Q1 2023 Wingstop Inc Earnings Call
Good morning, ladies and gentlemen, and thank you for standing by walkers. The Wingstop, Inc. Fiscal first quarter 2023 earnings conference call.
Participants will be in listen only mode.
Should you need assistance. Please signal a conference fastest refreshing that starkey followed by zero.
Please note that today's event is being recorded today Wednesday may three 2023.
On the call today are Michael Skipworth, President and Chief Executive Officer, Alex Calida, Vice President and Chief Investment Officer.
This time I would like to introduce Mr. Kelly you may begin the presentation. Thank you.
Thank you and welcome to the fiscal first quarter 2023 earnings conference call for Wingstop. Our 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.
Statements are not guarantees of future performance and are subject to numerous risks and uncertainties that could cause our actual results to differ materially from what we currently expect.
Our SEC filings describe various risks that could affect our future operating results and financial condition.
We use certain non-GAAP financial measures that we believe can be useful in evaluating our performance.
Presentation of such information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
Reconciliations to comparable GAAP measures are contained in our earnings release.
Lastly for the Q&A session. We ask that you. Please each keep to one question and a follow up to allow as many participants as possible to ask a question.
With that I would like to turn the call over to Michael.
Good morning, and thank you for joining our call.
The momentum we saw in our business in the back half of 2022 has continued into 2023 and given us a strong start to the year.
While we continue to execute against several multiyear sales drivers our strong start to 2023 speaks to the resiliency of the Wingstop brand and the staying power of our strategies. This gives us confidence in our ability to deliver another year of industry, leading results at the foundation of our strategy.
People and I couldn't be prouder of our team and brand partners, who are fueling our path to becoming a top 10 global restaurant brand in.
In the first quarter, we delivered 21% same store sales growth.
Substantially all of our comp was driven by transaction growth.
True demonstration of the underlying strength of the Wingstop brand within our sales growth. We saw further expansion in our digital channels, achieving a record 65% digital sales mix for the quarter.
We opened 37 net new units during the quarter, representing a unit growth rate of 11, 4%.
Global system wide sales grew by 30% and we are now approaching $3 billion in system sales.
This strength in transaction growth fueling our same store sales is driven by multi year sales drivers we have been executing against and we believe provides us clear line of sight to growing <unk> north of $2 million.
These strategic growth levers consist building brand awareness.
Menu innovation, expanding our delivery channel.
Digital transformation and data driven marketing.
Our advertising fund continues to grow at a rate similar to our system sales, which increased 30% in Q1, given us the fuel to continue making progress against the gap and brand awareness through other national brands.
In the first quarter. The AD fund was further bolstered by the conversion of the 1% local advertising requirement to national advertising that became effective at the beginning of Q2 last year.
The growth in our Aspen has allowed us to increase our presence in social streaming and digital channels and to be a big buyer in media to include more premium properties, such as the NFL and NBA <unk>.
2023 will mark our first full year deploying an always on message, which will keep wingstop top of mind with consumers throughout the entire year a strategy we implemented in the back half of 2022 and one that we believe is working we are making great progress on closing our gap and awareness.
Two other national brands, but there remains a significant opportunity ahead as we look to deliver our 20th consecutive year of same store sales growth and sustained same store sales growth over the long term.
We recently announced the appointment of our New Creative Agency 72, and Sunny currently the lead agency for the NFL and many other great brands, we sell 72 and Sunny can propel the wingstop brand into our next phase of growth and help make wingstop. A household name we're excited about their proven talent.
And what's in store for our creative later this year.
New creative campaign will further support the growth levers we are actioning against in fact, we could likely see new creative that focuses on one of our recent menu innovations like chicken Sandwich, which was introduced in August of 2022, not only did we launch one chicken sandwich, we launched 12 chickens.
Images that showcase our unique flavor profiles to both new and existing guests.
This is proven to be a powerful enabler for building awareness, increasing frequency and winning new occasions chicken sandwiches gives us an opportunity to deliver our wingstop flavor in a category that has upwards of $2 8 billion servings annually and opportunity. We're just scratching the surface.
Not only is chicken sandwich, a growth lever. It also advances our supply chain strategy in a meaningful way, where we see a path to 50% plus boneless mix, which we believe could result in a structural change to our long term food cost yielding causes in the low 30% range. It would further enhance.
Our already best in class unit economics.
We also drive innovation through flavor during the first quarter, we brought back a new fan favorite flavor at Honeywell, which has been our highest mixing flavor L. T O on record.
Flavor L tiers are a proven tactics in our toolkit to drive relevance and repeat occasions with our core as well as bring in new guests to the brand and we have a pantry full of consumer tests flavor options with tremendous potential that we can lean into our future LTE.
Another contributor to our <unk> growth is the delivery channel and in our case. This channel has not shown any signs of slowing down.
The launch of Wingstop on Uber eats platform in July of last year combined with continued growth on door to ask this platform provides us with an additional base of consumers to build awareness and capture new occasions, we have seen growth in all channels, but expansion in our delivery channels showcases the opportunity we.
Believe we have to continue to scale this channel long term and drive further growth.
We hit a record digital sales mix in Q1, surpassing 65% and our.
Our first party database continues to grow now at an incredible $35 million.
This database feeds our marketing engine, allowing us to drive improvement in retention rates increased frequency and win new occasions, even with their early success in leveraging first party data to.
To drive our business it remains a significant opportunity for wingstop to further impact retention and frequency.
As we continue to lean into innovation and pursue our aspirational goal.
Digitizing every transaction we are excited about early results from a test we just completed around AI enabled phone orders, we are expanding this test to where we convert foreigners.
Still represent about 10% of ourselves today, it's a digital orders through AI voice ordering technology. The early results are promising as we see an improvement in the team member experience order time guest satisfaction is an increase in ticket size with the ability to capture this guests digitally.
This also allows team members to focus on taking care of our guests that is picking up their order in the restaurant.
The transaction growth fueling 20% same store sales in Q1 is bringing a lot of new guests into the brand winning new occasions with these guests and moving them up that frequency curve, which is a powerful unlock for continued <unk> growth.
And we know how important it is to provide a great guest experience a key to that is operating with excellence. It's something we have been extremely focused on we are encouraged by the progress our restaurants are making to deliver a best in class guest experience and the results back yet, but we know there continues to be opportunity to further enhance the guest.
The experience that we know will contribute to further topline growth.
The multiyear sales levers, we are executing against give us confidence in our goal to drive <unk> <unk> above $2 million.
But even at our current <unk> of almost $1 7 million and an initial investment in the mid $400000 range, we're generating best in class returns for our brand partners.
A good proxy for our system as our company owned restaurants, which in Q1, we saw our unit economics strengthened to margins of 27, 6%.
We're not resting on our laurels and remain committed to executing our supply chain strategy.
Less reliant on the historically volatile spot price for wings and deliver a more predictable food costs for our brand partners.
The combination of our size and scale combined with our strategy has enabled a fundamental change in how we go to market from a supply chain standpoint.
And it's allowing us to make great progress towards moving more of our buy away from the spot market to longer term pricing arrangements are.
Our brand partners are excited by our progress and to strengthen our business and this is translating into significant growth in our development pipeline set in the backdrop for another strong development year in 2023.
Based on the strength of our pipeline and the visibility we have today into approved sites and stages in our construction pipeline. We are reiterating our guidance for 2023 of approximately 240, net new restaurants, which would be another record year for wingstop.
As we exited 2022, a year, where we surpassed more than 200 net new restaurants for the first time, we havent energized base of brand partners that are ready and willing to acquire and develop more territory. In fact as of the end of the first quarter. We now have a record global development pipeline Thats approaching.
1200 restaurant commitments. We also are seeing a record number of approved sites through the start of the year, which supports our outlook for openings in 2023.
This strength and momentum in development helped us yet an exciting milestone for the Grand opening our 2000th restaurant this past month.
Truly exciting times for Wingstop with an accelerated pace of development and the incredible opportunity. We have in front of us is scale to more than 7000 global restaurants.
We're making great progress in our international markets, where we see an opportunity to open more than 3000 restaurants, our U K market, which serves as a playbook for future market launches continues to expand <unk>.
$2 million.
Our Canada market launched in June last year, and we're thrilled by the consumer response, we opened the first Wingstop in Korea during Q1, and most recently, we signed a 30 restaurant commitment to bring our flavor to Puerto Rico. Another example of the strength of our business development pipeline.
This week Raj could pour new head of international join my leadership team Raj has a tremendous business leader and I'm thrilled to have the opportunity to partner with him as we scale wingstop globally. He brings a wealth of experience and an eagerness to shepherd our international business into our next.
Phase of growth.
Wingstop is well positioned for another industry leading year.
I'm excited by our start to 2023, and our sights clearly set on the 20th consecutive year of same store sales growth.
With the strong start to the year, we are raising our full year 2023 outlook to high single digit same store sales growth from our prior guidance of mid single digits. Our brand partners are seeing some of the strongest unit economics in our history. We believe this positions us to deliver upon our target of approximately.
240, net new units wings.
Wingstop is well positioned as an asset light high growth brands supported by best in class unit economics with unique sustaining same store sales growth drivers and an industry, leading pace of restaurant development.
We believe this really highlights the opportunity we have in front of us here at Wingstop and positions us well to deliver best in class shareholder returns before I hand, it off to Alex I want to thank our brand partners. Our team members in the restaurants and the team members at the global support center for all their incredible work in <unk>.
Commitment with that.
I'd like to turn the call over to Alex.
Thank you Michael.
As you just heard from Michael the first quarter demonstrated the strength of our long term strategies.
We delivered 34% growth in system wide sales in the first quarter, which now total $2.9 billion on a trailing 12 month basis.
Total revenue increased to $108 7 million from $76 2 million in the prior year fiscal first quarter.
Royalty revenues franchise fees and other revenue increased by $13 $1 million in Q1.
Driven primarily by 199 net franchise openings since the prior year comparable period, and a 21% increase in domestic same store sales.
The transaction growth, we experienced in the second half of the prior year continued in the majority of our first quarter comp was driven by transaction growth.
Company owned restaurant sales totaled $23 $1 million in Q1, an increase of $4 5 million.
Primarily due to a 10.3% increase in company owned same store sales driven entirely by transaction growth.
Six net new restaurants versus the prior year comparable period.
Cost of sales as a percentage of company owned restaurant sales improved by more than 1100 basis points.
Compared to the prior year.
Driven by a 1000 basis point reduction in food beverage and packaging costs.
We are pleased to see this continued improvement in restaurant margins, which for the first quarter benefited from a 53% decrease in the cost of bone in chicken wings.
With our supply chain strategy and based on what we know today with leading indicators for our core commodities. We believe we have line of sight to predictable food costs for 2023 in the low 30% range.
As a result, we anticipate company owned restaurant cost of sales to be approximately 75%.
Combined with this deflation in our core commodity our supply chain strategy to reduce the volatility in our food costs is paying dividends and is generating quite a bit of excitement. Among our brand partners is unit economics have strengthened to near record levels.
In the first quarter SG&A increased by $5 $6 million versus the prior year comparable period to a total of $23 6 million.
Driven by investments in strategic projects to support the long term growth of the business and an increase in performance based stock compensation and incentive compensation as a result of the businesses performance.
We will continue to make investments in strategic areas of our business such as in technology development and international to allow us to sustain these industry leading results.
Adjusted EBITDA, a non-GAAP measure was $34 $6 million during the quarter, an increase of 60% versus the prior year.
Adjusting for nonrecurring items, we delivered adjusted earnings per diluted share and non-GAAP measure of 59 cents, an 80% increase versus the prior year.
Our highly franchised asset light model continues to deliver strong free cash flows.
As of the end of the first quarter, we had $513 3 million in net debt our net debt to trailing 12 months adjusted EBITDA was at four three times.
As a half a turn lower than at the end of the fourth quarter underscoring our ability to quickly delever through a combination of adjusted EBITDA growth and a strong free cash flow generation.
We are maintaining a strong cash balance stands at over $200 million.
And it allows us to be opportunistic as we navigate any uncertainty in the macro backdrop in the back half of this year.
We will also continue to explore opportunities with this cash to maximize shareholder returns.
We remain committed to driving shareholder value and returning capital to shareholders through our regular quarterly dividend.
Today, we announced the dividend of <unk> 19 per share common stock.
This dividend totaling approximately $5 $7 million will be paid on June nine 2023 to stockholders of record as of May 19 2023.
Now shifting to our outlook for 2023.
With the strong start to the year, we have increased our outlook. This high single digit same store sales growth for 2023 for mid single digit same store sales.
Based on the visibility we have in our pipeline at this point in the year, we are reiterating our development outlook of approximately 240 net new units.
Translating to a unit growth rate of more than 12% versus the prior year.
We also anticipate our pace of openings to be weighted more towards the second half.
SG&A guidance is estimated to be between 85, five and $87 $5 million, including $2 $8 million in consulting projects to support our strategic initiatives and an estimated $12 million to $13 million of stock based compensation expense.
We are excited by the momentum in our business the underlying health of the Wingstop brand and the opportunity that lies ahead for 2023 and beyond.
Our growth strategies, a unique part of the story for Wingstop have staying power and give us the confidence in delivering our outlook for 2023.
With that I'd like to now turn to Q&A operator, Please open the line for questions.
Yes. Thank you.
This time, we will begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys just try your question. Please press Star then two we do ask that in consideration of the others you limit yourself to one question and a follow up if you have additional questions. Please reenter the question queue.
At this time, we will pause momentarily to assemble the roster.
And the first question comes from David Tarantino with Baird.
Hi, good morning, and congratulations on such a strong start to the year.
My question is related to the strength that you're seeing in the the domestic comps are you vs. I guess the way.
We look at it on a on a seasonal basis. It looked like you had a pretty strong surge in volumes relative to normal seasonality and I was wondering Michael if you could.
Maybe talk about the factors that drove that step up from the last quarter and <unk>.
And whether you think those are structural or whether you think there was some temporary benefit in the first quarter.
And then I have a follow up.
Hey, David Good morning.
Yeah, I think we mentioned this on our on our last call. How we did acknowledge that we saw the comp momentum build as we progress through Q4 and that continued into into Q1. This year, giving us a really strong start to the year as you mentioned and we really believe.
It is structural not not a seasonal change in our business and that these these growth levers that we're executing against.
In us in a pretty unique spot to have so many different levers that are not only continuing to drive.
Repeat visit with our core consumers, but bringing a lot of guests into the brand whether that's through just expanding brand awareness through the growth in our national AD fund or expansion in the delivery channel or winning occasions with chicken sandwich just to name a few that we've been executing against and so we saw.
That momentum build as we progress through the quarter end.
The asleep as we think about the rest of this year and kind of how it is going to shape up everyone's trying to to get their arms around the back half of the year, the consumer, but we feel pretty confident in the strategies that we're executing against in our and our ability to deliver on our outlook, which would result in the 20th.
Second of year of same store sales growth.
Great. Thank you for that Michael.
I did want to ask about the guidance I guess the guidance.
Assumes you know your comps moderated pretty significantly and then maybe you and yours, you know seasonally adjusted volumes moderated pretty.
Secondly from what you just reported for Q1. So I guess first question is are you already seeing that or are you seeing something or is this just maybe a.
A bit of conservatism as you think about the second half of the year.
Yeah, David I think it's probably more of the ladder you know obviously there is still a fair amount of uncertainty with the macro environment.
The consumer recession, you know everyone's trying to really understand.
What's going to happen later today with the fed as an example, and so we're all trying to get our arms around exactly what that means to the overall consumer that said and I mentioned it just a second ago, we feel like we're in a pretty unique spot as a brand to to be able to raise our guidance. This year, even considering that that overall macro.
Rob.
And deliver a really strong year.
Got it makes sense. Thank you.
Thank you.
Yes.
Thank you and the next crush constant Jeffrey Bernstein with Barclays.
Yeah.
Great. Thank you very much.
Two questions. The first one just on.
The unit growth.
Clearly there are concerns of macro easing.
Rate increases and just over the past month or two a lot of small bank concerns. So I'm just wondering if any or all of those factors. You think are having any impact on your unit growth outlook.
I know you've reiterated the guidance for this year for 12% plus but just trying to get some color on whether you think that has any.
Impact at all I think you mentioned your pipeline is 1200 units. So I'm just wondering.
Maybe that could provide some color on maybe what was that pipeline last year and the year before any kind of color in terms of the <unk> and.
The headwinds on the unit growth outlook based on the current macro and then I had one follow up.
Hey, Jeff Good morning, Yeah.
The pipeline as we sit here today, we mentioned is at a record level 1200 strong.
And just to provide some perspective that was close to a thousand this time a year ago, and then you layer on top of that the openings, we had over the past year of AV 200, roughly.
It really speaks to the demand that we're seeing from our brand partners to to reinvest and Wingstop and their desire to continue to grow and as we sit here today.
We have pretty good visibility into our pipeline and in fact, the number of the number of sites that we need to deliver on that that outlook that we reiterated of 240 net new units are sitting in our pipeline today and so we feel pretty confident regardless of what happens in the overall macro to be able to continue to deliver.
Industry, leading unit development and.
A lot of that has to do if you think about financing the rate environment or these regional banks theres not a lot of lending or leverage conversations we have with our brand partner community a lot of their growth is fueled by cash flow from operations and then on top of that.
Compared to other brands, it's a relatively modest initial investment to open at Wingstop. So I think all those things help position us to be able to sit here today with confidence in delivering another another industry, leading return from a unit development perspective.
Understood and then the follow up is just on the commodity cost outlook.
Clearly the deflation of 50% plus on the bone in wings is.
Incredible I'm just wondering your outlook for that for the second quarter or the back half just wondering when you would think it might turn into a headwind.
And I think you've mentioned something about from a supply chain perspective, youre shifting more to long term buys versus spot market. If there's any incremental color you can provide in terms of new details that would be great. Thank you.
Yeah.
Jeff.
Where we're really encouraged by by the commodity backdrop that we see today as we look at some of the leading indicators.
Round the price of wheat that leads to the price of wings. Those are favorable as well seems to signal to a little bit of softness may be out there from a more macro perspective, but obviously nothing we're seeing in our business and we're seeing some pretty favorable pricing as we sit here today in the and they earn a very but we do expect.
That to normalize the earn a very two to revert back to what I would describe as a more seasonal trend, which if you get into the back half of the year football season, you see the price of wings, usually tick up a little bit, but even that with that environment in front of us we still see a pretty favorable overall food.
Cost not only for our company owned restaurants that we guided to in the overall margin there, but before I brand partner is something that we think is going to continue to fuel overall demand for growth, but you mentioned it and we talked about it in our prepared remarks.
The combination of our size and scale and then just the continued execution against our overall supply chain strategy is allowing us to shift more and more of our buy away from the spot market and be able to negotiate longer term pricing arrangements that give us more predictability and food costs as the further we look out and some of them.
These arrangements are actually giving us some comfort and confidence into what 2024 is starting to shape up as well.
Understood and just to clarify.
And your response there I think you mentioned the macro outlook may be softening, a little bit, but not anything youre seeing in your results I think it was questioned earlier, but.
Safe to assume then without giving specifics that the momentum you saw through the first quarter, there really hasn't been a change in trend at least through the month of April .
Jeff I can jump in here one of the leading indicators.
Is around frozen inventory levels on wings, and breast meat and I think that's the one that we're pointing to that signal some softness as suppliers or are about rebalancing that equilibrium between demand and supply right now.
I'm, sorry, I was talking about the comp momentum with the 20% plus in the first quarter and I think you've indicated you really haven't seen a slowdown from a topline comp perspective, thus far in the second quarter. Despite the macro concerns I wasn't sure. If that was the message you were trying to convey about April .
No I don't think we were trying to be intentional about April but more just around some of the leading indicators that influence the outlook and what the <unk> will do.
As it relates to our business and overall demand I think all of all of that factored into kind of our outlook for the balance of the year, which resulted in us raising our guidance for the year from mid single digits to high single digits.
Thank you.
Thank you and the next question comes from Jon Tower with Citigroup.
Great. Thanks for taking my questions one question and a follow up.
Just curious on the chicken sandwich were mixed in the quarter, but more importantly, just looking at the the L. T O you'd talked about the hot Honeywell, but doing quite well I'm curious if you could speak to how a product makes its way from a L. T O to a permanent menu item, especially given the success that this products seem to have during the quarter.
Hey, Jeff or John I'm, sorry, good good morning.
You know I would say as it relates to the the L. T O maybe I'll start there.
As we reflect on Wingstop as a brand over our almost 30 years.
There's there hasn't been a significant amount of menu innovation and specifically related to flavors I think we've eliminated one and added to so it is a it is a decently high bar to make it on a on a mill.
When you permanently.
That said, obviously, we look at and listen to the overall consumer sentiment and demand for flavor like Hot Honey, Rob which has been significant and so we will continue to evaluate that and monitor it John but.
As it relates to chicken Sandwich, you know what's what.
What's exciting for for our brand and kind of what we've seen is we've seen growth in all channels. If you if you look at.
Digital Carryout non digital carry out you look at delivery you name. It we saw growth across all channels in chicken sandwich, we saw that mix sustain from what we've seen in prior quarter of about mid single digit mix range and we're encouraged by that because it's a bit of a halo effect in.
That we're seeing.
Bone in wings Boneless wings tender selves, all categories no rise as we're as we're experiencing some of the strength in the overall business and so we're encouraged by that and really excited to see that we continue to see that chicken sandwich sales mix sustain which means we're winning more occasions and bring in new guests into the brand as we mentioned earlier.
We are which we're really excited about what that can mean for the brand long term.
Got it. Thank you and then just going to.
I think.
Thinking about the consulting projects that you talked about can you give us a little color as to what's going on is that going back to the supply chain side of the business and looking at the opportunities there or is there something else happening that you're you're looking at right now that might impact the business going forward.
Yeah, John I think as we take a step back in and sit here.
We kind of feel like as a brand. This is this is another one of those put our foot on the gas moments and so we've we've you've known us over the years too to make some strategic investments in areas, where we think we can continue to advance our growth strategy and continue to deliver industry, leading results and I would kind of.
Generally put this in that bucket, where we're leaning in and just to make sure we are or taken advantage of the momentum that we have in the brand today, we're playing offense in and leaning in to position the brand.
This next phase of growth that's in front of us that we're excited about.
Okay. So this is not to do with the supply chain.
Emanation you've done previously.
Yeah, it's not specifically related to that to that overall supply chain strategy that we've talked about historically correct.
Great. Thanks, I'll pass it along.
Thank you and the next question comes from Andrew Charles with TD Collyn.
Great. Thanks.
<unk> impressive comps with your higher 2020 outlook, what's the plan with the surplus in the AD fund that comes on top of what was already a robot.
Just you know planned 20% odd an increase that follows the 40% increase in 2022.
Plan to deploy this later in 2023 are you able to hold on to the surplus to beef up 2004 trp's.
Andrew Good morning.
I think it ties back a little bit to my my comment I just made the John about this feeling like a little bit of a put our foot on the gas moment and so we are leaning in and finding opportunities to strategically invest any surplus that we do see coming into the AD fund to to continue to drive growth and take advantage.
Each of these growth levers we have in front of us that are bringing a lot of new guests into the brand that we mentioned in our prepared remarks, and we're really excited about what we're seeing.
Not only within the four walls of the restaurant, but how we're able to retain more of those guests and see them move up the frequency curve with the brand, which is which is what you want to see and we think you know it's a tie back to an earlier comment as part of the overall structural change that we're seeing in <unk> for the brand.
Okay, Great and then I wanted just to check in as well just on the opportunity to mitigate bone in wing volatility.
You described that you very flexible in your approach here and so you know roughly a year later after first detailing the project just kind of want to see the progress. That's been made just kind of where your head is with this and.
Obviously, when you did the recap a year ago, you took on about $130 million of cash on the balance sheet helps fortify.
That's why you still view as really needed to help you with your efforts or is there perhaps more of a lower intensity low cash usage approach here that that may be able to be a lead to leave the cash will be deployed to shareholders.
Good morning, Andrew This is Alex thanks for the question.
Yeah, you know I think as you were as you will recall our supply chain strategy included multiple tenants of the strategy, which include you know more of a cost plus pricing model moving our buy away from the spot market a potential co investment scenario.
An acquisition of a complex or a potential build scenario and we've been working that first element of our strategy really hard work.
As Michael mentioned on the call I'm, just with our articulation of our strategy that has fundamentally changed conversations that we're having.
On our or by year in year out so you're starting to see some of that come into our outlook and I think this is really the first one of the first year as we've been able to articulate the visibility we have in the food costs are in that low 30% range for 2023. So we're going to work that continue to work that less capital intensive approach.
As a as we continue to see the benefits from that.
And then you know as you mentioned, we our position with the cash on our balance sheet to be opportunistic whether it is something in our supply chain strategy or a return of capital to shareholders down the line.
Very good thanks, guys.
Thank you. Thank you.
Thank you and next question comes from Brian <unk> with Morgan Stanley .
Yeah. Thanks, good morning, guys.
Could you talk about just demographic exposure a little bit because I know about a year ago, we had talked about kind of some of the lower end customers pulling back I think the higher end customers have since you know come to you in quite a strong way, especially given kind of delivery, but what do you observe more recently has had some of the lower unimproved or whatever.
Have you seen just from a demographic perspective.
Hey, Bryan good morning.
If you if you recall several years ago, we had a.
Our stated strategy, where we saw an opportunity to broaden kind of the top of the funnel and go. After this heavy we described it as a heavy <unk> user and this <unk> user represents about 60% of all Cuba our visits.
And it is a little just queue, a little bit more higher income a little bit less ethnically diverse than our core.
And we're pretty excited about the progress we've made over the years as it relates to bringing those heavy <unk> users into the brand and so call it four or five years ago.
That lower income consumer was was over half of our business and today, that's that's roughly less than 30%. So we're clearly making progress there that said we have a unique position as a brand with these.
Our core and that is it's not a high frequency occasion, the average frequency as once a month or three times a quarter and they engage with our brand is almost sudden indulgent occasion, and so we've talked about the unique position that puts wingstop, whether it's in a recessionary environment or.
Or just the consumer's feeling overall pressure from inflation in their pocket book is that they'll have a tendency to pull back more on high frequency queues are occasions, and then it's almost as though they get towards the end of the month and feel like they they should reward themselves and so as long as we're driving top of mind awareness and presenting them with Val.
<unk>.
<unk> demonstrated an ability to retain those indulgent occasions, and I think that's exactly what we've seen throughout the first quarter in is our ability to to retain those indulgent occasions with their core.
Great. Thank you and I mean related to that.
Is there anything you can quantify just in terms of the increase in frequency more more recently too and you sort of alluded to this and.
Certainly I think elsewhere in the industry, we are seeing some of the higher frequency <unk> holding on or even even building frequency at this point, but it kind of depends on the brand what have you seen that more recently.
Hey, Brian This is Alex I can jump in here.
As we mentioned we've we've attracted this new guest that comes in that's you know into Wingstop at a lower frequency than are our core average yet we've been able to sustain that average overall of about three times a quarter. So I think that demonstrates our.
Our continued focus to build frequency with our core as well as move our new guests along the frequency curve.
And then I'll just add to that Brian We mentioned our comp in Q1 of 21% was entirely driven by transaction growth.
And I think that just further supports the point, Alex making about bringing in a lot of new and new users new occasions into the brand while retaining those indulgent occasions with their core.
Yeah.
Okay. Thank you.
Thank you and the next question comes from Joshua Long with Stephens, Inc.
Great. Thank you for taking my question. My first question was more of a clarification on some of the build out cost that you mentioned I understand that the pipeline is very strong, but very exciting curious if you could talk about some of the construction cost inflation or just maybe permitting things that may have been kind of pushing and pulling on the development pipeline I understand that your.
Your stores and your format is advantage versus many others of your peers, but just curious what kind of pressures you're feeling in the current environment and then I have one follow up.
Thanks for the question Josh. This is Alex said, you know I think what you've seen is we've been able to sustain that initial investment of about 450000 for brand partners.
And while building our au vs to now approaching $1 7 million, so that yields a payback of less than two years.
So while we're not certainly immune to inflation, we've been doing things very strategically behind the scenes to stage inventory buy forward equipment.
In order to mitigate some of the.
The smaller headwinds they see on some of their purchases, but I think you know with the growth and the expansion of our margins with what you're seeing in the pipeline and the level of commitments that we've continued to build on.
And that little upfront investment that's got our brand partner base energized to continue to grow and open more wingstop.
Great. Thank you for that that's very helpful and maybe shifting gears when we think about the goals you set forward in terms of becoming a top 10 global restaurant brand scaling to more more than 3000 stores internationally can you talk about some of the near term opportunities without it.
Michael you mentioned kind of using them.
U K is a kind of a jumping off point for how you can think about going into new markets and I believe you've also made some key hires here recently on the human capital side to help propel that but could you kind of frame up how we should be thinking about some of the near term opportunities internationally as you start to work towards that.
<unk> 3000 unit target.
Yeah, absolutely and I think you've heard us refer to our international business in a position that's supercharged for growth we have a significant amount of demand in the in the in our business development pipeline for new territories.
We mentioned a few that we've recently opened that are starting to build the pipeline there and we will continue to expand we we noted in our prepared remarks that we.
Just secured a partner for Puerto Rico.
Just to speak to the overall business development pipeline and demand there, but really excited about what's in front of US obviously you mentioned it brings.
Bringing in Raj is a big higher than someone who we're really excited about and him leading our international business and that growth strategy, but we talked about the overall unit outlook and target for this year of roughly 240 net within that number is is it is another record year for internet.
National and something we're really excited about and I think speaks to the momentum, but as we bring new territories online. The way those development agreements are written is they start out with a little bit of a slower pace, but then as they get up to the pace of what we see in the U K today, which is opening.
Roughly mid teens units a year.
More territories get to that pace is when it becomes a more meaningful contribution.
So the overall unit growth story, but we're pretty excited about what we see today the demand for the brand outside of the U S and obviously Raj joining our team.
Great. Thank you.
Thank you and the next question comes from Jeff Farmer with Gordon Haskett.
Great. Good morning, and thank you I am curious where did the 20% Q1 same store sales performance stand or come in relative to what you guys were thinking in terms of internal expectations heading into the quarter.
Jeff I think in in full transparency it exceeded our expectations. We knew we exited 2022 with some great momentum. We were we were call it low low low double digits in kind of expected we could continue.
To execute at that level, but then obviously as I mentioned earlier saw that momentum continue to build as we progress through the quarter and so we're encouraged by that.
How the team rallied together and and how effective the strategies have been and we're going to continue to put our foot on the gas.
Okay. That's helpful. And then just one follow up really a clarification on the Q1 same store sales components.
You said largely all traffic booking can you you might have said this or given this detail already but so virtually no menu pricing no no mix impact at all in the Q1 same store sales number.
Yeah, I think the right way to think about it Jeff is we mentioned this I think last quarter, but we expect to get back towards our more historical approach to pricing, which is one to two points of price in.
Two windows throughout the year at.
At a very strategic level, and we enacted that pricing in Q1.
That said, we had been experiencing a little bit of.
Ticket impact from success with the chicken Sandwich, which does.
Tend to mix, a little bit more towards that lunch day, part and have a little bit of a lower overall average check, which which is a good thing and we like but I would say those two components largely washed within the quarter, resulting in substantially all of the comp growth being driven by transaction growth.
Thank you.
Thank you and our next question comes from Nick <unk> with Wedbush Securities.
Thank you you guys talked about 75% cost of sales for 2023, even with you know.
The food basket being in the low Thirty's, assuming you know labor is flattish to slightly lower.
You know, what's driving that uptick in other opex is it just the delivery mix.
In Q1 alone really what you're seeing is the is the 1% AD fund contribution.
That changed year over year.
And I think as as we progress through the year as we mentioned you know theres some seasonality associated with.
The earn or Barry that's contemplated in our our food cost outlook and the embedded in our approximately 75% and we see some.
Small seasonality within some of the opex components that come into play.
But I think we're really excited about what that means with that type of outlook and how our brand partners feel about that mark that type of margin profile.
Got it so it's not necessarily you know just.
It's more of a signpost on a hard line and sort of a 25% margin is that fair yes.
That's right.
Would you guys be willing to break out the international part of our system wide sales in Q1.
That's not really anything we've done yet is it still continues to build but obviously as we progress and it becomes more of the growth story, that's something we'll we'll break out but you know.
The comp I'll say this the comp for for our International business was was really strong in the first quarter somewhat similar to what we saw in the overall domestic business.
Okay.
Okay. Thank you very much.
Okay.
Thank you and then last question comes from Andrew strike with BMO.
Hi, Thanks for taking my question. This is Daniel on for Andrew Charles Like I was hoping you could provide some details on the domestic franchise base. How many units does your average franchisee operated and what is your philosophy around partnering with larger well capitalized partners and also regarding your new unit pipeline.
What would be the split between new and existing franchisees.
Hi, Daniel Yeah, we've seen that gradually the account per brand partner tick up and I think it's something we've talked about over the years as we've had.
Operators take the opportunity to exit.
And you know, having the willingness to grow of trade around the trade areas, so that number's around a.
Seven and a half restaurants program partner.
But the unique part of Wingstop is the growth, we're seeing 90% plus of our development is from existing brand partners reinvesting that cash you're generating from their business. So where we are we do see some new brand partners that come into the system, but we're very selective about who those are and strategically where they.
Fit within our geography.
That's very helpful. Thank you.
Thank you and the next question comes from Andy Barish with Jefferies.
Hey, guys. Thanks.
Thanks for the question just wondering you've mentioned a couple of times that kind of momentum built.
No.
And exceeded your expectations just wondering.
Historically the bran.
Didn't focus as much on sports or be driven by sports, but just kind of putting those comments together with March madness, and the bundle deal you did.
With new flavors as well I mean was was march kind of outsized and.
You know, it's just a bit of a shift just to make sure you're getting your fair share around major sporting events now.
Andy This is Michael good morning.
You know I think we've clearly talked about as we as we looked at our media placement.
And media strategy for TV, we felt.
The most eyeballs were going to be on live sports and so that is where our television buy has been focused we really leaned into that last year back half of last year and that continues to be our strategy. This year. So I wouldn't say a huge change year over year, but let's say the thing. We're also doing is making sure that we.
We're being really smart about how we as we scale.
The brand has become a national brand a household name that we continue to lean into culturally relevant moments.
That we can resonate with the guests there as well and so I think what you saw in Q1 wasn't anything I would point out around a pivot in our media strategy, our advertising, but just continuing to execute against these unique growth initiatives that we that we have in place that are bringing a lot of new guests into the brand and retaining those indulgent.
Occasions with our core.
Okay.
Okay Gotcha.
March was the strongest month of the quarter or is that.
But not correct.
That is correct it was.
Okay appreciate the color.
My pleasure.
Thank you and the next question comes from Michael Tamas with Oppenheimer and company.
Hi, Thanks, you mentioned a couple of times some of the strategies that you're executing on to drive their business and obviously you put some of that was pretty powerful strategies in place in the back half of 'twenty. Two so can you talk about maybe what some of the incremental drivers are as you roll against those tougher comparisons in the later part of 'twenty three.
Yeah, Michael I appreciate the question.
And you know I think that's that's a kind of a reaction we often here.
Is how are you going to lap. These these levers that you've pulled in I think it's really important to understand.
That these are not single year onetime drivers for our business, but we've demonstrated over the years and I don't think 2022 in 2022 will be any different in our ability to be really intentional about how we pull these levers when we pull them and take take the launch of Uber eats.
As an example.
We've seen some really strong growth in that channel, but even as we sit here today youre talking low single digit.
Eaters Arnaud breeds have engaged with our brands. So just a significant amount of opportunity for us to continue to lean in there and partner with Uber eats as well as door dash and ways that we can continue to expand the delivery channel, which we mentioned this last quarter.
We are encouraged with where our mix level is today, but see an opportunity for that to almost double and then you take chicken sandwich mixing mid single digits something we're excited about those are highly incremental occasions that were winning there, but there's 2.8 billion chicken sandwich, serving as a year in the U S. So we think.
There's a huge opportunity and we're just scratching the surface and so we really think about these strategies that we're executing against the levers that we pulled specifically in the back half of 2022 as being multi year drivers for our business and I think kind of that statement is supported by the fact that 2022 was our ninth.
17th consecutive year of same store sales growth and based on our outlook for this year, we think we're well on our way to our 20th.
Thank you makes sense and then I think last quarter. There was an implication that EBITDA in 2023 would be somewhere around $122 million do you have any update on that or thoughts about where that might shake out.
Yeah, I think I think we did signal to a growth rate last quarter, but obviously, if you take Q1 results, which were well above even our own expectations, but clearly.
Consensus expectations.
And you can take our updated outlook, where we've raised same store sales guidance. It would clearly imply a higher number.
Thank you.
Thank you and the next question comes from Peter Salvo with B, a T O J.
Great. Thanks for taking my question and congrats on a great start to the year.
I just want to come back to the conversation around delivery I don't know if.
I missed it but can you just tell us what the what the mix was on delivery in the first quarter and if you could just provide a little bit more color on.
What type of guest is using you guys for delivery to the ear.
The two third party platforms are they lower income higher income younger older.
Are you seeing you know growth in unique users through these third party platforms.
Hey, Peter I. Appreciate the question you know, what's what we're encouraged about what we're excited about is we saw growth as we mentioned within the within the delivery channel as an overall mix perspective within within Q1.
<unk> by that.
And obviously, we don't have a ton of visibility into the users on their platforms, but I think we view those since we saw growth in every other channel of our business as being highly incremental.
And again as I mentioned before just we see a ton of opportunity within that delivery channel to continue to drive growth long term.
Yeah.
Great and then just lastly, I think I know what the answer to this is but I will ask it anyway is there any thought or change in your real estate strategy, given how important delivery has become and over the past couple of years are you guys looking at different types of sites are kind of sticking with the same.
Strategy going forward. Thank you.
Yeah, Peter it's a good question and I think you know even if we reflect back to 2020, where we saw.
Meaningful growth in our business and I think I referenced in the prepared remarks, how our AAV over the last three years alone is has grown about $400000 in and I really think what what's behind that is is as wingstop was built for this you sit here today and 94.
Percent of ourselves our off premise, so whether that's carryout or delivery. Our model was built for this and so as it relates to our overall strategy around real estate I wouldn't say that there's anything that's changed significantly there we clearly understand.
Where we play well we've master planned every key market in the U S and have a clear line of sight to expanding our footprint today, which globally. We just crossed 2000, but in the U S. C. A line a path to a line of sight to a path of over 4000 units in the U S and then.
No pretty much exactly where those will be so no real change to call out.
Thank you.
Thank you and the next question comes from Jim Sanderson with Northcoast research.
Hey, Thanks for the question I, just wanted to get a little bit more detail on what drove traffic growth in the first quarter wondering if you can comment on any noticeable.
Improvement in day part mix.
Just on traffic or late night, and then I had a follow up question about the full promotion.
Good morning, Jim Yeah, it's been interesting very consistent across all channels all days of week nothing to call attention to you know we're seeing this new guests come in we're seeing the frequency continued to build across our business with new and core.
So fundamentally you know digital non digital channels are growing I think the one that we've pointed to before to call. Your attention to is how chicken sandwich mix shows up it does index, a little higher with the at the lunch occasion as well as maybe a little more of a individual eater, but.
I think what Michael mentioned earlier, there is a bit of a halo effect on the rest of the business as we've.
Track to this new guests into our business.
Alright, and just a quick question about the full court promotion I think that was a bit of a higher price point.
Any commentary on how the consumer react did you see it mix as strongly.
Despite the higher price point for the promotion.
Yeah, I think I think a bundle like that we saw an opportunity where we knew.
Guests, we're gonna be gathering and group occasions, So watch to watch.
College basketball and so it makes well we were encouraged with the results that we saw but you know the other thing I would I would call out. It's just it really speaks to the unique position, we have with our menu and how we can we can use piece count and protein mix to create value for consumers even.
If that was at a higher price point. It did include meaningful value. We think for guess if you look at it on a per person basis, and so something we're pretty pretty intentional about and we were encouraged with what we saw from that from that promotion.
Alright, thank you.
Thank you and this concludes both the question and answer session as well as the event itself. Thank you for attending today's presentation. You may now disconnect your lines.