Q4 2022 Wingstop Inc Earnings Call
Okay.
Good morning, ladies and gentlemen, and thank you for standing by and welcome to the Wingstop incorporated fiscal fourth quarter and full year 2022 earnings conference call.
All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
Please note that this Congress is being recorded today Wednesday February 22nd.
2023.
On the call today are Michael Skipworth, President and Chief Executive Officer, and Alex, Colorado, Senior Vice President and Chief Financial Officer, I would now like to turn the conference over to Alex. Please go ahead.
Thank you and welcome to the fiscal fourth quarter and full year 2022 earnings conference call for Wingstop.
Our results were published earlier this morning and are available on our Investor Relations website at IR Dot Wingstop Dot com.
The 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.
<unk> of such information should not be considered in isolation.
Or as a substitute for results prepared in accordance with GAAP reconciliations.
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 now turn the call over to Michael.
Thank you Alex and good morning, everyone. We.
We delivered another industry, leading year at Wingstop, Despite our business being faced with what we described as a perfect storm in the first half of 2022.
As you May recall, we spoke about a second half of the year story for Wingstop I couldn't be prouder of how our team came together to deliver another record year for Wingstop.
Our fourth quarter and full year 2022 results are a demonstration of the underlying strength of the Wingstop brand and showcases the resiliency of our strategy.
Strategy that has remained consistent over the years a strategy built in a way that has allowed us to continue to deliver industry, leading results that are sustainable through various economic cycles. That's supported by 2022 marking our 19th consecutive year of same store sales growth.
The same power of our strategy is what gives us confidence in achieving our goal of becoming a top 10 global restaurant brand.
Before diving into our results I'd like to first acknowledge our franchisees, whom we affectionately refer to as our brand partners. The incredible team. We have here at Wingstop Global support center and each and every one of our restaurant team members and thank them for an incredible year.
The foundation of our strategy is built upon our investments in people and our culture, which we view as a competitive advantage. We believe this is what sets us apart and enables us to deliver industry leading results year after year.
We know a lot of brands were forced to take significant price in 2022 as they navigated record inflation this level of price and in many cases translated to a loss in transactions, but not for Wingstop Wingstop is unique we deliver we benefited from meaningful deflation in 2020.
Two it did not have to take price in fact in the fourth quarter. Our same store sales growth was eight 7% driven entirely by transaction growth, which speaks to the unique cells levers, we have at Wingstop and a true demonstration of the underlying health of the brand.
<unk>.
This topline growth was accompanied with meaningful deflation in 2022 which further strengthened our unit economic model.
This is a showcase through another record year for development. We opened 228 net new units globally, representing a 13, 2% growth rate achieving record years for both our domestic and international businesses and this translated to adjusted EBITDA growth of <unk>.
23, 1% highlighting the strength of our asset light model.
As we enter 2023, we have an energized base of brand partners and our global development pipeline stand strong at roughly 1100 restaurant commitments. Our unit economic model is as strong as it's ever been with au vs above $1 $6 million in food cost in the low 30.
Per cent range in 2022 we saw spot market prices for bone in wings declined by 44%, which resulted in the wingstop being one of the few brands with significant deflation and as you sit here today, the combination of leading indicators and progress against our supply chain.
G suggest a favorable commodity backdrop to continue through 2023.
At an average unit volume of $1 $6 million and an initial investment in the mid 400000 dollar range. Our brand partners are seeing returns that translate to less than two year payback.
Truly best in class.
Only 20 to showcase the resiliency of the Wingstop brand and the strength of our strategy and it's what gives us confidence in our ability to navigate twenty-twenty theory, particularly due to uncertainty ahead with the current macroeconomic backdrop, well wingstop isn't immune to these macro challenges we have a proven playbook.
That's helped deliver 19 consecutive years of same store sales growth and we have unique sales levers to drive toward our target of a $2 million plus AAV levers that are multi year sales drivers.
With the strength of our transaction growth in the second half of 'twenty 'twenty. Two we are playing offense in our acquiring new guests and building frequency as a result of our growth levers.
In addition to acquiring new guests and winning new occasions. We also have a proven value playbook that positions us well to navigate changing consumer sentiment in this environment.
Our path to achieve our target of $2 million a visa is clear and consists of driving brand awareness menu innovation, expanding our delivery channel data driven marketing approach and further transformation of our leading digital platform.
We continue to have significant opportunity to build brand awareness when we benchmark to other national brands.
With the National advertising fund that grew by more than 40% in 'twenty 'twenty. Two we made good progress, but still have a lot of runway in front of us as we look ahead into 2023 with the growth in system sales. The continued growth in our AD fund will help us further build awareness and acquire new gas.
Into the brand in the second half of 2022 we deployed our strategy of having an always on national media message and 2023 will mark our first full year of this always on strategy.
Wingstop will continue to show up in live sports, such as NFL and NBA games and consistent with prior years will over index are our investment in streaming digital and social channels to maximize our presence nationally as we continue to work towards expanding brand awareness.
Another lever we have on our path to $2 million Au vs is menu innovation 2022 was an exciting year for Wingstop, we launched a chicken sandwich and not just the plain and spicy version, but 12 chicken sandwiches, sauced and tossed in our bold distinctive and craveable flavors, our chicken sandwich launch.
In August of 'twenty, 'twenty, two and we remain extremely excited about the long term opportunity. The chicken Sandwich provides is the product that can introduce wingstop to over 160 million chicken sandwich consumers and be a game changer from a supply chain strategy perspective, as we continue to win more chicken sandwich.
Occasions, we see a path to a boneless mix in excess of 50%, which we believe will yield long term food cost in the low 30% range further strengthening our leading unit economics and.
In 2022, we also innovated with flavors, introducing our most successful L. T O Hot Honey dry rub, we followed our hot Honey launch with our Carolina Bbq flavor and in both cases achieved sales level mix levels that doubled our typical flavor L. T O.
We have a fully stocked pantry of flavors with high marks from consumer testing and we will continue to look to satisfy the cravings of Wingstop flavor fans in 'twenty to 'twenty three with additional flavor L. T O.
Another growth lever for Wingstop is in our delivery channel and then 2022 we took the opportunity to expand our delivery channel to a second provider with Uber eats we are just scratching the surface on delivery and we see an opportunity to almost double the size of our delivery business door Dasher Uber eats marketplaces are additional.
[noise] avenues for us to build awareness and capture incremental occasions.
Our best in class digital platform continues to be a competitive advantage for us with nearly $1 $7 billion generated from digital sales in 2022 the.
The increase level of national advertising, the launch of chicken sandwich and investments in our technology platform more catalyst for significant growth in our new digital guest acquisition rates and retention during the quarter.
As the industry has seen consumers revert back to pre pandemic behaviors, what we've experienced at Wingstop is different our digital mix has sustained above 60%. In fact reached an all time high in Q4 and represents the stickiness of the new guests we've acquired we built.
The investments in our digital platform to in source strategic components and build greater personalization will further expand frequency and help us achieve our aspirational goal of digitizing every transaction.
Each of these levers have combined to drive significant transaction growth and we believe have multiyear sales growth opportunities, giving us confidence in achieving targeted they targeted <unk> in excess of $2 million, which will only further strengthen our unit economics.
I'm also really excited about the progress center international markets in the last six months, we've launched two new International markets, Canada and Korea.
I've had the opportunity to visit both markets, where their openings and I could not be more excited for the potential for wingstop in both of these markets are Canadian market is already pacing ahead of their development schedule.
We opened our Korean market in mid January and are pleased with the pipeline of sites.
Both markets showcase the opportunity for Wingstop brand globally. Following our successful playbook from the U K market, where the restaurant count is now 28, and avs above $2 million.
Our new markets speak to the investments, we've been making to support our growth.
And their early successes will help continue to fuel our business development pipeline.
There remains a lot of excitement exciting demand for the Wingstop brand outside of the U S and I believe our international business is supercharged for growth.
If you consider the growth in transactions driven by our sales levers the strength of the unit economics and the enthusiasm of our brand partners to continue to grow Wingstop is well positioned to have another record year, we're exiting 2022 with great momentum and this combined with the strength of our.
Our strategy is what gives us confidence in guiding to a mid single digit same store sales growth outlook for 'twenty two 'twenty three.
And our ability to navigate any macroeconomic uncertainty ahead, we also see opportunity to maintain this accelerated pace of unit growth and anticipate opening approximately 240 net new restaurants in 'twenty, two 'twenty, three which is well above our three to five year targeted growth rate.
Before I hand, the call to Alex I'd like to share some exciting news around our ESG efforts, what we referred to as flavor for good.
A key focus area in our flavor for good platform is giving back to the communities in which we serve.
Our Wingstop charities mission is to engage the youth in our communities in pursuit of their passions. Our charities core programs consists of community grants team member assistance and a scholarship program supporting team members, who are the first generation and their families to attend college. This past December we launch.
That capability in our website and app for our guests to round up their check to donate to wingstop charities I'm thrilled to share in just a couple of months since launch we are pacing towards contributions that in only one year could more than triple. The grants. We have provided to date are remarkable.
Opportunity to give to have a bigger impact in the communities we serve.
I'd like to close by thanking the team members in the restaurants, and our global support center as well as our brand partners for all their incredible work and commitment to position us to deliver these results.
Couldn't be more excited about the opportunity ahead for Wingstop in 'twenty, 'twenty, three and beyond with that I'll turn the call over to Alex.
Thank you Michael 2022 results are a great demonstration of the strength of our long term strategies and how wingstop is uniquely positioned.
We hit our 19th consecutive year of same store sales growth opened more than 200 net new restaurants for the first time, and we generated more than $100 million and adjusted EBITDA during the year.
Before I dive into the financials. A brief reminder, that 2022 results include an extra operating week or a 50 <unk> week.
For the fourth quarter represents a 14 week period versus a 13 week period in the prior year.
As a result year over year comparisons are not strictly apples to apples unless identified.
Our growth in system wide sales during the fourth quarter was 28, 9% versus the prior year.
When excluding the $57 million impact from the 50 <unk> week full year 2022 system wide sales totaled nearly $2 $7 billion, which is a growth rate of 14, 4%.
Royalty revenues franchise fees and other revenue increased by $14 million in the fourth quarter, driven primarily by 221 net franchise openings since the prior year comparable period.
The eight 7% increase in domestic same store sales.
And an estimated $3 million of additional revenue associated with the 50 <unk> week.
Our fourth quarter comp was entirely driven by transaction growth speaking to the strength of our second half.
Company owned restaurant sales increased by $5 $3 million in Q4 due to a two 6% increase in same store sales, primarily driven by transaction growth.
Seven net new restaurants versus the prior year comparable period.
And $1.5 million of additional sales from the 50 <unk> week.
Cost of sales, excluding preopening expenses and as a percentage of company owned restaurant sales decreased by 900 basis points in Q4 compared to the prior year, primarily driven by food costs and a 49% decrease in the cost of bone in chicken wings.
We were one of the few brands experienced significant deflation in our core commodity and our unit economics are exiting 2022 from a position of strength.
The near term commodity outlook is favorable not only for bone in wings, but also for breast meat.
Based on what we know today and for modeling purposes, we anticipate full year 2023 cost of sales to be approximately 75%, implying an improvement of more than 300 basis points versus 2022.
SG&A increased by $300000 versus the comparable period prior year to a total of $18 $3 million.
Driven by investments in talent and an approximately $1 million impact from the 50 <unk> week.
This was partially offset by a year over year decrease in stock compensation expense.
Adjusted EBITDA, a non-GAAP measure was $34 $7 million in the quarter, an increase of nearly 72% versus the prior year.
This includes the estimated impact of the 50, <unk> week, which totaled $2 $6 million.
And when excluding the impact adjusted EBITDA increased by 15, 9% in the fourth quarter.
We delivered adjusted earnings per diluted share a non-GAAP measure of 60 cents.
150% increase versus the prior year.
When excluding an estimated three cent impact from the 50 <unk> week adjusted earnings per diluted share increased by 138%.
Our highly franchised asset light model continues to deliver strong free cash flows.
As of the end of the fourth quarter, we had $526 $8 million and net debt.
Our net debt to trailing 12 months adjusted EBITDA was at four eight times.
Which is a full turn and a half lower than at the end of the first quarter.
The timing for our last debt transaction.
Underscoring our ability to quickly delever through a combination of adjusted EBITDA growth and strong free cash flow generation.
We remain committed to driving shareholder value and returning capital to shareholders through our regular quarterly dividend.
Today, our board of directors has declared a dividend of 19 cents per share of common stock a demonstration of the strength of our model. This.
This dividend totaling approximately $5 $7 million will be paid on March 31, 2023 to stockholders of record as of March 10th 2023.
Now turning to our outlook for 2023.
As you heard from US today, we remain confident in our strategy and our outlook of mid single digit same store sales growth for 2023.
We also anticipate maintaining an increased pace of development with approximately 240 net new units.
This translates to a unit growth of more than 12% versus the prior year.
For modeling purposes, we anticipate opening three new company owned restaurants with openings are likely to occur in the fourth quarter of 2023.
SG&A guidance is estimated to be between 82 and $84 million, including an estimated 11 five to $12 $5 million of stock based compensation expense.
This outlook translates to approximately 15% growth in adjusted EBITDA versus 2022, when excluding the impact of the 50 <unk> week.
I'd like to thank the incredible team members and brand partners throughout the Wingstop system that have helped us deliver another record year their dedication and commitment gives us the confidence in achieving 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 youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
In the interest of time, please limit yourself to one question and one follow up.
At this time, we will pause momentarily to assemble our roster.
Okay.
Our first question comes from David Tarantino from Baird. Please go ahead.
Hi, good morning, and congratulations on such strong results.
My question's related to the comps outlook and I was wondering first if you could maybe describe how you expect the year to play out and how you started 2023 and then.
Secondly, you know one of the questions I hear a lot from investors is whether you've pulled all the the key or the major levers that you had in the portfolio.
To drive comps in the second half of 2022, and you know how how.
How are you planning to cycle that out when you get to the second half of this year. So any color I guess on on your confidence and cycling such strong performance in the second half of the year would be great. Thanks.
Hey, David Thanks for the question and good morning.
Yeah, I'm actually happy that you asked that question because I know that's one that we hear a lot and I think it's really important and we tried to get that.
Across and in our prepared remarks, but if you think about.
Wingstop is positioned in a really unique spot you've often heard us refer to ourselves as being in a category of one but when you think about the growth levers that we did pool and are executing against they all ladder up to that strategy that we believe will continue to scale, our <unk> from $1 $6 million today.
With a $2 million.
And part of that is still yet a big opportunity we have in closing the gap to other national brands around brand awareness, we had a 40% increase in 2022 and our AD fund dollars, we can invest and where we're making progress but there remains a significant opportunity there and as you think about the growth in <unk>.
<unk> sells just from 'twenty two to 'twenty three alone gives us a lot more ammo in our inner AD fund to continue to advance that gap and scale brand awareness, we've talked about the innovation chicken Sandwich I think is a great example of the multiyear sales driver that we believe we have for our brand.
There are 160 million chicken sandwich consumers out there in the U S. Today, and a small fraction of those chicken sandwich consumers are engaging with Wingstop. It's we're pleased with where our chicken sandwich sales mix is and where it ended in the fourth quarter, we maintained that high single digit selves mix, but we.
No theres a ton of opportunity to continue to win more of those occasions, and we believe that will drive.
Multiple years of growth for the brand and then you think about those same consumers, who who also are likely consumers of tenders, where we see another really exciting lever for us to pull in more occasions for us to when we talked about delivery just recently, adding Uber Uber eats as our as our second delivery provider.
Nationally and.
As we sit here today, we can benchmark, where our delivery businesses against other heavy off premise businesses that behave similar to wingstop and their delivery channel mix is north of 50%. So we see significant growth in that channel and we know based on conversations with Uber eats that we're just scratching the surface with the number of used.
It was on their platform and those that are engaged with our brand and then from there we think about digital transformation and continuing to not only get get our digital business to further expand which again another unique attribute around wingstop is youre seeing as consumer behavior in the industry starts to revert back to prepay.
Delek behaviors is starting to see other businesses digital business retract and ours is actually expanding and we know there's more opportunity there for us to continue to grow that and that's given us a lot of powerful data, that's feeding that marketing engine and helping us drive frequency when more occasions bring new guests into the brand and so.
I think it's the culmination of all of those things and those levers David that aren't really a a one year impact to our business, but you had a multi year impact that give us line of sight to scaling <unk> to north of one of north of $2 million and so I think all of that is what gives us confidence to come out in this environment.
Where there is still a fair amount of uncertainty out there, but could to come out and guide to a mid single digit same store sales outlook for 2023.
Great. Thank you for that and then any comment on how the year has started.
Yeah, we saw obviously as you as you think about the comp in Q4, David We talked about how we saw October Ah ha.
Hundred percent of our comp is being driven by transaction growth and we've signaled that that being 6% and obviously posted an eight seven for the quarter, we saw that comp momentum build throughout Q4, and so we think it gives us a lot of great.
Great momentum as we think about starting 2023.
Great. Thank you very much.
Thank you.
Our next question comes from Jeffrey Bernstein from Barclays. Please go ahead.
Great. Thank you very much.
Just on the.
Other key revenue driver being unit growth.
Mentioned, another strong year in 'twenty, three with 12% growth just wondering if you can talk a little bit about maybe new versus existing markets.
U S versus international and.
And whether there's any franchisee concern at all in the current environment, whether macro related or elevated interest rate related just trying to get a sense around that that unit growth more broadly and then I had one follow up.
Thank you Jeff good morning.
Yes. The unit the unit growth story is something we're really excited about and I think as you mentioned is a real key component of the long term story at Wingstop and we talked about it in our prepared remarks, but the currents.
Sentiment with our brand partner community is really positive we're seeing some really great strength as we talked about in the fourth quarter from a top line perspective.
Probably equally or most or more importantly is as what they're seeing on their P&L is as the unit economic model is about as strong as it's ever been and it's creating a lot of excitement to continue to grow and that excitement isn't just in the U S and so as we target our outlook for 2023 with another strong.
Development year for the brand, we see that mix being pretty similar to what we delivered in 2022 from a domestic versus international perspective.
Similar to.
So what we've executed against in 2022, we're continuing to expand.
Not only outside of the U S, but into some of the emerging markets in the U S. As well that we haven't really had a strong presence and the early results of our development in those markets is really encouraging and we're seeing some really strong volumes out of the gate and we're excited about continuing to expand our footprint.
Understood and then the follow up.
Maybe for Alex just the.
The cash usage you talked about I think you said you're at four eight times and I believe your historical targeted six to seven so I'm just wondering as you think about cash.
One whether or not you're willing to let the ratio continue to fall in this current elevated rate environment.
Or whether there is an update related to your supply chain investment and how else that potential cash could be used.
Good morning, Jeff Thanks for the question.
Since our IPO, we've returned more than $650 million of capital to shareholders and our model our asset light model is clearly built to provide best in class returns that being said, we do have that cash on our balance sheet to be opportunistic to maximize returns in our business and for shareholders and that could include.
As we've talked before our focus on our supply chain strategy to mitigate that volatility in our food costs or other capital allocations, such as a return of capital and you've seen that cadence from us over the years on taking our leverage up.
So we'll continue to have that dialogue with our board and really look to prioritize the best use of capital with that in mind.
Thank you.
Our next question comes from Jon Tower from Citigroup. Please go ahead.
Great. Thanks for taking the questions just a quick clarification and then a question.
Effective royalty rate in the fourth quarter stepped up pretty nicely relative to what we've been seeing in the past year or so I'm. Just curious if you could explain what that is and then one follow up to that.
Sure.
Yeah.
John You May you may remember that several years ago, we had a vendor.
Vendor contract that we renewed them renegotiated and so you probably in our results so a little bit of a pop in other revenue.
And we have that in this fourth quarter that impacts the flow through a little bit, but a big chunk of that.
Retro rebate, if you will actually float into the AD fund as well, but that's what's affecting that number.
So that's not going to be sustainable.
Level of.
Royalty rate then going forward just a one time John .
John you could point back to quarter three is a good effective rate to think about.
Okay, Great and then.
I guess.
About unit growth here with targeted paybacks, increasing particularly if you look at making your way towards 2 million Evs are it looks like you can get less than two years.
Paybacks on these new stores can you discuss the capital allocation policy the company and why not pour more capital back into unit growth on the company side understanding that there may not be major market opportunities like Manhattan.
Out there, but probably more onesie twosies across different markets.
I'm, assuming it would be good uses of capital considering the paybacks.
Yeah, I think John over the years, you've seen us be opportunistic where we can and I think the fourth quarter was a great example, where we saw a couple of restaurants that.
Came up for us to acquire in the Dallas Fort worth area, and you'll see US continue to take advantage of those opportunities as they present themselves, but I don't think you'll see us.
Fundamentally shift our strategy our approach because quite frankly, where we're designed to be a a franchise or.
We acquired G&A investment in some of the infrastructure needed to do I think advance our our capital allocation towards company restaurants would would require more of a fundamental shift than than us continuing to pursue these opportunistic opportunities, which we believe are a great return for shareholders.
Got it thanks.
Youre welcome.
Our next question comes from Andrew Charles from Cowen. Please go ahead.
Great. Thank you guys.
I know that the industry, we've been hearing a lot in 2020 twos not increase capex and cost to build new stores, but you guys have talked pretty consistently about a mid $400000 range and so I'm curious what you guys have been able to do to help just mitigate the industry trend and keep a pretty consistent level of capex per store.
Hey, Andrew Good morning, Thanks for the question.
No I think we're not immune to to inflation and we have seen the build cost tick up a little bit, but I think it speaks a little bit just to the efficiency of our model and the fact that where we're building out an inline space, which requires a little bit less of maybe some of the more inflationary areas you've seen in construction.
A lot of that being labor quite frankly.
And so I think that's helped us a little bit, but I would say we have been proactive from a supply chain perspective to get in front of a lot of this development from an equipment side in and negotiate.
If you will buy for the entire system that I don't like help us negotiate strong price there are favorable pricing, but also help us address some of the disruptions that have the brands have seen from a supply chain perspective.
Okay. That's helpful. And then I wanted to ask is what we saw earlier this year, a bone and bundle I think it's the first time, we've seen you guys do that in the last couple of years, and obviously cost of wings, certainly prohibit them on that.
What drove the decision do bone in wings.
Do you see you guys used value more.
We started kind of defense and using these almost.
More of a defense. So curious about what drove the decision beyond just you know loan cost of wings to do the pone bundle.
Yeah, Angie you could to some degree you said that was a little bit of a test for us to understand how how a bone and bundle what would perform and you may have been included in this audience, but there was a pretty targeted audience of those who set new year's resolutions and so it was targeted towards those hitting the gym and wanting to bulk up.
And so it was a pretty contained audience, but nonetheless performed well it was pretty short lived but definitely an interesting test for us, but I don't know that I would argue it's going to be a fundamental shift in our long term approach around presenting consumers with value.
Well definitely you've got more of a moderate use resolutions have you put your backup and looking forward to it.
Good deal Thanks, Andrew.
Our next question comes from Brian Harper from Morgan Stanley . Please go ahead.
Yeah. Thank you good morning, guys.
And you're kind of same store sales outlook do you think franchisees will will take any price. This year because you know obviously there is still labor inflation.
Commodities are favorable, but maybe not quite the tailwind. They were last year do you have any assumptions around that.
Yeah, Brian we talked about this a little bit before and that we expect in 2023 to get back to what we referred to is a little bit of our historical approach around a disciplined approach to pricing, which would consist of roughly two windows of about one to two points of price.
And that's what we've done historically, but obviously with with 'twenty 'twenty. Two we took a little bit of a different approach considering the overall impact to the consumer.
Okay, great. Thanks.
And then maybe just on.
The delivery side I know it looks like digital mix, you know did tick up from a little bit from earlier in the year and maybe some of that seasonality, but could you maybe comment on how much of that might have been driven by Uber eats and and how you've seen that kind of drive delivery transactions perhaps.
Yeah, Brian it's been interesting, we we're kind of in a little bit of a unique spot and that we've seen similar growth across all channels. So not just delivery, but digital takeout and even non digital take out we've seen really strong growth across all channels and so theres not really any one area that to point out or call out that contributed.
You bet.
Okay. Thank you.
Youre welcome.
The next question comes from Joshua Long from Stephens. Please go ahead.
Great. Thank you for taking my question it sounds like the chicken sandwich and some of the menu innovation that you've been working on.
There are resonating with consumers I'm curious what you've learned in terms of usage and is it bringing in new guests into the brand or maybe.
But what have you seen in terms of frequency and kind of used to just maybe get some shifted from some of the larger party orders into more individual transactions in the lunch day part.
Yeah, Josh Thanks for the question, we have seen and it's similar to our prior comments, we've seen the chicken sandwich proved to be highly incremental it continues to mix nicely over the lunch day part.
Which would really like to see them, we actually seeing it.
Be an add on to our two orders.
Versus maybe anything like a trade down or anything like that.
And I would say it's helped.
I'll just bring in new guests as well as drive drive frequency and so we're excited about what this what this can mean long term not only from a sales driver perspective, but also from a supply chain perspective, because as we've shared before as we as we see chicken sandwich continued should grow and become a bigger part of our business we see.
Your line of sight to where our boneless mix can be north of 50% and then that in that scenario, we could see where we could have.
And our approach to our overall supply chain strategy that allows us to deliver a.
Predictable food costs through our brand partners in the low 30%, which we think will be a it will be a game changer for a for a development perspective.
Great. Thank you Michael as a follow up as you think about that bringing new guests than with the menu innovation, particularly the chicken sandwich does that speak to your desired communicated strategy, bringing in that heavier kyocera customer who may not be historically.
Involved or as close to Wingstop.
Are you, making progress on that and I imagine, there's kind of a slow build to that given where you want to go and a lot of opportunity, but any sort of insight you can share in terms of how some of these near term efforts are helping you kind of bridge the gap there that would be helpful.
Yeah, It's a great question and where we're seeing a lot of really great traction against that heavy <unk> consumer bringing them into the brand and what's interesting is if you look at our frequency. It still remains about one time, one time, a month or three times a quarter. So that wingstop occasion that indulgent occasion, that's still a low frequency occasion.
And that that's something I think that presents a pretty uniquely in this space and allows us to engage with guests differently, but as we think about chicken.
Those do tend to be a little bit more of a high frequency occasion, and we see it as an opportunity over time for that to influence frequency and so it is something we're working against but we'll continue to provide updates as we have more but an exciting opportunity nonetheless for for us to continue to sustain not only the acquisition of new.
Guests, but also ultimately impact frequency, which you know will help us in our in our target of achieving <unk> north of $2 million.
Thank you.
You're welcome.
The next question comes from Jeff Farmer from Gordon Haskett. Please go ahead, Craig Good morning, and thank you I'm just curious a different sort of tack on I'm trying to understand how are the restaurants are performing in early 2023. So can you just remind us how large of an impact you saw from <unk> and in early 'twenty.
<unk> 22 last year.
Yeah, Jeff. Thanks for the question. Good morning, we actually didn't see a real impact to our business from.
From omni crawling back in in 2022.
If you recall at that time, the majority of our dining rooms were closed.
And.
In the January time period February time period, and we didn't really see an impact.
Okay, and then an unrelated Ah I did hear the guidance for I think you said total cost of sales at 75% in 2023 down roughly 300 basis points year over year is it safe to assume that the lion's share of that benefit is coming on the Cogs line or you're going to see it on labor or other operating as well.
Yeah, that's right Yeah, you could expect to see the majority of that in the Cogs line and as Michael mentioned on the in the prepared remarks, there will be through a combination of what we're seeing with leading indicators on our our commodities as well as our execute our supply chain strategy.
Okay. Thank you.
Our next question comes from Andrew <unk> from BMO. Please go ahead.
Hey, good morning, Thanks for taking the question just wanted to follow up on the comment you just made there on the cost of sales on the food line in particular, obviously a lot of focus on the bone in wings always but chicken breast prices being down as much as they are how how is that playing into your thinking there.
Can you frame, maybe the impact and the timing to which that really starts to kick in and then on the kind of broader whole bird strategy that you've talked about.
In terms of the different options by the chicken plant partnerships various things can you give us an update on where you stand now.
<unk> see more or less viable at this point.
Yeah. Great question, you know last year chicken breast prices reached their peaks in the midpoint of the year. So it will be.
Wrapping a component of that and that is a component as Michael mentioned, the combination of where boneless mixes.
Heading with chicken sandwich launch that allows us to have different combinations of different conversations with our suppliers and that's the that's really the first component of our our supply chain strategy around more of a whole bird cost plus pricing.
Strategy. So you know as we think about not only the leading indicators we're seeing that.
That imply.
Benefits in the first part of the year. It's also about our supply chain, what we're executing and so if you back into our approximately 75% that does imply about a low 30% food cost in 2023.
Okay, great and just any update on.
Maybe conversations of how you're thinking about some of the broader supply chain strategies.
Are you talking about the chicken plants and partnerships in various other ways to try to create some stability there overtime.
Yeah, we continue to be an active dialogue with potential partners and really I think we've talked about this before a lot of the conversation and some of the willingness to structure some of our pricing agreements a little bit differently and move further and further away from the spot market or where those conversations our focus which for us is a win win.
Because it.
Obviously.
Is a very efficient way for us to execute the outcome, which is what we're trying to solve for which is to minimize volatility in food costs. So we're seeing great progress and I think it has a lot to do with what.
What we're able to signal that our targeted food costs for 2023.
Okay, great. Thank you very much thank.
Thank you.
Our next question comes from Nick set Chan from Wedbush Securities. Please go ahead.
Thank you and congrats on another amazing quarter.
Just a question on the the differential between the <unk>.
<unk> growth year over year in the comp for a couple of quarters now where are you.
Growth.
The comp based stores has trailed the comp.
By a substantial amount just wondering what's going on there and how we should think about that going forward.
Hey, Nick.
Thank you and we hope that Delta continues to exist because what you're seeing is really the strength of the new restaurant openings come in and out of the gate at higher <unk> entering the comp base, which obviously impacts that average age of the calculation.
That comes in a little bit and they're still comping really strong after that first year. So you're seeing that dynamic at play, which we think is a pretty good thing for the business.
So maybe just comment on the sort of you know.
Year, one <unk> right now and.
How that's been trending in the recent past and how we should think about the sort of you know opening volumes going forward.
Yeah, Nick just just a few years ago, we were seeing year, one volumes on average coming out north of $900000. In just this recent vintage alone. It's it's it's coming out of there out of the year one at about one point to 1.3 million. So you can see a marked increase in how the.
How the restaurants are coming out of year, one, which can ultimately influence kind of the change in <unk> year over year versus just pure comp growth.
And then just capex for 2023.
Yeah, It will be fairly consistent with what you saw in 2022 and that high Twenty's Martin.
Thank you very much.
Thank you.
The next question comes from Michael Tamas from Oppenheimer <unk> Company. Please go ahead.
Hi, Good morning. Thank you you talked about plans to double the size of your delivery business over time. So can you talk about maybe some of the specific strategies to reach that goal, particularly at a time when we're seeing some delivery headwinds across the industry.
Do you think you know that will cause some of your consumer base is just simply shifting the delivery from other message.
Getting wingstop. Thanks.
Yeah, I think the opportunity there it's really one that's tied to a broader opportunity for wingstop and that's just awareness or awareness on these delivery platforms is still really low and so we will continue to build that whether it's through specific promotions are actually using some of our AD dollars too.
Advertise on those platforms, but it's.
It's not anything different than some of the other strategies or excuse me that are going to continue to scale awareness and really speak to a huge opportunity. We have here at Wingstop is just the acquisition of new guests as we scale awareness, but we.
We talked about it earlier or our delivery business I know there's questions from a broader industry perspective, but we've actually seen strong growth in our delivery business and that's something we're excited about.
Okay. Thank you and then you know you talked about.
Can you talk about your new consumer base versus maybe a legacy or more or more mature consumer base in terms of either the frequency or overall spend.
Is there a noticeable difference between the two and then.
Why do you think that difference exists and what can you do to sort of like close that gap.
Yeah, I mean, I think we've talked about over time, we've we've brought more of those heavy <unk> guests into the brand, which are a little bit less ethically diverse I'm, a little bit higher income and so we've seen R.
Our or mix of that lower income consumer shift down to about 30% and and so there is a little bit of a difference in behavior, but I wouldn't say anything.
Material the frequency is about the same the average checks not not materially different in how they engage with the brand I think really what we're seeing is some of these new guests that are introduced to the brand via a chicken sandwich I think speak to some longer term opportunities that could shape and be a little bit different than our historical or.
In legacy customer.
Okay.
Great. Thank you very much.
Our next question comes from Brian Vaccaro from Raymond James. Please go ahead.
Hi, Thanks, and good morning.
On this call you've laid out a couple of high level Bogies and deliver you noted that peers, often see greater than 50% of their sales on delivery and you also mentioned eventually getting to the boneless mix above 50% could you just level set us on where each metric delivery sales and boneless sales mix currently stands exiting 2022 and then.
Would you also be willing to ballpark the lift you're seeing since adding uber eats in the delivery platform.
Yeah, we've we've.
We've seen delivery continue to perform strong in and what's what's a little bit tricky with the question is you're asking us to comment on mix levels, but we've seen a couple of things happened one is over the last year, we reopened our dining rooms, and then two we're seeing extremely strong growth across all channel.
And so we've seen really strong growth in delivery from an absolute sales dollars perspective, but from a mix perspective, it's still hovering just below 30% and something that's strong which speaks to the continent. We made earlier the opportunity to almost double it and so we're excited about that and so and the boneless.
Mix, obviously chicken sandwich contributed to <unk>, we're seeing that mix reached all time highs for the brand.
Historically, it's been in the low thirties, and we're seeing that approached 40% right now and something we're excited about.
Alright, great. Thank you for that and then Alex just a follow up I noticed the DNA guidance depreciation guide it implies a pretty big step up into 'twenty three that seems to exceed the company unit growth that you laid out.
It got me thinking about just the level of investment that you're making in your tech in growth infrastructure could you level set sort of where that was in 'twenty, two and how you're thinking about that into the 23. Thank you.
Yeah. Thanks, So first about a third of that impact is related to the new restaurants are reopened.
In the past year. So just the wraparound effect of that and then the other the balances related to this tech investment that we've talked about a couple of years ago of $40 million to $50 million investment so really take components of some strategic components and in source.
Within our tech infrastructure and so we're working on that and you're starting to see that show up a bit more in our DNA, but we're excited about the progress we've made to date and where that's heading for our system to take more control of our a key component of our strategy.
Alright, thank you.
Our next question comes from Chris Cargill from RBC. Please go ahead.
Hi, good morning, so on the international unit growth could you speak to some of the learnings.
From the strong results you saw in the U K as Youre thinking about strategy and next stages for growth outside the U S.
Hey, good morning, Chris absolutely.
They their business in the U K is something where you kind of referred to as a textbook textbook deployment of our strategy, where we focus on.
A little bit more affluent consumer heavy off premise, a digitally savvy consumer and and obviously a market where there's a strong delivery business and so we've taken that.
If you will criteria and really use that to target, which markets. We go to prioritize for growth and so as you think about our first openings in Toronto or US opening just earlier this year in January and in Seoul.
South Korea, I think both of those markets really speak to how well that they fit that strategy.
And it's showing up in the results early on we're seeing some really strong volumes out of the gate, which make us feel like there's a similar opportunity in those markets that we've that we've seen and the success we found in the UK.
Great. Thanks.
Thanks for that and then I guess for the for the U S business. I mean, how are you thinking about pacing or cadence of the flavor L. T. OS maybe this year on a normalized basis going forward versus kind of past historical levels. Thanks.
Yeah sure. We historically if there was it was a.
Our cadence of pattern, we would target about two L flavor L. T OS a year you know we did.
A little bit more than that in 2022, and and we feel like that resonated well with gas it really they like the flavor news. The variety, we think it drives consideration and ultimately purchase and so you could see us going doing very similar to what we saw in in 2002.
Two with about three at least three flavor LTE us throughout the year.
Got it thanks, so much.
Welcome.
Our next question comes from Dennis Geiger from UBS. Please go ahead.
Thank you I wanted to ask another one on the consumer but specific to the quarter. If you could speak a little bit more to to what youre seeing from your customers across consumer, but you know purchase behaviors, whether that's looking at promotional usage.
Other menu utilization were worth calling out.
Any sort of.
Observations as it relates to the lower income consumer that that youre seeing in the quarter.
Yeah. It does thanks for the question and good morning, We you know obviously, we see all the research and headlines that everyone else sees we do a lot of consumer research on our own and we.
We do here in that you know, it's it's still tough out there for the consumer but as we look at our business that we look at how consumers are engaging with wingstop, particularly the lower income consumer we're not really seeing it show up and I think it has a little bit to do with our category of one positioning our unique position.
<unk>, where it's an indulgent occasion for these guests in and so what we've seen historically and I think what we saw in 2022 is as consumers have a tendency if they are going to pulled out pull back on dining out occasions.
They typically first target there more high frequency occasion, so its four to five times a week heavy Q U S. Saar visits and then they almost find themselves in a situation where they feel like they they've saved money throughout the month and they deserve to reward themselves and therefore, presenting them with value and top of mind, we've demonstrated ability.
To retain those indulgent occasion, so while we kind of read everything that everyone else reads, we really havent seen anything show up in our business yet.
Very helpful. Michael just one other one I just wanted to ask on staffing given the strength you're seeing in the traffic growth.
I believe last quarter your staffing levels were falling so maybe that's maybe that's still the case, but just curious where we're staffing is given that traffic and if by chance that as an opportunity to kind of help meet the demand that's out there. Thank you.
Yeah, no. It's a good question and I think we are.
Along with our brand partners, we did a good job of getting in front of this labor environment.
We've really focused on a consistent message about paying the right wage and I think that that was taken to heart and we we got in front of a lot of this and so I think you saw as we commented last quarter not really seen a lot of issues from a staffing perspective, and I think if you look at.
Opening 61, net new units in the fourth quarter alone that really speaks to our ability to staff restaurants without any real issues and obviously part of what helps us do that it's just the unique labor profile, we have at Wingstop, where.
And at $1.6 million.
You can run a runner wingstop with as few as for team members and so we just require a smaller roster.
On a much more efficient labor profiles I think allows us to navigate this environment, a little bit differently than others.
Great. Thank you.
Welcome.
The next question comes from Peter Saleh from V. T. I G. Please go ahead.
Great. Thanks, I wanted to ask about the National media in 2023, I think this will be the first year that you have the full benefit of the 100 basis points, a transition plus clearly higher sales and more units. So can you just talk about where the opportunities are in 'twenty three on the national media side.
And what if anything you'll be doing differently than you did in 'twenty two.
Yeah, no good morning, Peter and Great question, we alluded to that a little bit in our prepared remarks, where we talked about the second half of 2022, we were really able to deploy this always on media approach that we think allowed us to show up in the right places at the right moments with the right message.
And it wasn't just on linear TV and streaming to digital to paid search and social.
I think what we're excited about for 2023 is us being able to deploy that strategy for the full year and benefit from that and obviously consolidating that local 1% into the National AD Fund gives us a little bit more ammo and where.
The the true I guess lap of not having that is isolated to Q1 win.
When when that <unk>.
Started I guess in 2022 at the beginning of the second quarter contributing that extra 1% to the National AD fund, but I think you'll see us lean into what we believe wasn't really effective strategy in 2022 and continue to drive the business drive brand awareness and and go from there.
Thank you for that and then just on you know your volumes have increased pretty substantially over the past several years are there any other tests or any new equipment or processes that you guys are testing.
Increased throughput to meet all this accelerated demand.
Yeah, I think I would.
We often get the question asked a little differently around capacity and we've got a lot of restaurants in the system now that are doing well north of $3 million in that same kitchen, and so we don't think there's a throughput issue Oh, we're far from it we haven't found it yet and so we don't see that as a constraint.
For us to continue to drive AUC growth and most importantly, just to continue to strengthen the unit economics for our brand partners.
Thank you very much.
Again, if you have a question. Please press Star then one.
Our next question comes from Todd Brooks from the Benchmark Company. Please go ahead.
Hey, Thanks for taking my question.
Just following up on.
Two parts of the commentary one how strong the returns are for the brand partners right now and how good the unit economics are and.
Secondly, the success.
Chicken sandwiches, horlicks mixing and boneless.
Getting to north of 50% of the mix overtime, I guess, Michael as you're looking at the supply chain strategy. Given these two developments do you feel like the solution needs to be maybe as.
Hum.
Crashing as what you guys were talking about earlier in the year as far as looking at potentially owning chicken asset or maybe.
More people producers or are you in a place now where if your food costs can can be structured in the late third.
Using with intends, where they are that maybe wingstop doesn't need to go as far as you saw the supply chain issues.
Yeah, Todd it's a.
It's a great question and it may be just to take a step back we.
We saw an opportunity in early 2022.
So take our leverage up in advance of what we saw as a rising rate environment, and we think that allowed us to be well positioned to be opportunistic if if we saw an opportunity.
Two.
To vertically integrate and take more control, but that was just one component of a multifaceted strategy that we're working against and as I mentioned earlier the majority of our efforts in energy right now or are on.
I guess you could call the less capital intensive part of the strategy, which is really around moving more and more of our buy away from the spot market and creating more predictability in Atlanta food costs for the restaurants, but you know I I don't think we.
We think this is anything that would say that we are going to move away from our broader strategy longer term that could still be a step that we take and it could be a step that we feel is the right step to continue to deliver these industry, leading unit economics, but right now we remain focused on having the impact.
We can through just a different way in structuring our agreements, but that doesn't mean, we're not going to continue to look for ways to further improve those returns in and ultimately scale grow from there, but more to come but nothing immediate and I think as Alex mentioned earlier in a response around the cash on the balance sheet is.
Even the supply chain strategy doesn't change the overall.
Fundamental asset light structure of Wingstop witches, which is a really unique model, where we have high growth and a and then in the end.
Not very capital intensive model that allows that shell's off a lot of cash and as Alex mentioned, we delever really quickly since Q1 of 2022 a turn and a half with deleveraging. So that the profile of our model is one that will continue to deliver strong shareholder returns and provide.
Return of capital opportunities for shareholders, and so that's not going to fundamentally change.
Very helpful. Thanks, Michael and then I'll ask a quick one for you I know the G&A guidance I know, there's some incremental stock compensation in there, but it still looks like a.
Maybe $10 million to $12 million lift year over year can you walk through the components of what's.
What's responsible for the lift in just dollar spend for G&A.
Yes, it's hard to you know you mentioned that the with the stock compensation were lapping some forfeitures from.
From 2022, which are about $7 million. So if you normalize for that our growth rate is actually slightly below what we saw in 2022.
So as we've mentioned over the years you know, we're going to continue to invest to support our strategies and the growth we have in front of us.
Okay, great. Thank you both.
Our next question comes from Jake Bartlett from <unk> Securities. Please go ahead.
Thanks for taking the question.
On the importance of the bundling strategy and in terms of driving traffic and I'm open for any detail on the mix of bundles in 'twenty two versus what we had historically maybe in 'twenty, one or I think you sort of launching those back in he can so just how.
How the bundle mix has shifted.
Yeah, Jake good morning, and thank you for the question, we talked in 2022 about the success, we had around the BOMA smell deal in which we thought was a great way to.
Serve that indulgent occasion.
Present, the guests with value.
And really drive the business win when you saw some some pressure on that that lower income consumer and we saw that bundle mix at about five 6% something we're pretty excited about and that was a that was a record mix level for us and so as you can think about that as an example, it's not a material.
Real impact to the overall growth, but I would say more than anything it's something that really helps us retain those indulgent occasions, when the consumer is feeling.
Pressure or a desire to pull back.
Great and then I had a question about pricing of the chicken Sandwich I believe it's in the last few weeks or a couple of weeks, it's increased pretty broadly across the across the system and I'm. Just wondering one is is that just more of a reflection of the strong demand that franchisees are seeing you.
Any comment there would be helpful.
Yeah, Jay we saw an opportunity just against that further enhanced unit economics and flow through for our brand partners.
We had the chicken sandwich initially priced at a very compelling value that would drive trial and we even as we as we took price throughout the country throughout the system on the sandwich and the combo, we still think we benchmarked it and it's still priced competitively and so.
We haven't really seen anything that gives us concern around that pricing and just saw an opportunity to improve the economics.
Great. Thanks, and just a real quick you mentioned three openings for company stores in 23, where does where do you stand in terms of Manhattan. My impression was that there was going to be 20 opening I think you have eight opened so far.
Three more coming but what is the what is the plan in Manhattan, just to remind us on that.
Yeah, I mean, I think we remain committed to the long term opportunity, we see there to build that market out, but I would say probably similar to other brands that have a much bigger presence in the city.
It still feels like it's not quite back still recovering and so we're staying close and watching.
The the traffic within and how other businesses are faring as well as when it makes sense to continue to lean in and further expand there but for right now where we're staying close to kind of the recovery and how consumers are behaving within the city.
I appreciate it.
Thank you.
This concludes our question and answer session and the conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Yeah.
Okay.
Okay.
[music].
Okay.
[music].
Okay.
Okay.