Q3 2022 Wingstop Inc Earnings Call
Good morning, ladies and gentlemen, and thank you for standing by welcome to the Wingstop incorporated fiscal third quarter 2022 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star followed by zero. Please note that this conference is being recorded today Wednesday October 20.
Six 2022, I would now like to turn the conference over to MS. Susanna already Velo, Vice President of F. N P N E and Investor Relations. Please go ahead ma'am.
Thank you and welcome to the fiscal third quarter 2022 earnings conference call for Wingstop.
On the call today are Michael Skipworth, President and Chief Executive Officer, and Alex Collider, Senior Vice President and Chief Financial Officer.
Our fiscal third 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.
Men 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.
So basically what has enabled the success of the model in our industry leading growth.
That is what has fueled our culture, how we behave in the core values that are at the forefront of every decision at Wingstop.
Our strategy is built upon a foundation rooted in both living the Wingstop way and investing in people as our competitive advantage. This enables our core growth pillars. So preserving our culture is key.
In our last earnings call, we signal to our second half of the year story, we are pleased with our third quarter, Brazil, Brazil.
Results that demonstrate the resiliency of the Wingstop brand and the impact of our strategies as we reverse the trend we saw in the second quarter and delivered strong results across the board.
This has us well on our way to delivering our 19th consecutive year of same store sales growth.
And the third quarter domestic same store sales growth was 6.9% with the majority of this driven by transaction growth and that translates to 36% growth on a three year same store sales basis.
System sells increased 17.7% to approximately $700 million.
We opened 40 net new restaurants in the quarter and saw unit growth of 13.5% <unk>.
Company owned restaurant margins sequentially improved over the prior quarter as we continued to benefit from meaningful deflation in our core commodity bone and chicken wings adjusted EBITDA increased 33 per cent to $28.4 million.
I would like to spend a couple of minutes to provide insights on our quarter trends in detail on the sales driving strategies, we executed against in the third quarter.
At our Investor Day earlier this year, we outline the strategies, we are working towards to continue to sustain same store sales growth and provide a clear line of sight into increasing au vs above $2 million.
During the third quarter, we made exciting progress against several of these cells driving levers, we expanded our delivery channel advanced menu innovation with the launch of our chicken Sandwich and we continue to drive brand awareness with an elevated level of national advertising spend.
These are not just current quarter drivers for our business, but strategies that we believe have staying power. Let me briefly touch on each of the strategies starting with chicken sandwich.
We launched our chicken sandwich on August 29th our mission at Wingstop is to serve the world flavor. So we didn't offer only a plane and spicy version, but we gave our guests in a variety of 12 chicken sandwiches soft and tossed in any one of our bold distinctive flavors and.
And our sandwiches are offered at a compelling value $5.49 for the Ala Carte sandwich, and a dip and $7.99 for the combo, which includes a drink fries and a gym, we anticipated that are chicken sandwich strategy would bring new guests into the brand and capture additional occasion.
But we did not expect to see the incredible demand that we saw in our initial launch our initial launch sold out of four weeks of supply in six days demonstrating the longterm opportunity. We believe we have with chicken sandwich after rebuilding supply we relaunched chicken sandwich in early October .
However, with a more measured approach to ensure we went over all these new guests were bringing into their brand by providing a great guest experience. We started the relaunch without advertising support and have gradually phase in media through the month of October only a few weeks into the relaunch and we are pleased with the result.
Let's see and the chicken sandwich mix in the high single digits range.
That is over two times, what we saw in our market test and if these mix levels chicken sandwiches proving that can drive more wingstop occasions and play a role in building brand awareness. We also see chicken sandwiches away for us to further drive boneless mixed in our restaurants and could see a path to bone.
<unk> mix exceeding 50% of our total mix, which will play a key role in advancing our supply chain strategy.
With a higher boneless mix, we can see a future with food costs in the low 30% range and will only further strengthen our industry leading unit economics.
Another sales driving lever that we execute against was the addition of Ubereats as a delivery provider in July we launched Wingstop nationally on the Ubereats platform and with Liberal Little advertising efforts sells proved to be highly incremental and we're in line with our expectations.
We are excited about the partnership with both leading delivery service providers Ubereats Android dash to capture incremental occasions, we believe where you are in the early stages of building our delivery channel and as we benchmark to more established off premise businesses, where their delivery channel is upwards.
50 per cent of cells mix, we see a path with significant growth in front of us in this channel.
The third strategy I want to touch on is expanding brand awareness, we have made great progress in increasing our brand awareness. The last few years, yet or gap to national peers still remains a significant opportunity for us.
At the start of the second quarter, we converted the local 1% advertising fun to our national add fun bring in our National AD fund contribution rate to five per cent.
This 1% increase combined with our growth in system cells has provided a meaningful increase in the amount of bad fund dollars, we can invest.
Historically, we had concentrated the majority of our local dollars and the July and August timeframe.
Two three represented our first quarter Lapin, our historical local media investment window with the increased national spend.
Not only does this give us the opportunity to drive these dollars more efficiently. We're also able to invest in more premium placement such is life sports like the N F L, where you've likely seen a show up.
This elevated level of investment will continue in the queue for and with our continued growth in system sells we are on track for an additional step up in 2023, and our advertising investment that provides the firepower to drive brand awareness.
We are excited about the strategic levers, we are pulling to sustain same-store cells grow as we exited two three the impact of any 2021 pricing has tailed off and our sales growth was driven entirely by transactions, which is a true signal of the underlying momentum in our <unk>.
Business, we <unk>. We also believe it highlights the unique longterm sells driving levers we have as a brand.
We continue to strengthen our competitive advantage with the best in class digital platform, while you're starting to see consumers resort back to their pre pandemic behaviors are digital business have sustained above 60% demonstrating the stickiness of our new yes.
We're committed to our aspirational goal of 100 per cent digital transactions, where we enjoy a five dollar higher average check.
This continued expansion of our digital business allows us to continue to build upon our first party database that's over 30 million strong.
Self driving levers such as menu innovation through the chicken sandwiches, another opportunity to capture new guest in further expand our digital database.
Another important aspect of our growth story is global development, where we have a longterm target of over 7000 restaurants, we opened 40 net new restaurants during the third quarter, which brings our total to 167 net new restaurants through the first nine months of this year.
That's a 13.5% growth rate with both our domestic and international business on track to have record restaurant development for 2022.
And our global pipeline has further strengthen which as we look ahead into 2023 positions us for another strong year.
But the average unit volumes of $1.6 million and an initial investment of approximately $400000 or brand partners are seeing cash on cash returns averaging 70 per cent.
These cash on cash returns have continued to strengthen this year as we are one of the few brands experiencing significant deflation in 2022.
This is driving quite a bit of excitement among our brand partners as we sit here today of the earner Barry price for Jumbo Bohnen wings is a dollar five per pound and represents a year over year Cogs improvement go over a thousand basis points were also seen breast meat prices come down from their high.
His earlier this year and continue to see leading indicators that suggest a favorable commodity backdrop for the balance of this year and into early twenties twenty-three.
Despite the challenging macroeconomic backdrop, wingstop remains well positioned to deliver another industry, leading year driven by our simple operating model best in class unit economics levers to sustain same store sales growth and record unit development.
The industry is navigating 40 year high inflation, forcing other brands to take price to manage margins, while consumer sentiment is shifting.
Wingstop it's different.
You're in a position, where we do not necessarily have to take price. We have a proven playbook, where we lean into that indulgent wingstop occasion, presenting our guests with value that has allowed us to successfully navigate prior economic cycles.
Additionally, we have a lot of runway in front of us to bring new gifts and capture new occasions with strategic growth levers such as expanding our delivery provider base and menu innovation like our chicken sandwich.
We believe this highlights the opportunity we have in front of US here at Wingstop in the long term growth story.
We are reiterating our guidance of low single digits same store sales growth for 2022, which would mark our 19th consecutive year of same store sales growth.
What the visibility into our pipeline at this point in the year, we are raising the low end of our estimate and now expect net new restaurant openings to be between 225, and 235, putting us in a position to exceed our 10% plus development target.
I couldn't be more excited about how the back half of 2022 is playing out for Wingstop.
Just a few weeks ago, we held our brand partner convention at our convention, we outline the strategies were executing against to deliver this next phase of growth for Wingstop and I couldn't be more excited with the shared vision and confidence our brand partners have an wingstop.
Our unit economics continue to strengthen against the backdrop of meaningful deflation in our core commodity we have clear line of sight to 2 million dollar plus a you vs and strategies that will help us navigate uncertain times ahead.
We remain confident in our strategies that will reward our shareholders franchisees and team members as we continue on our path to become a top 10 global restaurant brand.
Before I hit it over to Alex I want to thank our brand partners. Our team members in the restaurant and the team members at the global support center for all their incredible work and commitment that has put us in a strong position to deliver another industry, leading Europe wingstop.
With that I'd like to turn the call over to Alex.
Thanks, Michael and good morning.
As you just heard from Michael the third quarter demonstrated the strength of our long term strategies, we delivered a 17.7% growth and system wide sales in the third quarter.
Which now total $2.6 billion on a trailing 12 month basis.
We grew royalty revenues franchise fees and other revenue by $7.5 million in the third quarter, driven primarily by 215 net franchise openings since the prior year comparable period and the 6.9 per cent increase in domestic same store sales.
As we singled in our last call we reverse the trend we saw in the second quarter delivering a third quarter comp that's largely driven by transaction growth.
Company owned restaurants sales totaled $20.2 million in two three an increase of $2.3 million, primarily due to a 4.3 per cent increase in the same store sales and nine net new restaurants versus the prior year comparable period as we continued to execute on.
Manhattan expansion strategy.
Our unique position with meaningful deflation is illustrated in our corporate restaurant margins.
Cost of sales, excluding preopening expenses and as a percentage of company owned restaurants sales.
Decreased by more than 900 basis points compared to the prior year mainly.
Mainly driven by a nearly 1100 basis point decrease in food beverage and packaging costs.
A 150 basis point decrease in labor, which were partially offset by higher rent and other operating expenses and our New York City restaurants.
We are pleased to see the sequential improvement in a restaurant margins this year, which for the third quarter benefited from a 43% decrease in the cost of bone and chicken wings.
Based on everything we know today, we have a favorable commodity outlook not only for bone and wings, but also for breastfeeding, which we believe will continue into early 2023.
The significant deflation and winked prices. The recent declines of breast me prices along with our sales drivers will further strengthen unit economics.
For modeling purposes, and company restaurants, we estimate food cost to be 35.5% in the fourth quarter.
As a result, we know anticipate company owned a restaurant cost of sales in the fourth quarter to be approximately 75%.
Which is an improvement of 1000 basis points versus the fourth quarter of 2021.
In the third quarter, SG&A increase by $1.7 million versus the comparable period prior year. So a total of $16.7 million driven by investments and talent and strategic projects. The support the longterm growth of the business.
This is partially offset by a year over year decrease in stock compensation expense.
Jested EBITDA of non-GAAP measure was $28.4 million during the quarter.
An increase of 33% versus the prior year.
Adjusting for non-recurring items, we delivered adjusted earnings per diluted share a non-GAAP measure of 45 cents, a 55 per cent increase versus the prior year.
Are highly franchise acid late model continues to deliver strong free cash flows.
As of the end of the third quarter, we had $539.7 million in net debt.
Our net debt to trailing 12 months adjusted EBITDA was at 5.7 times.
Which is almost half a turn lower than at the end of the second quarter.
Underscores our ability to quickly delever through a combination of adjusted EBITDA growth and strong free cash flow generation.
We also are maintaining a strong cash balance that stands at over $170 million.
This cash positions us to be opportunistic to support our supply chain strategy as we continued to explore options to take greater control of our supply chain.
We remain committed to driving shareholder value and returning capital to shareholders through our regular quarterly dividend.
Our board of directors has declared a dividend of 19 cents per share of common stock <unk>.
A demonstration of the strong cash flow generation and strength of our business.
This dividend totaling approximately $5.7 million will be paid on December 2nd 2022 to stockholders record as of November 11th 2022.
Shifting to our outlook for 2022.
We are reiterating our guidance for same store sales of low single digits and we are updating our guidance for net new units to a range of 225 to 235 from prior guidance of 220 to 235 for the full year.
This translates to unit growth of 13% to 13.5% versus the prior year.
We are also lowering SG&A guidance to a range of 68, and a half to 70 and a half million dollars from our prior guidance of $70 million to $72 million <unk>.
Including stock based compensation expense of approximately $6 million.
We are increasing our diluted earnings per share guidance of between one dollar and 61 cents to one dollar and 63 cents.
Prior guidance of $1.55 cents to $1.57 cents.
Are updated outlook for 2022 reflects our confidence in the second half of the year story for Wingstop <unk>.
Supported by the same strategies, we're pursuing to achieve 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. Thank you. We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speaker phone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then too. Please let me yourself to one question and one follow up and if you have further questions. You may re enter the question Q at this time, we will pause momentarily to assemble our roster.
And the first question will come from John Glass with Morgan Stanley . Please go ahead. Thanks.
Thanks, Good good morning, I'm wondering on the chicken sandwich of a few things first Michael if you can just talk about what what the contribution actually was to the third quarter recognizing it was there briefly but it also sold out. So maybe are we over indexing to that right now where was we'd look at the third quarter and can you talk about the dynamics and how it implex check is it the kind of thing or.
It drives traffic, but it's dilutive to check how how was it purchased I guess and how has it influenced that just traffic, but but check as well please.
Hey, John Good morning. Thanks for the question you know what I would say about chicken sandwiches. The reality within the third quarter itself, we had the chicken sandwich available for for only six days clearly we saw the potential for chicken sandwich for our brand and really the longterm opportunity.
We have there and really a permission for guests from gas for us to play in that space or something where we're really excited about but there's not really anything I would call out materially as it related to the overall corridor for for chicken sandwich, but what I would point out is is is there was another demonstration of the opportunity that.
We have to drive brand awareness and the gap, we have to other national brands, which is still significant and so as we launched chicken sandwich, we really leaned in with our full advertising muscle and we launched it all the way from inclusive of National T V. Two influencers.
The social two even P. R campaigns around giving away 100000, pre sandwiches and so really hit it hard and what we saw was was almost a halo effect to our overall business, where we saw the entire business all channels really see growth. While we were we were out driving awareness around their branch in something.
Really really encouraged about and you see that you know not only as a longterm sells driving lever for us, but we also see it playing a meaningful role for us in our supply chain strategy you hurting our prepared remarks that mix levels that we're seeing today, we see a path where total boneless Mexican exceed 50%.
And at those levels, we see a path to food cost in the low 30%, which I know you're familiar with our story in the unit economics, John that's really compelling when you think about what that can do for our brand partners returns. We did see similar to our test market. We did see the chicken sandwich bring in a lot of new gas.
Asked and with that we saw Nick's nicely on the lunch day part and so there were some individual occasions with these new guest that we brought in that we were able to capture that did have a little bit lower average check, but again it wasn't a significant number that I would call out on the corner itself.
Thank you for all that it might go just to follow up on what you just mentioned on this path to getting food costs down to the low thirties, which I think is pretty remarkable just given how profound that would impact unit economics.
What what is the key driver to that the chicken sandwiches that part of the boneless strategy is there something else like you're just talking about boneless wings and is there a time frame you think about when that can occur is it in the next couple of years is that a very long term strategy. How how do you think about how that can materialize yeah.
Yeah, absolutely I think it's it's it's it's all of that John It includes the sandwich or boneless wings are tenders in we we have we have regions. We have restaurants today that have boneless mix in excess of 50% and do enjoy food costs today in the low thirties and so it is <unk>.
Happening, but for the broader system, we do see this as an opportunity and and again a longterm driver for a brand not just the current quarter hit but a long term driver to continue to drive chicken sandwich mix from there are a lot of these new guest that we're bringing in are also users of tenders, we'd see opportunity there and so we can see.
Over time as we continue to bring in these new gas convert them to wingstop users the opportunity for that mixed to continue to drive great.
Thank you. Thank you very much.
You bet the.
The next question will come from David Tarantino with Bird. Please go ahead.
Hi, Good morning, a couple of questions first time in the queue for.
Cobb salad Walker.
Range of low single digits.
We have a pretty wide range of outcomes possible in the fourth quarter. So I was hoping that you could comment maybe more specifically on on what your expectation is for the corner in broad terms, you know, especially now that it doesn't seem like you are running much pricing across the system.
Yeah, David Good morning. Thanks for the question you know, we're we're pretty excited about you know the work that team has executed against both here at the G. C. In our brand partners around you know reversing the trend that we saw in Q2 and as we progressed through Q3.
We saw that Tom sequentially improve throughout the quarter and it was really as we began to to execute against these these cells drivers that we called out in our prepared remarks and also leverage the benefit of this elevated ads that we had year over year not to mention.
A balanced message around value, which we think is really important in this environment.
And we did talk about as we exited Q3, we saw the impact of 2021 pricing trail off and basically our entire com being fueled by transaction growth, which is something we're really excited about it and what we believe is really a a true demonstration of the underlying <unk>.
Drinks and momentum in our brand well, we did <unk> comment about was chicken sandwich mix through the first few weeks of October seeing that in the high single digit range and and really what we've seen in the camp David through through I guess, the first few weeks of October is continued strength in that transaction gross and we're we're <unk>.
Sitting in where we kind of expect October to finish up his around six per cent com.
That said you know we were confident in our ability to deliver on our target of low single digit same store sales growth, particularly something we're proud about particularly when you think about the challenging macroenvironment that we're in and doing that in a way that's really shield my transaction growth.
Right that that's very helpful. And then one quick clarification on the the high single digit mix for the chicken sandwich, how how much of an incremental sales is that for your your business I assume every summer that's not.
Mental but how would you characterize.
List that you're seeing at that level of sales mix.
Yeah, well, you don't and a little bit earlier than that we've kind of seen we've seen it the the chicken sandwich cells that we're seeing be highly incremental we're really seeing a combination of two things here. David one is bringing in a lot of new gas, which we're really excited about that then we have a lot of existing wingstop.
Users, who are adding chicken sandwiches on to their to their existing wing occasion, and so we've seen it be these highly incremental in something we're really excited about particularly when we think about the long term potential for the brand and we've talked about this in the past, David where we've often with with our wing folk.
As to offering have had to navigate that veto vote literally believe offering.
Chicken sandwich, which is.
Pretty universal occasion for just about anyone that's really gives us an opportunity to address some of those issues and seen in the past and the past and again provides us a lot of confidence not just for this quarter, but that this is something we're gonna be able to build on as we progress through the balance of 2022 and in 2023.
That makes sense. Thank you very much.
Thank you.
The next question will come from Jeffrey Bernstein with Barclays. Please go ahead.
Great. Thank you.
Two questions. The first one just following up on that comp trends.
Sounds like like you mentioned trent's improve sequentially through the third quarter and you've given us some insight into October .
Wondering whether you see any signs of a slowing macro I know.
Talk about 30% plus of your sales or maybe at a lower income and recognized enough clearly down from where it was five plus years ago, which isn't that positive, but I'm just trying to get a sense for what you would be looking for in your comp and the traffic or in the mix or anything like that I know you said you have 30 million plus database users to whether that year.
Toolbox to kind of assess trends by customer just trying to get a sense of your saying any sort of a macro slow down at all within that very strong calm and then I had one follow up.
Yeah <unk> I.
I think we're in a pretty unique spot at Wingstop, where you know if we if we look at certain certain geography's certain income levels. We can see we can see less growth, but we really have two elements at play in our brand that that I think really strengthen our positioning and one is.
Is that proven value playbook, and if you think about how consumers engage with our brand. It's really Ah frequency is about three times a quarter. It's an indulgent occasion, and usually when consumers are starting to feel feel pressure or they want to pull back they they they most most immediately look at more <unk>.
Hi frequency occasions, such as Q S. R. Four to five times, a week visit symbol pull back there and as long as more presenting them with value we've been able to retain those indulge in occasions, but then in addition to that.
What we demonstrated in the third quarter is the opportunity we have around just bring it in new yes, whether that's closing the gap on brand awareness, whether it's capturing these chicken sandwich occasions, or even the addition of an additional delivery service providers, such as Ubereats, that's allowing us to access a consumer base that we want.
Previously offering links dot too and so we have these two elements working in concert if you will and all supported by.
A significant increase in our add $5 that we are able to invest this year that that really help us have confidence in our outlook for 20 twenty-two despite any pullback from the the broader consumer or any recession concerns that are out there.
Understood and then my follow up [laughter] kind of a follow up from last quarter feel like I have the same question, but I think it's just as relevant now in.
In terms of the conversations with franchisees and I think you mentioned you just had a franchise convention. So I'm sure it was pretty.
But.
Any sign that the difficult broader operating environment or perhaps rising rates may temper, it'll all the appetite for new you're gonna grow attempt to twenty-three and no. This year you were raising.
Raising the range and now you're just talking to the upper ends so we're talking about 13% to 14% type gross but I.
I would think some franchisees might just be intimidated by the the macro we're heading into and perhaps be a little bit more cautious just wondering whether you're seeing anything like that or whether we should expect another year next year of solid double digit growth again, no formal guidance any conversations you've had that would give you any kind of early until.
Yeah, Jeff I appreciate the question and and you know, we're we're really excited about.
You know having delivered for the first three quarters record unit development for the brand not just in our domestic business, but also in or international business record pace of your love for for both areas there, which we're really excited about we we did comment in our prepared remarks that.
On the tails of that record pace of development, we actually sit here today with a stronger pipeline.
Then we did this time of year ago, which I think really speaks to brand partner sentiment their their excitement around reinvesting in continuing to grow with Wingstop and and I really think that is if you're willing to exclamation point on the fact that we've not only been able to benefit from call. It you know.
Low to mid 30% increase in sales over the last three years, but we sit here today with meaningful deflation in our business and so right now our unit economics are about as strong as they've never been and as we indicated these leading indicators we watch around poultry seemed to suggest through the balance of this year.
You're in in the early twenties twenty-three uhm, we should we should have a favorable commodity backdrop, which is really encourage you needed and.
The last element I would add to show the Wingstop development and we've talked about this before just as there's there's not a lot of leverage on the businesses for our brand partners and a lot of them use existing cash flow to reinvest in drive their growth and so leverage rates is is not a common conversation that we have with our brand partners and I think <unk>.
Knowing that the the rising rate environment, that's that we're in right now it doesn't give us a lot of concern around.
Ability to continue to deliver on our long term algorithm of of double digit development growth.
That's great. Thank you.
Thank you.
The next question will come from tiered Garber with Goldman Sachs. Please go ahead.
Great. Thanks for thanks for the question sort of wanted to follow up on the on the development conversation in the unit growth conversation that you just touched on a bit why don't you get a sense of maybe how the third quarter unit growth Ah number is sort of track traverse of your internal estimates became in a little bit below.
Where we had been expecting but at the same time, you maintain an even to a degree raised your full year outlook on unit growth. So I just wanted to get offensive, maybe how the third quarter played out in and what gives you the confidence.
For the level of opens that you'll need to see in the fourth quarter and then I guess beyond that you know what the returns.
They may return sorta speak for themselves.
Nominal phenomenal returns and the top line continues to grow so.
I guess what was the question really is what's the path towards accelerating unit growth from here and.
How what other conversations you're having like with franchise partners, maybe larger more sophisticated partners take this brand.
On a more accelerated growth path. Thank you.
Yeah. Thanks for the question I would say as far as the development you know I would say everything really from our perspective is is right on track. We provided an updated raised our outlook last earnings call in and as we progress through the year, we've we've tightened that.
<unk> only by raising the low N as we have good visibility and what development looks like for for the balance of the year and so from our perspective Everything's on track and we're really excited about you know our outlook and the reality that we're gonna deliver a record development year for the brand.
I think that's that's a really strong statement statement, when you're particularly think about the the broader macro and the operating environment that we're delivering that and I think that really speaks to the to the strength of the brand and and we're pretty proud of you know that range translate into a 13 13 and a half per cent unit.
I think that's pretty strong.
As it relates to accelerating growth I think it is happening and you are seeing.
<unk>.
Brand partners reinvest we are seeing international start to play a bigger part of our development story I mentioned earlier internationals on pace or record development ear, there's a lot of excitement around the globe for expanding with Wingstop and I think as we progress.
Bad International story is gonna be a bigger part of our development in something we're really excited about and we're constantly having conversations with with large scaled operators who are interested in wingstop, but the reality is we've got a lot of existing brand partners that are excited to grow.
It's a really efficient way for us to grow they know the brand. We know then and and we're we're really excited about continuing to grow with our existing brand partners again, a strong testament to the returns that they're seen in their desire to continue to reinvest.
Great. Thanks, and then I guess just following up quickly is there any outlook you can provide on what that development pipeline looks into twenty-three.
Yeah, I think we commented earlier, how it's it's it's strength in from this time, a year ago and so the pipeline strong and you know we are excited about finishing this ear out strong and and there's nothing in front of us that would lead us to believe we're not going to deliver another strong year in 2023.
Great. Thanks, so much.
The next question will come from John Tower with the city. Please go ahead.
<unk> two two quick ones from beef, but first I was wondering you know just following up again on the unit development piece of it that we've heard from a handful of other operators some issues around opening new stores.
Whether it's securing the proper equipment or getting permitting and and you guys don't seem to be hitting any of that any of those roadblocks I'm curious how have you and your franchise he's been able to navigate around these issues.
Hey, John No I appreciate the question I think a lot of other brands. If you think about their asset. It could involve you know Ah scraped and build out on the pad. It could involve a much more involved involved build whereas if you think about our asset. It is it is.
As in line, it's a shell that we're building out and it's extremely efficient and I think that's what allows us to enjoy really low initial investment on average $400000 and deliver those great returns on that efficient box, we have been extremely proactive.
As in engaging with an quick equipment suppliers, just ensuring that the the equipment is there to support our pipeline, whether that's us leaning in its securing thanks said friars as an example.
Taking a really proactive approach in trying to help mitigate any issues related to supply chain, but I think it's those two things are probably what are helping us.
Shape up to have another record development ear, despite the challenging mm.
Macro backdrop.
Okay. So even thinking about next year, there doesn't seem to be anything cropping up that you're saying would be a reason to believe growth would slow on an absolute basis.
That's right.
Okay, and then just following up on the on the cops commentary about potentially moving down to 30 per cent of our time, which is great to hear.
I'm curious I mean, you've already got best in class you to grow and you know the question from there is much higher <unk>, you're given potential so human capital constraints for furniture I V been opening new store. So I guess, it's been begs the question of.
Is there other aspects of the business that franchisees can be investing in that maybe it's directly within their own P and LS or perhaps you know are you.
Do you think that better line of sight and getting 230 per cent.
Costs over time potentially accelerates the willingness of franchisees goodbye into doing the supply chain co op.
Yeah, I think there's there's a couple of things here John I would point out one is we know continuing to protect and enhance our unit economics is is if you will is central pillar to our to our long term strategy of delivery and on the the opportunity we have here at.
You know roughly 1900 restaurants today, expanding this brand over 7000, and so the more we enhance and protect those unit economics. The the increase confidence we have an opportunity in front of us.
There, obviously will be areas, where our brand partners will need to invest over time, you know one of them that we're seeing right. Now is is is our existing brand partners scale, they're making investments in there above restaurants support their infrastructure and so continuing to enhance engineering and economics.
Don't allow or don't require a permit any of those investments to to impact how they're going to deploy capital and so there's there are investments that are happening and then as we scale. The brand from here as we continued to advance our supply chain strategy will work closely with our our brand partners to ensure that if investments are.
Needed there clearly communicated with a business case behind them and and in a way that won't impact are are longterm target on user growth.
Alright, thanks for the time.
The next question will come from Andrew Charles with Cowan. Please go ahead.
Okay. Thank you Michael obviously very strong performance falling to increase the national iPhone contribution back in May that's obviously being concentrated in in the back half of this year. So can you remind us just contractually when the next 50 or 100 basis points raise the national add.
IPhone contribution is up for grabs to go to five 6% of sales and your level of confidence falling you mentioned a few weeks ago that that can franchisees will want to increase that contribution to continue to fuel the advertising shrimp you're seeing.
Hey, Andrew I. Appreciate the question, we when we went to increase the add fun and convert that local 1% to national.
We worked through a a franchise agreement amendment process with all of our franchisees and we presented the business case and we were extremely excited and I think this is somewhat unheard of in the franchising space that we we obtain 100 per cent of signatures needed to.
She ran at that that amendment and get the right moved to five per cent national contribution rate and as we sit here right now Andrew we feel pretty confident that that's given us a lot of firepower to continue to drive the brand and continue to to close the gap the opportunity we have in front of us around.
<unk> brand awareness, when we compare ourselves to other more mature national brands in the thing that's going to continue to feel that fund and fueled growth is really gonna come in the form of system sales growth, which is growing not only from same store sales growth, but there are unit expansion as well and.
We believe that gives us a lot of firepower and just to continue to to drive the business then deliver on our on our algorithm of of the same store sales growth.
Okay, great and thanks for that and then Alex just a question on the 2022 guidance. You know you you beat three Q by more than you raised to pull your a T. S. So I'm trying to better understand the implication for lower than expected four Q and so you you'd prefer.
The restaurant margin guidance, it's encouraging and kind of curious as before two got into bed. Some hefty deterioration number line for your three year same store sales transfer three two to four Q recognizing it you're rolling over that five per cent pricey increase from a year ago, or perhaps a higher tax rate and for Kidman three Q just love some help kind of sleeping through the mechanics.
Good morning, Andrew Thanks for the question, Yeah, I wouldn't necessarily point to the same store sales estimate you know, we're still delivering a three year comp in that low 30% low to mid 30 per cent range from the same store sales point standpoint, I think it really points to what you've seen his store.
Wickley from us with the cadence of our SG&A spend and how that steps up from quarter to three quarter for pointing to just the investments, we're making a head count and project that strategic project investments.
Okay. Thank you.
The next question will come from Jeff Farmer with Gordon Haskett. Please go ahead.
You are you in a lot of your peers have seen some reduce frequency from that lower income consumer.
But have you seen check management or any other indication of of changing behavior from the balance of your consumer segments.
Hey, Jeff appreciate the question, we we clearly indicated in our comments that we've seen the contribution of 2021 pricing trail off, particularly as we exited the third quarter and and really what's driving that is is two things.
One is and I guess overall, it's really just our business is re mixing a little bit we're seeing some nice organic growth in our dining business with just you were call did carry a lower average check associated with it and then earlier I called out. These some of these new.
New chicken sandwich occasions that we're bringing in do do have a slightly lower average check associated with them as well and so we're seeing a little bit of a re mixing of the business.
Those elements come into play, but the deterioration of the ticket contribution.
Or check contribution in our comp isn't anything as it relates to the consumer trading down we're not seeing that in our business really in any way.
Okay. That's helpful and then unrelated stuffing shortfalls, I know that varies from sort of market to market and in restaurants, a restaurant, but ah have staffing shortfalls prevent prevented any of the company or franchise restaurants from.
Fully meeting demand I guess in other words do you feel are are any of these restaurants or regions markets, leaving sales on the table because staffing levels aren't quite back to where you would.
Would like them.
No, Jeff we're actually pretty encouraged with what we see out there from a staffing perspective, it's gotten much much easier than it was say a year ago and we're not seeing that uhm constrain you know restaurant volume and I and I think as you look at <unk>.
Opening 167, net new restaurants through the first nine months, it's not restricting our ability to to expand our footprint either and I really just think that that highlights the the efficient labor model that we deploy you can run Ah Ah wingstop inner at at our average unit volume of 1.6.
6 million with as few as three to 14 members in there and and the overall roster is is clearly much smaller than what what a lot of other brands have to operate within their assets. Since I think that helps US you know navigate and feel less of an impact from from any sort of staffing issues out there.
If there are any of that that continues to persist.
Okay helpful and thank you.
Except.
The next question will come from Andy Bearish with Jeffrey So please go ahead.
Pardon me Mister bear she may be muted.
Oh, sorry about that yeah actually just wondering on you know as you talked about sort of.
The amount of sequential improvement I would guess that you went through the three Q and and obviously September .
Higher then what October is running so just just sign up kind of match all of that up with.
You know with.
You know what happened with only the week of a chicken sandwich and everything you know kind of surrounding bad I guess.
Sorry N E I think we we.
We had.
We had a couple of levers we were pulling prior to chicken Sandwich launch you know in the six days and we did obviously see a really strong surge in demand in those six days, which resulted in us.
Selling out of a four weeks of inventory, but what we saw was was a pretty pretty consistent trend as we progressed, where the contribution of check trailed off sequentially in the transaction contribution Bill and again we.
We were running at a at a really strong number. When you include six days of chicken Sandwich in September but.
Obviously, we point to the fact that it's fueled by transaction grows.
And you know as we continue to navigate this environment as we continue to.
Execute against these gross lever strategies, we we feel pretty pretty confident and excited about about about our ability to deliver that 19th consecutive your same store sales growth and as we thought about.
The relaunch of chicken Sandwich I mentioned earlier, how we fired just about every bullet we had with the initial launch in and we saw the opportunity and we saw how many new guest we were bringing in and so with the relaunch we took a much more measured approach Ah referenced in our prepared remarks, where we we turn the chicken sandwich on them for.
The first week, we didn't even support it with advertising and then from there we have advanced the add support ensuring that this opportunity we have bringing these new guest into wingstop that we win them over and convert them to loyal Wingstop users and see that is really nice longterm sales driving opportunities for.
And I think that's consistent with how we've approached things historically, where we take it very measured approach, we're very intentional and and we liked the position that it puts us into to continue to deliver strong growth regardless of other challenging macro environment.
Gotcha, and then and then just looking at 10 23, I mean angling around our planet.
You know mid single digit number that you talked about you know in the in the algorithm.
<unk> I mean that should we be thinking of that is primarily traffic driven growth you know as we we try to look at our our model for you know for next year.
Yeah, Yeah, I know what will come out obviously early next year with with more more definitive comments around around 2023, I think as we sit here today you know we'd reference this meaningful deflation that we've benefited from as a brand this year we.
Just really put up sending unique spot, where we haven't had to take price this year and and you know a lot of other brands have and they've had to take a lot of price to navigate this record inflation in your scene that drive a lot of their com and you're seeing that impact start to impact transaction growth and we're we're obviously not in that position.
<unk>, but.
All things equal I would expect in 2023 for us to revert back to maybe are more historical trend around pricing and that is a very disciplined approach of one to two points of price a year.
But obviously you will need to we'll need to watch and see how things play out as we progress through the balance of 2022 and enter 2023.
Thanks very insightful.
You bet.
The next question will come from Nick's sedan with Wedbush Securities. Please go ahead.
[noise]. Thank you you have a problem with the fries and the coffee Q3 seems to be that it was more broad based or just a chicken sandwich is there any way to maybe just.
Parse out what the conflict out the chicken sandwich may have been that'd be very helpful.
Yeah, Nick I completely appreciate the question and it's it's a little bit of a difficult one to solve and you know, we're we're kind of really.
Really bullish and excited about the quarter the gross levers, we pull but a great example to to give you context on how to try to pull those apart is with with our elevated add spin we were able to promote chicken sandwich on a new delivery.
<unk> for them and so it's really hard to tease apart what drove the top most but what we can say is we saw a meaningful benefit and all channels.
Transaction growth across the board and something that we're really excited about and we think is is pretty unique in this environment and gives us confidence to come out and reiterate our low single digit target for this year and deliver on 19th consecutive year at the same store sales growth.
And speaking of the <unk> partnership I think we want to like 62 per cent in terms of digital sales in Q3, I think the trough last quarter was 60.5% there how should we think about the digital mix from here <unk>.
After we exit 23 in the mid 60 per cent range, what are some strategies that you're working on to drive that higher.
Yeah, and I think our our digital selves mix seen that continue to build and sustain from from these elevated levels.
Another is another element or aspect that really differentiates wingstop, where we can see and demonstrate that these new gas digital guessed that we brought in our sticky and we're we're we're retaining those against whereas you're seen a bit of a normalization to consumer dining behaviors maybe.
Back to more gravitate gravitating back towards pre pandemic behaviors and so a lot of.
A lot of brands or maybe not seen that stickiness with their digital business and we are which I think is a really strong statement and we continued to see opportunity to drive in scale. Our digital business. We mentioned. The addition of Ubereats as a national delivery provider in the third quarter.
That's something that we really haven't done a lot of ads support behind we see a lot of opportunity not only there with with door dash as well when you benchmark our delivery business against other more established mature delivery businesses, there's a ton of runaway for us and so that is just one example of of the opportunity we have.
To continue to scale in advance are digital business.
Thank you.
The next question will come from Dennis Geiger with UBS. Please go ahead.
Great. Thank you I just wanted to ask about when costs, a bone and wind costs you know given the deflation there how we should think about sort of continued use of strategic discounting to drive you know further traffic going forward for the core bone in it I guess, we could frame it up relative to the bonus as well, but just anything on discounting.
Promotional levers, which I think if he was pretty effectively and in in recent quarters, what that might look like into in the next year. If you have any high level comments on it yeah.
Yeah, no absolutely I think we want to be really careful with it with the terminology we use here because as a brand.
And I mentioned this earlier, we we know Wingstop is is used as an indulgent occasion and it <unk>.
And if we when we lean into value, we don't really discount as a brand so when we lean into value and so we're changing those indulgent occasions, but then presenting the consumer with value, which can be a price point. It can be the coke to order element it can be the craft and in in the attention to <unk>.
Tell that goes into our ranch that's made from scratch in the restaurant every day all of those elements contribute to the consumer's perception of value and so we lean into that and can promote things like the boneless meal, which we did earlier this year that really reverse the trend that we saw in the second quarter and that bonus.
<unk> was that a decent food costs for a P&L it wasn't really at a discount.
So we have is a brand don't discount, but we are intentional about how we think about and present, the consumer with value, particularly in an environment, where the consumers being more discerning with their dining out decisions and so we know that we need to be thoughtful when I think chicken sandwiches, a great example of that.
Are all the card chicken sandwich that can come in 12 different flavors preceding the consumer with a lot of variety, but yet presenting that at 549 price point or even the combo with fries and a drink. It's 799 is compelling value, but then it also not only dresses value and that value message that's.
To retain our core it's also bringing in a lot of new guest and so these are these are longterm sustaining themselves drivers that were activating it against that gives us a lot of confidence and and what's in front of us and navigating and sort of macro challenges that play out.
Appreciate that color very much just one other quick on just on China any update to share their on the work you've been doing on the development opportunity. There. If there's been any any changes are already kind of new new new commentary to share on that opportunity. Thank you.
Yeah, No sure I mean, China continues to be a <unk> and an opportunity for us that we're really excited about we continue to have active dialogue with with potential prospects to partner with in that region that said I wouldn't say anything's materially change on our position they're in.
And and the timing around it.
Obviously, just having the party Congress maiden conclude last week earlier. This week, we have to evaluate the implications and how that plays out so we'll work through that but I wouldn't say there's any.
Meaningful update to provide at this time other than it remains an exciting opportunity for us, but that's just one of the many opportunities we have around the globe anymore.
We announced earlier when we sold the.
The rights to South Korea, we expect our first restaurants are open there in early twenties twenty-three really excited about that opportunity. We continue to expand around that southeast Asia region. In addition to the success, we're seeing them in in Europe , particularly in the UK. We're we're 25.
Five restaurants strong on pays for a record development ear and even with some of the challenging macro environment that the UK consumers having to navigate our business. There continues to demonstrate strong sales and in fact over the past couple of months I've actually seen uhm.
Margin strengthened and so I think another really strong case behind our international growth story.
Not only is our brand transportable around the globe. The resiliency of our brand is showcasing itself in a challenging environment in the UK just to provide that example.
Alright, Thank you Michael.
The next question will come from Michael Tomas with Oppenheimer and company. Please. Please go ahead.
Hi, Thanks, you know you sort of touched on this a couple of questions ago, but your comments on delivery today I've been pretty bullish and you don't seem to be seeing a slowdown that others are experiencing or have talked about that they might see in the near future.
Is that because you added the second delivery provider that added incremental customers or can you help us better understand why you think this differential exist recognizing that you know some of those food delivery cuisines are also a pretty good value for the consumer banks.
Yeah, no absolutely I think I think there's a few things here and and they kind of tie back to earlier comments, but clearly one is expanding the delivery base and gaining access to a completely different delivery consumer has helped but then you also seen just I mentioned the Halo iffy.
Fact, some of the work we've done around around national advertising leaning into that additional 1%, where we commented last quarter.
We're expecting a over 35% increase in the amount of AD dollars, we can deploy in the second half of the year and as the business is trendy and you think it's gonna be even higher than that which works and that's allowing us to bring in a lot of new gas. We're <unk>, we're starting to lean in and and and activate on needs delivery.
Platforms, and so I think we are seeing new guest acquisition in these channels, that's helping us.
Continue to grow and see growth in the delivery channel.
Perfect. Thanks, and then your average customer transaction with you about three times a quarter and you mentioned that traditional Q S. Are typically sees you know several times per week in terms of frequency. So can you tell about any research you've done or what you've seen so far with the launch of a chicken sandwich and how maybe that platform could elevate your customer frequency going.
Forward.
No I think it's a great point, you know a few weeks and it's it's probably hard to get much of a read particularly when you. When you think about the <unk>. The frequency, we just reference with three times three times the corner being the average, but we do see it as an opportunity to capture more occasions, and inherently and capturing more occasions, you're gonna impact frequency.
We talked about this being a longterm sales driver for the brand and and something that you know works in concert with a lot of the other gross drivers that were pulling and it's and it's all these growth drivers in aggregate that that give us confidence in our ability to scale R. A U V as from what are <unk>.
1.6 million today to what we believe we have a clear line of sight to him how to succeed $2 million and so driving frequencies are capturing more occasions as 100 per cent part of that that strategy that we're executing against.
Awesome. Thanks, so much.
You bet.
The next question will come from Chris Correal with RBC capital markets. Please go ahead.
I, Thanks, and good morning, So I wanted to ask about longer term strategy. So as you were looking at the changes across the menu potential day part expansion opportunities to drive transaction could grow awareness cause that we need to revisit your real estate and restaurant format strategy is their potential to focus more.
Real estate in higher traffic locations or a different format like drive through just given how the business is evolving from here.
I think it's an interesting question, but one that we really haven't seen the need to to push very hard on in that were or 1.6 million dollar a V. As today in a box that's anywhere from 1300 square feet to 1700 square feet in line with.
The majority of our business off premise so as you start to introduce complexities around.
And.
An asset out on the pad drive throughs. It starts to change the the operating model you start to add labor you start to increase occupancy toss and so as we talked about some of our comments earlier really making sure we protect and enhance these unit economics does something that's paramount for this brand and and.
And what we believe will continue to fuel industry, leading development. So we're gonna stay true to that N B C and ability again to drive a these two levels above $2 million with the existing box we have today.
Right. Thanks for that and then just on the rebate of the advertising funds would that driven by just better than expected system sales and maybe more restrained advertising of the chicken sandwich relaunch or are going forward you expect can't fully leveraged.
Larger pool of advertising funds any clarification on that would be great.
Hi, Chris Yeah. This is Alex Yeah that was a function of last year, the better than expected sales growth, we built up a surplus and just for being opportunistic to return a component of that AD fun surplus last year and a mix of record inflation, but to your point that gives us <unk>.
Wrong, and you know even greater fuel going into next year with the growth in our system sales that we have to continue to work against our awareness gaps those top Q S. R appears out there.
Alright, thanks very much.
The next question will come from Joshua along with a Stevens incorporated please go ahead.
Great. Thank you for taking my question was just curious as we think about the opportunity for that boneless, Mexico North of 50 per cent overtime pretty exciting when we think about being you know what kind of investments would be needed in that poultry clump flex to support that assuming that you could get to that level across the overall system.
Yeah, I I don't think it it involves a a a fundamental change in our supply chain strategy really what it's doing is allowing us to salina and a little bit more a little bit further on that whole bird strategy and so there's you use more of the breast meat, which is.
What is in our boneless products.
It really allows you to have a lot more leverage and control more of the costs that go into the whole burden. So this is this is actually something that's accretive to our to our supply changed your energy and not really anything that would require incremental or additional investment or our different ways to think about how we <unk>.
Cute against our supply chain strategy, it's actually something that's just bolsters it gives us more confidence in and the plan were executed against.
Very helpful. I appreciate that color when we think about some of the you know goes kitchen stores that your ghost kitchen, you that you have given that you've had some more time to work with them that could you provide an update on the strategy any learnings things that maybe lately due to either accelerate revisit or just kind of update how.
Those fit into the overall unit growth strategy now that you expand your digital.
Awareness and digital channel.
Yeah, No I I would say there hasn't been a a significant change in our perspective on Gus kitchen. So we we still have quite a few I would say call. It call. It roughly 30 around the globe and the majority of those are actually outside of the U S, where we've we've seen great success and and.
Deploying that.
Efficient of asset type and and and help drive the brand outside of the U S and the U S results as we said before has that been mixed there's some spots and some partners where it works really well others, where it hasn't worked out well when we think about you know the the longterm potential for the brand that over <unk>.
7000, plus units, we do see a role for ghost kitchens pretty consistent with what we said in the past, we don't see that being a huge component of our growth, but yet something will continue to monitor and evaluate as we progress from here and and continue to drive and deliver that on our long term <unk>.
Algorithm for unit development.
Great. Thank you.
The next question will come from Jim Sanderson with the North Coast Research. Please go ahead.
Hey, Thanks for the question and congratulations on a great quarter, just wanted to drill down a little bit more on the digital component of your business. I think you mentioned and acceleration in digital sales mix was that delivery component about the ramp up as well, especially given the addition of <unk>.
Hey, Jim I think that the point, we were calling out around digital is that we did see it grow quarter on quarter and if you think about that in light of two things one that three mixing resolve our business, where we're seeing a little bit of dining and come back. We're we're.
Seeing growth in in all channels.
Carry out call in still still growing there as well it was it was encouraging to see that that channel grow and then addition to that as you're starting to see consumers drift back towards maybe pre pandemic dining behaviors.
A lot of other you know digital channels retract <unk> grow is something that we're really excited about and I think as I mentioned earlier really speaks to the stickiness of of the digital growth that we've seen in our business over the last couple of years or something network sided to continue to build on in advance from here.
<unk>.
Okay. So I think last year, you were mixing about 27% delivery is that still a good run raiders are a little too aggressive.
Jim Yeah, that'd be indicated in our Investor day. This past year, we see a past the benchmark suggest upwards of 50% mix and that's what we're working towards you know Michael touch the opportunity to partner with both delivery service providers another vehicle for us to build awareness.
And their marketplaces attract a new guest and so you know we see a large runaway ahead of us for the delivery business.
Okay, and just one of my <unk>.
The question on the digital business, you mentioned about a five dollar higher average check is that.
Related primarily to hire menu prices for those delivery orders or a little bit of pricing and higher items, just a little bit more texture on it yeah.
Yeah No I.
<unk> that checklist, Jim is something we we have enjoyed in our digital business, even before we had delivered music channels. So pricing on those channels as something that impacts that checklist.
Understood Alright got it 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.