really helped us solve that veto vote and so we're excited about what this can do for our business not to mention we think it's an incredible product that what we saw in the market tests the feedback from consumers was extremely encouraging.
That's very helpful. And then Alex separately for you I know at the Investor Day in May the most recent cohorts of openings saw an impressive $1 $3 million for the first year sales volume.
Had a few more months to observe the data in the backdrop of a very challenging consumer environment are you still seeing this $1 $3 million hold off or or is it perhaps deteriorated with the overall same store sales.
Good morning, Andrew Yeah. Great question, you know we have not seen that change are our strengths of our opens and as a reminder, this three years ago. Those new restaurants are opening in the mid $900000 range and we're still in that average restaurant opening up about 1.3 today.
Very encouraging thanks, guys.
The next question comes from Jared Garber with Goldman Sachs. Please go ahead.
Good morning. Thanks for the question I wanted to ask about the supply chain strategy and any update there as you continue to work through.
Your your plan to better integrate the supply chain. If you could help us just contextualize, how we should be thinking about potential timing there and also it would be helpful. If you could run through maybe just the economics of how to think about that in terms of maybe an initial cash outlay, but still being committed to that.
Asset light business model.
Helpful. Thanks.
Hey, Jared good morning, Yeah, I'll start and then maybe Alex can can jump in but you know I I want to I want to reiterate the the supply chain strategy that we've shared is really one that has a few different elements to it one is around different ways we were.
Contract or potentially partner with suppliers. Another one is around whether or not we go all the way to bright and vertically integrate integrate and and and take control of an entire poultry complex or do we go all the way to building our own complex, which would obviously be a longer term.
And what we're doing right now and the work that's underway as we are in active we have been having active dialogue with potential targets around us.
You know whether or not it's the right fit the right opportunity is there for us too.
To to to do it to do a vertically integrated strategy around acquiring a poultry complex, but one of the things that's been extremely encouraging and we're excited about is <unk>.
Stated strategy us being more vocal about it and it ended being clear around what we're what our plan is around taking more control of our supply chain ultimately with the effort of simply minimizing volatility. That's what we're solving for here is minimizing volatility and just buy is talking about that more publicly the dynamic of.
The conversation with our suppliers has really evolved and we're making a lot of exciting progress around how do we contract differently, how do we get away from the spot market and how do we deliver a much more predictable landed food costs for our brand partners in their P&L, but as it relates to the structure and how we will exit.
We do obviously, we were opportunistic and raise some capital and have some dry powder sitting on our balance sheet. So that if and when an opportunity presents itself. We can move quickly and take advantage of that in parallel and at the same time, we are doing work around what would that structure look like and in our minds it would be.
Any sort of acquisition would be something that would be put into a franchisee owned purchasing co op, which then we would put that on that co op and pay ourselves back. If we had to initially capitalized at so there wouldn't be anything on our balance sheet as it relates to an asset for that poultry complex and we would expect.
A pretty short timeline around when we would return or get our initial investment or funding back in so we will maintain that asset light profile that we have today and enjoy today, but we're simply sitting here in a in a position that allows us to be opportunistic if we see the right opportunity present itself.
Great color. Thanks, so much.
Welcome.
The next question comes from Jon Tower with Citi.
Go ahead.
Great. Thank you.
A quick clarification and then a question.
I'm curious as the dining rooms, reopen did you get to see a higher cash tender kind of run through your business than what it's been in the past that's kind of a clarification too.
Think you know based on the math, if you guys hold the same share.
Yeah.
In terms of delivery that you hold on to overeat she'd be on door dash on <unk> that would imply something like a low single digit type of same store sales tailwind for your business is there any reason to believe your share should be either higher or lower than what you've gained on door dash, maybe there's something that you have and the relationship.
Might move it one way or the other.
Hey, John Good morning on your first question no I wouldn't say, we saw anything I would call out on our dine in business as it relates to cash tender, so nothing unusual or anything to point out there as it relates to.
Delivery mix and kind of how that will play out I think well, we'll have to see obviously as you sit here today.
Jordache has more market share than Uber eats so I think that plays into it a little bit but we've got.
Plenty of experience with a subset of restaurants that have had uber eats for a period of time.
And we've seen you know strong mix levels and those restaurants on ubers platform. So I think time will tell but I think at a minimum where we're in a position to where we feel confident when we consider the the opportunity we have to grab new new a new customer base on the Uber platform.
Bind with the other levers that we're pulling in the back half of the year two to be confident in reiterating our low single digit same store sales guidance for the year.
And just on the chicken sandwich itself to 4% makes Youtube referenced earlier, that's just the sandwich not any bundle along with that one and then two you talked about it being incremental to the business are you did.
Did you see a draw in new customers didn't test or was a higher frequency of existing customers across some of these noncore or at least lower frequency day parts.
Yeah, John we're we're pretty excited about what we saw in the market test and you know as we went into it our hypothesis was that it would it would mix nicely at that kind of 4% target.
We believed it would bring in new guests.
And we believed it would mixed very nicely over the lunch day part and that is what we saw in the test they basically that market tests validated our hypothesis that we brought in a lot of new guests.
We saw really nice day part mix during lunch and the mixed levels came in right, where we expected and we didn't see and then that next level, we're not we're not including them.
The total if you will basket that included other other menu items or other bundles. That's that's the chicken sandwich.
And there was no marketing support behind that correct.
No we like it like you would normally approach a market test for something like this you you make your best effort to to replicate in those local markets, which you are able to do it at national level.
It's never quite the same and you still don't ease somewhat don't get the benefit of that that national Halo you get from a national campaign, but we did support it with marketing that we think is somewhat indicative of what we'll be able to do when we launch it nationally at the first of September .
Thank you.
The next question comes from Dennis Geiger with UBS. Please go ahead.
Thank you Michael you've got a compelling second half suite of catalysts that you've just outlined so I'm just wondering if you could speak a bit to what you believe.
Of that group of catalyst could be the most impactful from a traffic driving perspective, as we look over over the coming quarters. As you think about the sandwich Uber the promotions the advertising maybe something else just wondering how you kind of wood frame that up perhaps if you're if you have any thoughts to share.
Yeah, we.
It's a good question and you know it's one that a few a lot of these things work in concert right and it's all around just continuing to drive the business for the long term and again. These are levers that we've known we've had for a while but we've we've been a brand that has been.
Full about when to pull them and so we know that each of these levers will will bring in transaction growth. Obviously, when we think about as an example, our incremental AD spend that we have in the back half of the year, an increase of over 35% over the last year, but it's not just that increase.
It's the change in the strategy as well that we've talked about having this additional 1% that we can consolidate now has allowed us to go from those two flights where we were on for about 12 weeks in the first half of the year and about 12 weeks in the back half of the year. We're now we now have this always on presence, but in addition to.
To that we now have the dollars in investment level that we can lean into more premium placement. So I think you'll see us show up in a much bigger way. This fall on the NFL as an example, and so all of that muscle and firepower is going to work to support.
The chicken sandwich as an example, and so those work in concert with one another and so I don't think there's one that I would call out.
That's necessarily bigger or more excited about but really the three all of these working in concert as well as that proven playbook around leaning into value in retaining.
Our our existing value focused customers.
Give us confidence in the back half of the year and we do we do feel like we're in a really unique spot when you think about not.
Not having to take price right now necessarily we have these unique levers to pull to bring in new guests as well as retain our existing guests in that indulgent occasion, but then all of this against a backdrop of we're experiencing meaningful deflation. It really puts us in a spot that I think really highlights.
The unique Wingstop story, the long term growth story, we have here as a brand and so you said it well we're pretty excited about the back half of the year.
I appreciate that and then a quick follow up if I may just as you think about or as we think about delivery broadly what have you seen there or what did you see through the quarter due to the mix.
Change it all the way that had trended any shift maybe especially before the launch of Uber eats just kind of curious what you saw and maybe how you were thinking about delivery mix going forward, let's just say Uber eats decide as we think about maybe pressure on the consumer and does that change the appetite for delivery in your mind going.
Forward at all thank you.
Yeah, No. We you know obviously, we have had over the years and will continue to have a strong partnership with door dash and as we look at our delivery mix through the second quarter. As an example, we didn't really see that mix change throughout the quarter and so we didn't see.
But a pullback on that channel or anything like that and I think it really just speaks to.
You know the value proposition that we inherently have.
In our menu and our brand how guests engage with us as an indulgent occasion, and then obviously I'm leaning in and the various strategic ways that we can with our with our partnership with door Dash.
Thank you very much.
The next question comes from Brian Mullan with Deutsche Bank. Please go ahead.
Hey, Thanks, just sticking to the agreed Stewart is topic, maybe asked a little different way you know in your internal planning do you expect to see any kind of impact the transactions with with your existing partner as a result of joining Uber eats you know I understand you're under you expect the net impact for Wingstop to be an overall positive sales lift.
Just curious about the dynamic with the existing partner, though are there any benefits.
Or perhaps you might lose whether that'd be market marketplaces placement or anything of that nature.
No I think with with any partner one of the things that's really important to us at Wingstop is really investing in those relationships and we don't just view them as suppliers or partners, where we view them as strategic partners and we have a long standing strong relationship with door dash.
And you know we're building the same with with Uber eats and so we'll continue to lean in that and find ways that.
We can grow together and that's mutually beneficial as it relates to adding new breeds and again it's early.
But you know what we've seen so far is we really haven't seen an impact to two the existing door dash business.
I would just add that you know one observation we've had as you've seen with other D. S piece over the years as they've done a better job of driving retention among their guests building more loyalty within the platform and so I think that's something that's changed.
US the confidence of the increments Audi of an additional D. S P.
Okay. Thanks, and then follow up just a question on international development. The launch of South Korea next year, just wondering could you give a sense of your expected or your your targeted vs. In that market. Even just directionally do those look something like the U S and the U K or would this be one of those international markets, maybe lower cost to build low.
Or are these just any color would be great. Yeah, No I think I think South Korea is a great example of of how we are profiling in the markets, where we want to grow we're not doing around planting our flag everywhere, but we're being very targeted on markets that fit our strategy, which are.
There are markets that.
That have allow us to afford that premium positioning with our menu.
It allows us to lean into off premise, we want a lean into digitally savvy consumer.
And in South Korea fits that profile. So we fully expect it to be a market that that fits our long term strategy around international development, which would be much more consistent to what we see in the U S from an AAV perspective, what the success we've found in the U K or even if we look at the early.
Results in Canada, which again is there's one restaurant, but it's coming out of the gate.
Strong and meeting our expectations there.
In fact, I had the opportunity as I mentioned in my prepared remarks of of being at the at the Grand opening there and it was pretty incredible to see a line outside the restaurant around the block waiting for the doors to open and I might mention that it was raining and and and the excitement for the brand.
The Canadian consumer who I think is is going to resonate quite well with Wingstop was was there and showed up strong. So we're really excited about how the brand is showing up in these strategic markets and the opportunity we have in front of us.
Thank you.
The next question comes from Jeff Farmer with Gordon Haskett. Please go ahead great.
Great. Thanks, just wanted to drill down on your customer base for a second so.
And your research to better understand demand have you learned anything about the relationship between things like <unk>.
Gas prices jumping to record levels or.
<unk> seen record food at home inflation do we need those things in terms of your research, how they greater or less impact on your customer traffic.
Yeah. It's it's a good question and you know we've we've looked at the data a lot of different ways. We've we've done a lot of consumer research. We've done focus groups and you know what we've seen in it and it aligns with what we've seen in past cycles is you do see.
A little bit of what feels like in our brand a little bit of a of a knee jerk reaction when when the consumers hit with something like record gas prices at the pump but.
Then we see it start to normalize and I think that's what we saw in the second quarter as we saw that cadence improve and it's really how consumers engage with our brand three times a quarter once a month they view it as a special occasion, and indulgent occasion, but yet one that in their mind as long as we're presenting them with value.
It's it's an occasion that we've demonstrated an ability to retain and so I wouldn't really say, we've seen anything that would that we can kind of extract out of the data and the research that I would call out that's a higher correlation or influences a certain group differently than the other.
Right and just as a follow up a lot of questions about Uber today, but I am curious about a couple of things. So the first would be anything that you would consider sort of a new or surprising learning something that sort of caught you off guard and then.
You're going to get this question eventually, but now that you've got the two providers anything sort of preventing you from from moving to a third and what the benefit of that that third.
<unk> partner potentially could be.
Yeah.
I wouldn't say, there's anything that surprised us obviously, we have a lot of experience under our belt with delivery. We've had a lot of conversations around a national launch with Uber, we've had them in a subset of our restaurants for a period of time, a small subset. So we had experienced.
With them, we had the data integration in place and so we kind of knew what to watch out for it. So I wouldn't say anything really surprised us here.
As it relates to two.
Over to the to the base and.
Obviously.
You know, we we know that.
There is an opportunity to expand the base further than that but as we sit here today I don't think we have any immediate plans plans to do that we're again excited about.
This lever and and and the confidence around this being the right time for us to pull this lever as a brand and then we think about the other growth.
Growth drivers that we have for the back half of the year, which again gives us a lot of confidence going into finishing out this year with strength and are delivering on our commitment of low single digit same store sales growth.
Thank you.
Youre welcome.
This concludes our question and answer session and today's Wingstop, Inc. Fiscal second quarter 2022 earnings Conference call. Thank you for attending today's presentation. You may now disconnect.