Q3 2023 Wingstop Inc Earnings Call

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Good morning, ladies and gentlemen, and thank you for standing by and welcome to the Wingstop incorporated fiscal third quarter 2023 earnings Conference call.

All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After today's presentation there'll be an opportunity to ask questions. Please note that this conference is being recorded today Wednesday November <unk> 2023.

On the call today are Michael Skipworth, President and Chief Executive Officer, and Alex Collider, Senior Vice President and Chief Financial Officer.

I would now like turn the conference over to Alex. Please go ahead.

Thank you and welcome to the fiscal third quarter 2023 earnings call conference call for Wingstop.

Our results were published earlier this morning and are available on our Investor Relations website at IR Dod Wingstop dotcom.

Our discussion today includes forward looking statements. These statements are not guarantees of future performance and are subject to numerous risks and uncertainties that could cause our actual results to differ materially from what we currently expect.

Our SEC filings describe various risks that could affect our future operating results and financial condition.

We use certain non-GAAP financial measures that we believe can be useful in evaluating our performance presentation of such information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

Reconciliations to comparable GAAP measures are contained in our earnings release.

Lastly for the Q&A session. We ask that you. Please each keep to one question and a follow up to allow as many participants as possible to ask a question.

With that I would like to turn the call over to Michael.

Good morning, and thank you for joining our call.

It is an exciting time at Wingstop and I'm honored to be leading such a talented team to deliver industry leading results year after year.

E V now average $1.8 million and we are on track for our <unk> consecutive year of same store sales growth.

Wingstop continues to see double digit transaction growth.

True sign of the underlying health and momentum of our brand and in fact, we exited the quarter with more momentum than when we started.

This growth we are seeing is consistent across all vintages of restaurants, and our new restaurants are opening even stronger.

We are achieving record levels of new guest acquisition across all channels.

Our core guests continue to engage with us and we are seeing an increase in our average frequency.

Our team has been laser focused on operational excellence within the four walls of the restaurant and we are seeing that show up in our guest scores our supply chain strategy is working translating into industry, leading unit economics, and we're on pace for a record year for development.

We recently held our annual brand partner convention, while they were provided an opportunity to reflect on the exceptional results in our business, we and our brand partners are focused on the road ahead for Wingstop, which is even more exciting than our accomplishment to date.

The visibility we have into 2024 and beyond give us confidence to deliver against our strategy of sustaining same store sales growth maintaining best in class returns and accelerating growth.

Wingstop is truly in a category of one and our results demonstrate that year after year.

In the third quarter of last year, we expanded our delivery platform to add Uber eats nationally and.

And we also launched the Wingstop chicken sandwich or technically 12 chicken sandwiches.

These two sales growth strategy has brought a lot of new guests into the brand during the second half of 2022.

This momentum has clearly continued into 2023.

Throughout this year, we have explained how these cells growth strategies that we are executing against our multiyear drivers, giving us confidence to increase <unk> well north of $2 million.

We believe this was showcased in the third quarter as we lap the launch of both Uber eats and our chicken sandwich delivery, 15.3% same store sales growth that was almost driven entirely by transaction.

To further the point, we acquired more new guests this past quarter than we did during our incredibly successful launch of chicken sandwich in Q3 of 2022.

We are unique in the industry an industry that has experienced significant price inflation contributing to transaction loss for many brands, but that is not wingstop.

And that's lower income consumers pulled back from those higher frequency kiosks are occasions, where even as higher income consumers trade down. It's a guy named visits Wingstop is uniquely positioned to gain more new guests and introduce them to that indulgent high quality occasion that our core consumers have come to us.

Appreciate over the years.

The momentum we are seeing in our business led us to increase our outlook to approximately 16% domestic same store sales growth for 2023.

Wingstop is that an exciting inflection point as a brand.

Our strategies are working and have staying power positioning us well on our path to grow AZ is in excess of $2 million.

We are achieving record levels in brand health metrics are.

Our advertising bond is four times the size. It was in 2018, our first year as a national Advertiser.

Giving us the fuel to continue acquiring new guests and drive top of mind consideration.

While we are making great progress on building awareness, our opportunity remains significant to reach the awareness levels of other scaled national restaurant brands. Our media strategy is proving highly effective along with new breakthrough creative launched in September many consumers are experiencing.

Flavors for the first time and they're returning from war.

With a year under our belt with chicken Sandwich, we are learning a lot about these new gas.

About half of our new chicken Sandwich guess purchased only a sandwich and their first visit but we are seeing the majority of them in their second visit navigate the rest of our menu and purchase other protein.

Chicken Sandwich has helped create a halo effect around our brand and its positioning links up to win more of these guests occasions.

The acquisition of these new guests, just translating into stronger and new guest retention and increasing frequency.

And there's plenty of runway ahead of us as we look to gain our fair share of the $2 8 billion servings, a chicken sandwiches annually in the U S.

This new guests, we are attracting tends to be gen Z or millennial.

Middle income and are less likely to have kids in their household than our existing debt.

Their average ticket and boneless mix are higher than our existing guests and they tend to engage with us through our digital ordering platform.

Consumer is right in the sweet spot for our brands.

But it is not just with our new chicken Sandwich, we are seeing strong new guest acquisition across all channels. We continue to see growth in average weekly transactions with door dash and since the launch of Uber eats we have sustained Uber eats delivery transactions at a level that's double the initial launch last year.

We see the delivery channel is another opportunity to build awareness for Wingstop and we are nowhere close to a point of maturity.

While these strategies are supporting our path to $2 million plus <unk>. We are also excited about the progress we are making to continue to scale our best in class digital platform, which we believe will help protect the moat around our category of one position.

During the third quarter, our digital sales mix achieved a new record at 67%.

And we remain focused on our aspirational goal to digitize every transaction.

It took a step three years ago to begin investing $50 million to build our proprietary tech platform.

This investment serves two purposes protect our digital business that has quickly scaled to $2 billion in system wide sales.

And unlock new capabilities that tap into our digital database of more than 35 million users to enable further.

B groh.

Our proprietary tech stack will deploy an increase level of hyper personalization that we believe will improve conversion and retention rates and ultimately drive frequency.

We built the platform with the most modern technology within our tech stack.

I'm thrilled to share that we are now in a pilot phase testing our platform in restaurant.

Which positions us for an anticipated launch in Q2 of 2024.

We're just scratching the surface on personalization and we see this as a key part of our strategy, we're sustaining same store sales growth.

The strength of our E vs and unit economics are translating into accelerated growth in our development pipeline.

The visibility we have into our construction pipeline at this time positions us to deliver on our 2023 guidance of 240 to 250, net new units, which would be a record year for wingstop.

We expect to exit 2023 at our highest level of development agreement ever.

Our supply chain strategy is proving to be highly effective and we have clear line of sight into our food costs for 2024 that lines up with our target of mid 30% range delivering predictability for our brand partners.

Our corporate restaurants are a great example of the impact this strategy is having with margins in the mid 20% range for 2023.

And our system, a UV a $1.8 million food costs in the mid 30% range and based on an initial investment in the mid $400000 range brand partners are seeing an industry, leading payback of less than two years.

We've set a target for over 7000 global restaurants more than three times, our current footprint and the big part of our growth story is our international business not dissimilar from where you are from the U S or international markets are experiencing double digit comp driven by transaction growth.

We're executing a similar playbook to the U S and our U K U K market. Our first restaurants opened five years ago is hitting record sales volume.

New restaurants are opening stronger, including in new markets, such as Canada, and Korea that are building awareness.

We expect our newly signed markets, Netherlands in Puerto Rico to open within the next two quarters.

Our business development pipeline of potential New brand partners is strong I continue to believe our international business is supercharged for growth.

With this incredible growth in our business comes responsibility our courts, a core tenet of our ESG strategy is giving back to the communities in which we serve through Wingstop sure.

I'm proud of what the team has accomplished this past year.

Wingstop charities awarded over $1.3 million in grants so far in 2023, an increase of over more than 400% from the prior year.

In the third quarter of Wingstop charities was able to support a tremendous cause where 100% of contributions made through round. The roundup program in the months of August and September going to the no Kid hungry organization.

No Kid hungry mission in childhood hunger and to help ensure every single child in America has the food they need to grow up healthy and strong.

The contribution provided to no Kid hungry will provide 3 million meals to argue.

This is just one of the many ways wingstop charities, that's helping support the communities we serve.

As I mentioned at the start of the call I couldn't be more excited about the momentum we have in our brand right wing.

Wingstop is in a category of one and our strategies are positioning us well for our next phase of growth.

Our highly franchised asset light model generates strong free cash flow and allows us to provide what we believe are industry leading shareholder returns.

Our IPO, we have delivered a total shareholder return in excess of 950%.

This past quarter, we announced our inaugural $250 million share repurchase program.

We believe further demonstrates our commitment to enhancing shareholder return.

We have great momentum heading into 2024 with a brand that omni off.

The underlying health of our brand is the strongest it's been with same store sales being fueled by transaction growth and continued strengthening in our best in class unit economics.

I want to thank our team members brand partners and supplier partners for their dedication and hard work to deliver these industry leading results.

With that I'd like to turn the call over to Alex.

Thank you Michael and good morning.

The third quarter is a clear reflection of the multiyear benefits our strategies are designed to achieve.

Total revenue increased to $117 $1 million from $92 $7 million in the prior year fiscal third quarter.

Royalty revenues franchise fees and other revenue increased by $12 $8 million in Q3, primarily due to $3 $8 million from franchise restaurant openings and a 15, 3% increase in domestic same store sales, which was driven almost entirely by transaction growth.

As a result of the strength in our same store sales growth, we are increasing our guidance from 10% to 12% to approximately 16% in 2023.

Company owned restaurant sales totaled $24 million in Q3, an increase of $3 $8 million, primarily due to a 6% increase in company owned same store sales driven almost entirely by transaction growth.

Four net new restaurants versus the prior year comparable period.

Company owned restaurant margins were 26, 4% for the quarter showcasing the strength of our unit economic model.

Cost of sales as a percentage of company owned restaurant sales improved by 440 basis points compared to the prior year, mainly driven by a reduction in food beverage and packaging costs, which included a 13, 5% decrease in the cost of bone in wings.

We are on track to deliver our full year cost of sales of approximately 75% consistent.

Consistent with the prior outlook, we shared earlier this year.

And we continue to make progress executing our supply chain strategy to mitigate volatility and our food cost.

At our recent brand partner convention, we generated quite a bit of excitement with the visibility we shared into our 2020 for food costs.

Which for company owned restaurants would translate to approximately 35% to cost.

Our strategy is supported by the progress, we're making on increasing our boneless mix now at a record level of 44% for the system.

This compares to a low 30% boneless snakes, just a few years ago.

We believe a boneless makes in excess of 50% could yield a structural change in our two cost target to a low 30% level further enhancing our best in class returns for our brand partners, which we believe will continue to fuel record development for new restaurants.

In the third quarter.

SG&A totaled $23 million, an increase of $6 $4 million versus the prior year comparable period.

The current quarter included an increase in performance based stock in short term incentive compensation as a result of our performance as well as investments in head count and strategic projects to support the long term growth of the business as.

As we scale.

We anticipate seeing greater leverage in our SG&A investments and are continuing to target a long term SG&A as a percentage of system wide sales in the two to two 5% range.

Adjusted EBITDA, a non-GAAP measure was $38 $5 million during the quarter.

An increase of 36, 7% versus the prior year.

Which is building on top of adjusted EBITDA growth of 33% in the prior year period.

Adjusting for nonrecurring items, we delivered adjusted earnings per diluted share and non-GAAP measure of 69.

At 53% increase versus the prior year.

In August we announced that our board of directors authorized our inaugural $250 million share repurchase program.

Since our IPO total shareholder returns have exceeded 950% demonstrating our commitment to returning capital to shareholders.

To further demonstrate this commitment we entered into an accelerated share repurchase agreement to repurchase $125 million of Wingstop common stock.

Under this ASR agreement as of September 30th 2023. The company retired 567000 shares of its common stock representing an estimated 75% of the total shares expected to be delivered.

The delivery of any remaining shares will occur at the final settlement of the transaction, which is scheduled in the fourth quarter.

The total remaining authorized amount for share repurchases is approximately $125 million at the end of Q3.

Another component of our return of capital strategy is our regular quarterly dividend, which is targeted at approximately 40% of free cash flow.

On October 31st 2023, our board of Directors approved a quarterly dividend of 22 cents per share of common stock, resulting in a total dividend of $6 $5 million.

This dividend will be paid on December eight 2023 to stockholders of record as of November 17th 2023.

Our regular dividend program combined with our new share repurchase program underscores the strength of our highly franchised asset light model and our ability to enhance shareholder returns, while preserving financial flexibility on our balance sheet to support our strategic growth initiatives.

Moving to our outlook for 2023.

Based on the visibility we have in our construction pipeline. We are reiterating our development outlook of 240 to 250 net new units, which represents a unit growth rate of 12, 5% at the midpoint of our range.

SG&A guidance is estimated to be between 94.5 and $95 $5 million from prior guidance of $91 million to $93 million <unk>.

Including $5 $2 million and nonrecurring consulting projects to support our strategic initiatives and increase in our short term incentive accrual based on the performance of our business and then estimated $14 million to $15 million of stock based compensation expense, which is unchanged from prior quarter guidance.

I want to Echo Michael's sentiment earlier it is truly an exciting time to be at Wingstop. We are building brand awareness scaling the brand globally and increasing frequency among our guests against what could be considered a challenging macro backdrop showcasing wingstop category one position.

Our strategies have staying power and give us the confidence to continue to deliver industry leading results.

Thank you to all our team members brand partners and supplier partners for their tireless efforts to serve the world our flavor.

With that I'd like to now turn to Q&A operator, Please open the line for questions.

We want that excuse me, we will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two please.

Please limit yourselves to one question and a single follow up.

The first question today comes from Jeff Bernstein with Barclays. Please go ahead.

Hi, Good morning, this is product on for Jeff.

I guess I can start off with a question on the comp you've had another very strong quarter.

But seemingly a growing number of consumer headwinds.

With the higher interest rate rent.

Rent cost student loan payments.

Pricing is obviously being left as well.

Europe your fourth quarter guidance implies another quarter of double digit growth.

You seem to be unique among your peers.

Driving your results, mostly with transaction growth.

What do you attribute to all this strengthened.

How do you kind of sustain such momentum despite seemingly growing headwinds, thanks, and I have a follow up.

Good morning, and thank you for the question you know I think it's a handful of things that I would call out I mean, there's there's no question as we look at industry data.

And we can clearly see that there's pressure on the consumer but I think what you're really seeing in our business and what is making wingstop unique is just the effectiveness of our growth strategies, where we're acquiring more new guests than ever obviously, we're winning a lot of new occasions with chicken sandwich as well as delivery.

But as we said in our prepared remarks, we're seeing more of those guests come back and navigate the rest of our menu winning more of their occasions, which is yielding an uptick in frequency for our brand, which we're really excited about it I think we've talked about over the years and it's really showcased in the fact that we've delivered 19 consecutive.

Five years of same store sales growth and we're on pace for our 20th this year is that when there is pressure on the consumer, particularly that lower income consumer they do have a tendency to pull back on more high frequency occasions, and we're wingstop plays well and where we win as we see those guess almost.

Dave up and want to treat themselves or indulge and that's where wingstop shows up in a really great way and so we've been able to over the years retain those indulgent quality occasions, and I think what's really interesting and in our business and what we saw in this in Q3 was we actually saw a slight uptick in frequency with that low income.

Sumer, which we're pretty excited about and then at the same time, we're seeing that higher income consumer potentially pull back on dining out occasions dining at home more and we're winning those occasions as well and so I think all of that's supported by an effective advertising strategy. One that we believe is really working we have an ela.

<unk> the amount of AD fund investment to deploy growing consistent with our system sales growth of roughly 30%, that's allowing us to show up in more premium placements like live sports, we've shown up in the NFL and our big labor showing up in NBA right now and that's coupled with our new breakthrough create.

Which we're really excited about.

We're seeing some of the highest levels of purchase intent associated with that new creative and one of the top things that consumers share with us when they see that new creative as it makes them hungry and so we think that food forward.

Showing the enjoyment of our food.

On a national television is really all ladder enough to help us continue to drive our business with transaction growth and as we mentioned, we saw that strength and as we progressed through the quarter and that gives us a lot of confidence in and how we will finish 2023, which will be another record year for wingstop.

That's very helpful. I appreciate that and shifting to unit growth Youre demand has obviously been consistent all along and I know youre not going to give any guidance today, but just any I guess qualitative.

Qualitative comments on the outlook for 2024 are you seeing any kinds of maybe stress amongst potential developers.

Developers in terms of just.

Operator: Good morning, ladies and gentlemen, and thank you for standing by.

Slowly macro higher borrowing costs, just any color on what youre kind of seeing right now for 2020.

Operator: Welcome to the Wingstop Inc., Fiscal Third Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal the conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this conference is being recorded today Wednesday November 1, 2023.

Yes.

Yeah, absolutely and I think we hit on this in the prepared remarks, but we're pretty excited about the momentum we have in development. This year is playing out exactly how we anticipated or thought it would and we're right on track and excited about.

Operator: On the call today are Michael Skipworth, President and Chief Executive Officer, and Alex Kaleida, Senior Vice President and Chief Financial Officer.

The <unk>.

Sites that are in our pipeline and where they are in the construction cycle, which supported our reiteration of our outlook for this year of 240 to 250, net new restaurants, which will be a record year for Wingstop and we mentioned that our development pipeline any metric we look at development agreements number of approved.

Operator: I would now turn the conference over to Alex. Please go ahead.

Alex Kaleida: Thank you and welcome to the Fiscal Third Quarter 2023 Earnings Conference Call for Wingstop. Our results were published earlier this morning and are available on our Investor Relations website at ir.wingstop.com. Our discussion today includes forward-looking statements. These statements are not guarantees of future performance and are subject to numerous risk and uncertainties that could cause our actual results to differ materially from what we currently expect. RSEC filing subscribe various risks that could affect our future operating results and financial condition.

Sites as we go into 'twenty 'twenty four is on pace for a record levels and that shows to US. Obviously, we have a lot of demand, but I think that demand supported by the strength of our unit economics, we still support a pretty low initial investment in that mid $400000 range and when our brand partners.

<unk> seen paybacks on that initial investment of less than two years, we don't see a lot of headwinds from from some of these macro elements that you've called out and a lot of our brand partners and our system quite frankly are funding growth with existing cash flow. So there's not a high degree of leverage in our system that these current this current interest rate environment might.

Alex Kaleida: We use certain non-GAP financial measures that we believe can be useful in evaluating our performance. Presentation of such information should not be considered an isolation or as a substitute for results prepared in accordance with GAP. Reconciliation is the comparable GAP measures are contained in our earnings release.

And so we're encouraged by how our pipeline is shaping up as we as we close out 2023.

That's very helpful. I appreciate it thank you.

The next question is from David Tarantino with Baird. Please go ahead.

Hi, good morning, and congratulations on such strong results.

Operator: Lastly, for the Q&A session, we ask that you please each keep the one question in a follow-up to allow as many participants as possible to ask a question.

Michael I wanted to take a maybe a different tack on the unit growth outlook question I wanted to ask.

Michael Skipworth: With that, I would like to turn the call over to Michael.

What the.

The strength in the business you've seen over the past few years has really driven unit economics to levels that are <unk>.

Michael Skipworth: Good morning and thank you for joining our call. It is an exciting time at Wingstop and I'm honored to be leading such a talented team who deliver industry leading results year after year. Our AUVs now average $1.8 million and we are on track for our 20th consecutive year of same-store sales growth. Wingstop continues to see double-digit transaction growth a true sign of the underlying health and momentum of our brand. In fact, we exited the quarter with more momentum than when we started.

The envision and the last time you gave.

The long term growth outlook. So I was just wondering if you're thinking about the U S unit growth opportunity any differently than what you've laid out in the past given given the strength you are seeing especially given the strength I guess in attracting new customers under the brands. So any thoughts on what you.

Michael Skipworth: This growth we are seeing is consistent across all ventages of restaurants and our new restaurants are opening even stronger. We are achieving record levels of new guest acquisition across all channels. Our core guests continue to engage with us and we are seeing an increase in our average frequency. Our team has been laser focused on operational excellence within the four walls of the restaurant and we are seeing that show up in our guest scores.

The long term opportunity might be based on what you're seeing.

This year.

Yes.

Good morning, David Thanks for the question you know obviously, we remain extremely confident in the opportunity we see for our brand in the U S. We've previously decided that's that's over 4000 restaurants that we see the opportunity to expand wingstop here in the U S and obviously as you mentioned about the strengths.

Michael Skipworth: Our supply chain strategy is working, translating into industry leading unit economics and we are on pace for a record year for development. We recently held our annual brand partner convention while it provided an opportunity to reflect on the exceptional results in our business. We and our brand partners are focused on the road ahead for Wingstop, which is even more exciting than our accomplishment to- The visibility we have into 2024 and beyond, give us confidence to deliver against our strategies of sustaining same-store sales growth, maintaining best-in-class returns and accelerating growth.

Our unit economics.

There's a significant amount of demand for that growth, but I think as we look at the total opportunity in front of US obviously as we continue to build out some of our original or more mature markets like the Dallas Fort worth market or even Los Angeles, we continue to see really strong pace of development in those market.

<unk> suddenly see those restaurants opening up stronger those paybacks continuing to improve and so we just see that as an opportunity for us to probably lean in and plus if you will in our 4000 opportunity, but as we sit here today, we remain extremely confident and being able to deliver on that long term target of over four.

Michael Skipworth: Wingstop is truly in a category of one, and our results demonstrate that year after year. In the third quarter of last year, we expanded our delivery platform to add Uber Eats nationally. And we also launched the Wingstop chicken sandwich, or technically 12 chicken sandwiches. These two sales growth strategies brought a lot of new guests into the brand during the second half of 2022. This momentum has clearly continued into 2023. Throughout this year, we have explained how these sales growth strategies that we are executing against our multi-year drivers, giving us confidence to increase AUV's well-north of $2 million.

And in the U S. And then obviously the business as we mentioned outside of the U S is strengthening quite well the markets that we're in are on track and we're really encouraged by how the brand is expanding outside of the U S, which when you combine that with what we have here in the U S. Combined for an opportunity for us to over Triple the size of the brand is.

We sit here today, which is pretty exciting.

Great. Thank you very much.

Yeah.

The next question is from Sara Senatore with Bank of America. Please go ahead.

Hi, Thank you very much just a question and then a quick follow up please.

The question is on the food cost.

Cost you mentioned I know that you've done a nice job with colors and hedging.

But when I look at some of your inputs like chicken wings or even breast prices they've they've come up a lot. So I'm just trying to understand your confidence in 2024 is it because.

Michael Skipworth: We believe this was showcased in the third quarter, as we lapped the launch of both Uber Eats and our chicken sandwich, delivering 15.3% same-store sales growth that was almost driven entirely by transaction. To further the point, we acquired more new guests this past quarter than we did during our incredibly successful launch of chicken sandwich in Q3 of 2022. We are unique in the industry, an industry that has experienced significant price inflation, contributing to transaction loss for many brands, but that is not Wingstop.

Of this mix shift towards boneless and so it's sort of structural or is this maybe perhaps more of a timing where you know 2024. It looks okay. But then some of that you know the hedging after the contracts roll off and and perhaps after that you see some of the impact is at the recent increase in input cost prices and then I'll have a follow up as I mentioned.

Yes.

Hey, good morning, Sarah This is Alex.

It's really a combination of the factors you mentioned the size and scale of our by year in year out and our increase of our boneless mix.

Michael Skipworth: And as low-income consumers pull back from both higher frequency QSR occasions, or even as higher-income consumers trade down into dining visits, Wingstop is uniquely positioned to gain more new guests and introduce them to that indulgent high-quality occasion that our core consumers have come to appreciate over the years. The momentum we are seeing in our business led us to increase our outlook to approximately 16% domestic same-store sales growth for 2023. Wingstop is at an exciting and flexion point as a brand.

Has made us has allowed us to enter into different pricing conversations with our suppliers and for the first time, we have visibility into our 2020 for food costs, which we shared in our prepared remarks today, it's something our brand partners are really excited about we've seen volatility before when there aren't or Barry has moved I mean, it's still today.

Below the five year average well below the five year average of wing prices.

But the price ranges, we have in place have moved our buy off the spot market, which gives us that visibility into this year as well as into next year.

Michael Skipworth: Our strategies are working in half staying power, positioning us well on our path to grow AUVs in excess of $2 million. We are achieving record levels in brand health metrics. Our advertising fund is four times the size it was in 2018, our first year as a national advertiser, giving us the fuel to continue acquiring new guests and drive top-of-mind consideration. While we are making great progress on building awareness, our opportunity remains significant to reach the awareness levels of other scaled national restaurant brands.

Got it. Thank you and then on that on the topic of you know you haven't taken very little price.

I guess, we've heard some about promotional environment getting more intense.

That something that you've observed as well I think the other thing that's emerged this quarter is that companies are concepts that have taken less less price and just seem to be doing better. So just trying to understand if it's more about the relative value that is.

Accumulated given how much less price you've taken or if there is something that's going on in the promotional environment.

Michael Skipworth: Our media strategy is proving highly effective, along with new breakthrough creative launched in September. Many consumers are experiencing our flavors for the first time and their returning for more. With a year under our belt with chicken sandwich, we are learning a lot about these about half of our new chicken sandwich guests purchase only a sandwich in their first visit but we are seeing the majority of them in their second visit navigate the rest of our menu and purchase other protein.

Hey, Sarah.

I think for US I think it plays a little bit into this category of one positioning and that we don't really feel like we we have to get out there and maybe compete in that and that competitive value or promotional landscape with other other national brands because of the uniqueness of our.

Of our offering and the differentiation of our Cook to order and high quality and so for us.

We think that consumers are are rewarding us for that indulgent occasion that quality that the two components that are highest on some of the guest feedback that we hear and what theyre looking for and where they want to spend their dining out dollars and we're able to deliver that with.

Michael Skipworth: Chicken sandwich has helped create a halo effect around our brand and it's positioning wings up to win more of these guests occasions. The acquisition of these new guests is translating into stronger new guest retention and increasing frequency and there's plenty of runway ahead of us as we look to gain our fair share of the 2.8 billion servings of chicken sandwiches annually in the US. This new guest we are attracting tends to be Gen Z or Millennial middle income and are less likely to have kids in their household than our existing guests.

And in a situation or or an offer that we believe provides great value to guests and I think we've mentioned this before but quarter after quarter. We continue to measure improvements in our value scores with guests. We think that's a combination obviously of of our offering but we also think it's supported by the <unk>.

<unk>, we've been making within the four walls of the restaurants on delivering a great guest occasion, and we're seeing our guest scores record record levels for the brand right now and so the combination of those two things I think are allowing us to continue to lean into a strategy. That's working and then if you look at our Q3 results of 15, 3%.

Michael Skipworth: Their average ticket and bonus mix are higher than our existing guests and they tend to engage with us through our digital ordering platform. This consumer is right in the sweet spot for our brand but it is not just with our new chicken sandwich. We are seeing strong new guest acquisition across all channels. We continue to see growth in average weekly transactions with DoorDash and since we launch a Uber Eats we have sustained Uber Eats delivery transactions at a level that double the initial launch last year.

Comp, which is substantially all driven by transaction growth I think that supports a little bit of what we're saying here.

Okay. Thank you so much.

The next question is from Andy Barish with Jefferies. Please go ahead.

Hey, guys.

Michael Skipworth: We see the delivery channel is another opportunity to build awareness for WingStop and we are nowhere close to a point of maturity. While these strategies are supporting our path to $2 million plus AUVs, we are also excited about the progress we are making to continue to scale our best in-class digital platform which we believe will help protect the most around their category of one position. During the third quarter our digital sales mix achieved a new record at 67% and we remained focused on our aspirational goal to digitize every transaction.

Wanted to just get a little bit of clarification.

Their tech stack.

Just understanding whats being piloted in restaurants now that's different as you look forward to.

With 24 launch I may have missed something there, but if you could just provide us a little bit more color.

Color on that that would be helpful.

Yeah Andy.

We're really excited about that.

The progress we've made and where we are today with our proprietary tech stack and this is and then the entire consumer journey.

And such.

Something we've been able to build as we mentioned earlier.

Michael Skipworth: We took a step three years ago to begin investing $50 million to build our proprietary tech platform. This investment serves two purposes. Protect our digital business that is quickly scaled to $2 billion in system-wide sales. And unlock new capabilities that tap into our digital database of more than 35 million users to enable further AUV growth. Our proprietary tech stack will deploy an increased level of hyper-personalization that we believe will improve conversion retention rates and ultimately drive frequency.

Leveraging the most modern technology and we think it's something that's gonna be a step change or even an unlock as we continued to advance our digital transformation and expand our digital business and this is going to allow us to really lean into personalization really leverage that database, that's over 35 million users.

Strong and lean into hyper personalization and leverage things like AI that I think will ultimately impact conversion impact frequency and so we're really excited about.

Being in pilot and restaurant and starting to move towards that that broader scale rollout, which we said would be in Q2 of 2024.

Michael Skipworth: We built a platform with the most modern technology within our tech stack. I'm thrilled to share that we are now in a pilot space testing our platform in restaurant which positions us for our anticipated launch in Q2 of 2024. We are just scratching the surface on personalization and we see this as a key part of our strategy for sustaining same-store sales growth. The strength of our AUVs and unit economics are translating into accelerated growth in our development pipeline.

Great and then just one follow up on.

Tuck in acquisition, you definitely gave a little bit more detail there in terms of what's been going on with all the programs over the last year is that.

Is that something new coming kind of out of your.

Your tech investment or was that studies that you've been doing recently on.

On your gas.

<unk> been able to glean results from just.

Michael Skipworth: The visibility we have into our construction pipeline at this time positions us to deliver on our 2023 guidance of 240 to 250 net new units which would be a record year for wings. We expect to exit 2023 at our highest level of development agreement ever. Our supply chain strategy is proving to be highly effective and we have clear line of sight into our food costs for 2024 that lines up with our target of mid 30% range, delivering predictability for our brand partners.

Just trying to get a little bit more color on that.

Yeah, absolutely as we in our digital business grow to a record level of 67% that's allowed us to gain a lot more data on our guest and be able to learn more.

About them, where they die in how they engage with our brand and as we mentioned on our prepared remarks, having a year under our belt with chicken Sandwich, where we've brought a lot of new guests and that's allowed us to really look at and understand how they engage with our brand how quickly they return into the brand and then what they buy on that second visit.

And and that's providing what we've called a halo effect to our overall business and in that new guests that we're bringing in we mentioned is is tends to be gen Z and millennials more middle income are less likely to have kids at home than than our than our core.

And their average ticket is higher and their boneless mix is higher which is helping to support continued growth in our boneless mix, which is a beautiful thing because it ties directly to our supply chain strategy, that's allowing us to ultimately impact the use.

Michael Skipworth: We've set a target for over 7,000 global restrooms, more than three times our current footprint. And the big part of our growth story is our international investment in the mid $400,000 range, brand partners are seeing an industry leading payback of less than two years. Not just similar from the US, our international markets are experiencing double-digit counts driven by transaction growth. They're executing a similar playbook to the US. In our UK market, our first restaurant opened five years ago is hitting record sales volume.

That economics, and just further enhance those which are already best in class.

Yeah.

Okay.

Yeah.

Thank you.

The next question is from Joshua long with Stephens. Please go ahead.

Great. Thank you for taking my question when we think about the opportunity to drive boneless mix above that 50% threshold that you called called out Alex just curious in stores that have been driving meaningfully.

Michael Skipworth: New restaurants are opening stronger, including a new market such as Canada and Korea that are building awareness. We expect our newly signed markets, Netherlands and Puerto Rico to open within the next two quarters and our business development pipeline of potential new brand partners is strong. I continue to believe our international business is supercharged for growth.

Meaningfully higher mix here now just curious any sort of strategies or learnings you've seen in terms of what's been successful for getting either that level of awareness up or just the frequency and engagement with that boneless.

Category higher and just.

What that has to.

That hasn't to thinking about the broader system.

Michael Skipworth: With this incredible growth in our business comes responsibility. Our core, the core tenant of our ESG strategy is giving back to the communities in which we serve through Wings Stop Charities. I'm proud of what the team has accomplished this past year. Wings Stop Charities awarded over $1.3 million in grant so far in 2023, an increase of over more than 400% from the prior year. In the third quarter, Wings Stop Charities was able to support a tremendous cause where 100% of contributions made through the Roundup program and the month of August and September going to the No Kid Hungry organization.

Hey, Joshua I appreciate the question.

It's interesting there is there's a there's a plenty of restaurants in our system that have a boneless mix well north of 50% in those restaurants.

They are a little bit of the basis behind that statement, we've made that could ultimately as we drive boneless mix higher north of 50% could be a structural change in our food cost target in those restaurants today are enjoying.

Our food cost that's call. It 304 hundred basis points lower than then what we see at the system average and we think as we bring more of these new guests and as we continue to win more of these occasions. It's not just boneless, it's not just sandwiches theres tenders as well and so there's a ton of opportunity for us to go.

Michael Skipworth: No Kid Hungry's mission is to end child to hunger and to help ensure every single child in America has the food they need to grow up healthy and strong. The contributions provided to No Kid Hungry will provide $3 million to our youth. This is just one of the many ways Wings Stop Charities is helping support the communities we serve. As I mentioned at the start of the call, I couldn't be more excited about the momentum we have in our brand right now.

After it to continue to win more of these guest occasions that we believe give us line of sight to driving that boneless mix north of 50%, which is pretty exciting for us it's exciting for our brand partners because it's just going to further bolster those best in class unit economics, which we know will just continue to fuel demand.

For development and allow us to continue to deliver on our long term algorithm of growing units over 10% each year, which we believe will ultimately translate to best in class shareholder returns.

Michael Skipworth: Wings Stop is in a category of one and our strategies are positioning us well for our next phase of growth. Our highly-franchised asset light model generates strong free cash flow and allows us to provide what we believe are industry leading shareholder returns. Since our IPO, we have delivered a total shareholder return in excess of 950%. Percent. This past quarter, we announced our inaugural $250 million share repurchase program, which we believe further demonstrates our commitment to enhancing shareholder returns.

Thank you for that and as a follow up when we think about your commentary around being able to drive awareness across all the different channels. In particular, you called out the strength in delivery and just see the staying power of the brand I was curious what you've seen in terms of the brand journey, depending on maybe what channel.

Customers come to you from it is there an opportunity and how have you kind of navigated the opportunity around bringing customers that maybe come through the third party delivery channel onto your own wingstop branded our platform overtime.

Michael Skipworth: We have great momentum heading into 2024 with a brand that's on the off end. The underlying health of our brand is the strongest it's been with same-store sales being fueled by transaction growth and continued strengthening in our best-in-class unit economics. I want to thank our team members, brand partners, and supplier partners for their dedication and hard work to deliver these industry leading results.

Yeah, absolutely I mean, it's been a really exciting for us to see the growth in the delivery channel, but what's really exciting is we've seen growth in all channels and and I think that's really healthy for our brand and we believe it's a demonstration that our advertising strategy is working the execution with the restaurants is as <unk>.

Well and so we're really encouraged.

Alex Kaleida: With that, I'd like to turn the call over to Alex.

<unk> by that but as we think about.

Continuing to win more occasions, I really want to kind of tie back to the investments we've made in E com and how we really believe that's going to be an unlock for us to control and really customize that that customer journey in a way that allows us to win more of their occasions that makes them think.

Alex Kaleida: Thank you, Michael, and good morning. The third quarter is a clear reflection of the $117.1 million from $92.7 million in the prior year fiscal third quarter. Royalty revenues franchise fees and other revenue increased by $12.8 million in Q3, primarily due to $3.8 million from franchise restaurant openings in a 15.3% increase in domestic sales sales, which was driven almost entirely by transaction growth. As a result of the strength in our same-store sales growth, we are increasing our guidance from 10 to 12% to approximately 16% in 2023.

Go to Wingstop dot com or our app to engage with our brand and we think as we continue to advance this pilot towards our national launch in.

In Q2 of 2024, that's gonna be unexciting unlocked for our brand.

Thank you.

The next question is from Brian <unk> with Morgan Stanley. Please go ahead.

Yes. Thank you maybe first just one quick one was there a certain pricing assumptions. When you talk about where you think food costs will run next year.

Alex Kaleida: Company-owned restaurant sales totaled $24 million in Q3. In increase with $3.8 million, primarily due to a 6% increase in company-owned same-store sales, driven almost entirely by transaction growth, and foreign net new restaurants versus the prior year comparable period. Company-owned restaurant margins were 26.4% for the quarter, showcasing the strength of our unit economic model. Costs of sales as a percentage of company-owned restaurant sales improved by 440 basis points compared to the prior year, mainly driven by a reduction in food, beverage, and packaging costs, which included a 13.5% decrease in the cost of bone and links.

No I think our comments around food costs really are centered around the progress we've made against our supply chain strategy. We continue to be committed to that disciplined approach to pricing that we've had over the years, which is a one to two points of price taken over to windows each year.

Okay. Thanks, and then.

I think it's it's clear that you're.

Your larger advertising budget and what you've done with media has really been quite successful in <unk>.

Driving awareness.

Where do you think you know where else do you think you'd kind of want to be just in terms of AD placements are if you've kind of thought about today versus you know.

Where you'd like to be in one to two years now where else do you think you can deploy dollars do you think that that new creative campaign in September was a key driver of the momentum you saw exiting the quarter.

Alex Kaleida: We are on track to deliver a full-year cost of sales of approximately 75%, consistent with the prior outlook we shared earlier this year. And we continue to make progress, execute our supply chain strategy to mitigate volatility in our food costs. At our recent brand partner convention, we generated quite a bit of excitement with the visibility we shared into our 2024 food cost, which for company-owned restaurants would translate to approximately 35% food cost.

Hey, Brian Thanks for the question.

I think it's interesting we've our AD fund has grown as we mentioned you know over four times what it was when we initially launch national advertising as a brand in 2018, so that's significant growth and it's allowed us to to show up in these premium placements like the NFL and NBA, but even as we.

Alex Kaleida: Our strategy is supported by the progress we are making on increasing our bonus mix, now at a record level of 44% for the system. This compares to a low 30% bonus mix just a few years ago. We believe a bonus mix in excess of 50% could yield a structural change in our food cost target to a low 30% level, further enhancing our best-in-class returns for our brand partners, which we believe will continue to fuel record development for new restaurants.

Show up there I think you're only CNS in one or two spots a game and there's so there's a ton of runway just within linear television for us to continue to show up more and continue to drive brand awareness, we mentioned and we've talked about it over the years that the opportunity we have to scale our brand awareness to <unk>.

There are other more mature national brands or is that opportunity in front of US is significant and we think as our AD fund continues to grow with system sales will continue to show up more but at the same time, we are we definitely lean into looking at being a digital forward brand and leveraging that first party data.

Alex Kaleida: In the third quarter, SG&A totaled $23 million in increase of $6.4 million versus the prior year comparable period. The current quarter included an increase in performance-based stock and short-term incentive compensation as a result of our performance as well as investments in headcount and strategic projects to support the long-term growth of the business. As we scale, we anticipate seeing greater leverage in our SG&A investments and are continuing to target a long-term SG&A as a percentage of system-wide sales in the two to two and a half percent range.

That we have to show up in the right channel with the right message, even leveraging that database to target consumers, who looked just like those who engage with us and so that'll continue to be a key part of our strategy, but you know.

The exciting thing for us and what gives us a lot of confidence as our strategy is working yet we still have a ton of runway in front of US just to continue to lean in and drive drive the overall brand and obviously, where we're excited about the creative we definitely think that had an impact to the results. We saw in Q3, particularly as we as we exited.

Alex Kaleida: Adjusted EBITDA and non-GAP measure was $38.5 million during the quarter, an increase of 36.7% versus the prior year, which is building on top of adjusted EBITDA growth of 33% in the prior year period. Adjusting for non-recurring items, we delivered adjusted earnings per deluded share, a non-GAP measure of 69 cents, a 53% increase versus the prior year. In August, we announced that our Board of Directors authorized our inaugural $250 million share repurchase program.

The quarter, but we think it's it's a it's an aggregate of all the things that we're working that are working together in concert that are supporting these industry, leading results and really ultimately driving transactions, which is pretty unique in the industry right now.

Okay.

The next question is from Andrew Charles with TD Cowen. Please go ahead.

Great. Thank you clearly very encouraging commentary on <unk> comps and how the business is shaping up in <unk>.

We'll get the 2024 guidance next quarter, but is there anything that gives you concern and your ability to reach medium term guidance of mid single digits next year I also have a follow up.

Alex Kaleida: Since our IPO, total shareholder returns have exceeded 950%, demonstrating our commitment to returning capital to shareholders. To further demonstrate this commitment, we entered into an accelerated share repurchase agreement to repurchase $125 million, a wingstop common stock. Under the CSR agreement, as of September 30, 2023, the company retired 567,000 shares of its common stock, representing an estimated 75% of the total share is expected to be delivered. The delivery of any remaining shares will occur at the final settlement of the transaction, which is scheduled in the fourth quarter.

Andrew Thanks for the question you know we were we were obviously really excited and I'm pretty pleased with the results. We saw in Q3 and in and really it was it was one thing that we felt was really important and something we really wanted to highlight.

On the call today and that is we've talked about these growth strategies that we've been executing against whether it's winning more more occasions, bringing in new guests via chicken sandwich, whether it's continuing to expand our brand awareness on the delivery channel and win more delivery occasions, continuing to scale our <unk>.

Alex Kaleida: The total remaining authorized amount for share repurchases is approximately 125 million at the end of Q3. Another component of our return of capital strategy is our regular quarterly dividend, which is targeted at approximately 40% of free cash flow. On October 31, 2023, our Board of Directors approved a quarterly dividend of 22 cents per share of common stock, resulting in a total dividend of $6.5 million. This dividend will be paid on December 8, 2023 to stockholders of record, as of November 17, 2023.

National advertising in a way that's seen us measure record levels from a brand awareness perspective, or even expanding our digital channel in all of those we've talked about them being multiyear drivers for our business and as we lapped.

Some pretty meaningful levers that we pulled in 2022 we.

We hope that it's understood and appreciated that these are in fact multiyear drivers and so as we think about 'twenty four it gives us a lot of confidence for us to continue to drive at Au vs and continue to advance the ball north of that $2 million target that we have which we know will just further enhance those best in class unit.

Alex Kaleida: Our regular dividend program, combined with our new share repurchase program, underscores the strength of our highly-franchised asset-like model in our ability to enhance shareholder returns, while preserving financial flexibility on our balance sheet to support our strategic growth initiatives.

Omics.

Excellent Okay, Great and then Alex looking ahead, what's the philosophy with the balance sheet and use of cash as you end the year closer to four times leverage versus the 6% to seven times target is the plan for the foreseeable future to use free cash flow for stock buyback, obviously, you have the $125 million.

Alex Kaleida: Moving to our outlook for 2023, based on the visibility we have in our construction pipeline, we are reiterating our development outlook of $200 million. We have a total of 140 to 250 net new units, which represents a unit growth rate of 12.5% at the midpoint of our range. SG&A guidance is estimated to be between $94.5 and $95.5 million, from prior guidance of $91 to $93 million. Inc. 5.2 million dollars in non-recurring consulting projects to support our strategic initiatives, an increase in our short-term incentive accrual based on the performance of our business, an estimated 14 to 15 million dollars of stock-based compensation expense, which is unchanged from prior quarter guidance.

Authorized but looking even beyond that.

One is to use free cash flow for stock buyback until conditions become more favorable for pursuing leverage recap historically done.

Hey, good morning answer, yes, I think we are sensitive a bit to the current backdrop are operating in but as you may recall last year, we were opportunistic in the last Ah debt transaction that we had made that position or flexibility on our balance sheet to navigate the uncertainty ahead and that includes with.

With the strength of our free cash flow generation. This asset light highly franchise model, we delever fairly quickly, but we can put that free cash flow to work, whether it's to support our growth initiatives.

Or return of capital strategies, which also include beyond share repurchases a regular dividend that's funded at about 40% of free cash flow. So we think we have ample flexibility and liquidity available to us to continue to to support those growth strategies.

Alex Kaleida: I want to echo Michael's sentiment earlier, it is truly an exciting time to be at Wingstop. We are building brand awareness, scaling the brand globally, and increasing frequency among our guests against what could be considered a challenging macro backdrop, showcasing Wingstop's category one position. Our strategies have staying power and give us the confidence to continue to deliver industry leading results.

Excellent. Thank you guys.

The next question is from Jon Tower with Citi. Please go ahead.

Hi, its actually I cant holthaus on for John today are thinking about the new technology platform that you're hoping to rollout to stores in the second quarter.

Michael Skipworth: Thank you to all our team members, brand partners, and supplier partners for their tireless efforts to serve the world our flavor.

It sounds like there is customer facing and then also you know analytical our operational pieces to it if you could maybe expand on kind of the new capabilities. And then also you know other companies have started to talk about recouping some of their investments in digital capabilities through per order fees or other fees.

Operator: With that, I'd like to now turn to Q&A. Operator, please open the line for questions. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Please limit yourselves to one question and a single follow-up.

To franchisees and it philosophically how do you think about that as a service to our franchisees. That's part of just already being at Wingstop franchisees or something that's replacing third parties that you should get paid for it you should get paid for just kind of again philosophically how do you think about that.

Jeffrey Bernstein: The first question today comes from Jeff Bernstein with Barclays. Please go ahead. Hi, good morning.

Hey, Karen good morning, Yeah, where we're really excited about what.

Michael Skipworth: This is Product Con for Jeff. I guess I can start off with a question on the comp. You've had another very strong quarter, despite seemingly a growing number of consumer headwinds, with higher interest rate, rent, cost, student loan payment, and pricing is obviously being laughed as well. Your fourth quarter of guidance implies another quarter of double-digit growth and you seem to be unique among your peers driving your results mostly with transaction growth. What do you attribute to all this trend then? How do you sustain such momentum despite being seemingly growing headwinds? Thanks, and I will follow up.

What we're calling my Wingstop. This tech platform that we've built and we do believe it's going to just continue to to advance the ball forward and provide a best in class consumer experience digital ordering experience that will allow us to continue to win more digital occasions, and we think it allows.

Ultimately improve conversion and as we mentioned also we believe will ultimately impact frequency in and Youre right. It is providing more insights and more visibility into the business within the four walls of the restaurants for our brand partners, which we think will just that added visibility the additional analytics will just further.

Help them improve profitability over time, which is which is pretty exciting and as we deploy this we will be placing certain costs that sit on their P&L today and as we think about the ongoing operating expenses associated with operating my winks up we would expect to structure. It in a way to where it's cost new.

Michael Skipworth: Good morning, and thank you for the question. I think it's a handful of things that I would call out. There's no question as we look at industry data and we can clearly see that there's pressure on the consumer, but I think what you're really seeing in our business and what is making wingstop unique is just the effectiveness of our growth strategies. We're acquiring more new guests than ever. Obviously, we're winning a lot of new occasions with chicken sandwich as well as delivery, but as we said in our prepared remarks, we're seeing more of those guests come back and navigate the rest of our menu, winning more of their occasions, which is yielding an uptick and frequency for our brand, which we're really excited about.

Draw on our P&L and the ongoing cost is covered by by the brand partners and.

And we think that's the right approach to do it and and ultimately we think this is something that will just further enhance their unit economics over the long term.

Great. Thank you.

The next question is from Andrew <unk> with BMO. Please go ahead.

Hi, This is Daniel goes on for Andrew Charles Thanks for taking my question.

Michael Skipworth: I think we've talked about over the years, and it's really showcased in the fact that we've delivered 19 consecutive years of same-store sales growth, and we're on pace for our 20th this year, is that when there is pressure on the consumer, particularly that lower-income consumer, they do have a tendency to pull back on more high-frequency occasions, and where wingstop plays well and where we win, is we see those guests almost save up and want to treat themselves or indulge, and that's where wingstop shows up in a really great way. We've been able to, over the years, retain those indulgent quality occasions, and I think what's really interesting in our business and what we saw in Q3, was we actually saw a slight uptick in frequency with that low-income consumer, which we're pretty excited about.

Regarding your supply chain initiatives, you've noted moving.

By off spot have you completely disconnected the motto for spot wing prices. There are still some link can you provide texture on how that lingers structure. The first one.

Yeah. Good morning, I think we've we're pretty excited about the progress we've made in our supply chain strategy and I think what's what's important is is this strategy is designed around minimizing the volatility that we see in food cost in and Alex referenced it in his prepared remarks, where we've.

Made some meaningful progress over the past year and it puts us in a position and then quite frankly, a position we really haven't been in before as a brand to have visibility into what we expect food cost to be for 2024, and that's something that's really exciting for our brand partners and we're going to continue to work on.

Michael Skipworth: At the same time, we're seeing that higher-income consumer potentially pull back on dining out occasions, dining at home more, and we're winning those occasions as well, and so I think all of that's supported by an effective advertising strategy. One that we believe is really working. We have an elevated amount of ad fund investment to deploy, growing consistent with our system sales growth of roughly 30%. That's allowing us to show up in more premium placements like live sports.

On advancing that strategy, our supplier partners are right there with us and we think it's a great strategy that's.

Works for both sides and so it's something we think we can continue to advance forward and you know, we'll move more and more of our buy.

Away from the spot market, ensuring that we minimize the volatility in food costs and then as Alex mentioned, we see a line of sight to continuing to drive boneless mix, so something north of 50% that could ultimately be a structural change to food cost in that low 30 range, which is at in the mid thirty's today and.

Michael Skipworth: We've shown up in the NFL in a big way, we're showing up in NBA right now, and that's coupled with our new breakthrough creative, which we're really excited about. We're seeing some of the highest levels of purchase intent associated with that new creative, and one of the top things that consumers share with us when they see that new creative is it makes them hungry, and so we think that food forward showing the enjoyment of our food on a national TV is really all laddering up to help us continue to drive our business with transaction growth.

And that would just further bolster those those unit economics that our brand partners enjoy today.

Yes.

Right. Thank you and.

Can you give us an update on your delivery mix and how you're looking to drive growth in that channel I understand there is there is some pressure on delivery in this environment and.

Our additional partners are a factor there in driving growth.

Michael Skipworth: And as we mentioned, we saw that strength, and as we progress through the quarter, and that gives us a lot of confidence in how we'll finish 2023, which will be another record year for wing stuff. That's very helpful. I appreciate that.

Yeah, I mean, we're pretty encouraged by the growth that we've seen in delivery, we actually mentioned in our prepared remarks that we've seen growth both indoor dash and Uber eats and where we're continuing to believe there's a meaningful amount of upside in that channel for us from a mix perspective its.

Michael Skipworth: And shifting to unit growth, your demand is obviously being consistent all along. And I know you're not going to give any guidance today, but just any, I guess, qualitative comments on the outlook for 2024. Are you seeing any kind of maybe stress among potential developers in terms of just a flowing macro, higher borrower in cost? Just any color on what you're kind of seeing right now for 2024? Yeah, absolutely. And I think we hit on this in the prepared remarks, but we're pretty excited about the momentum we have in development.

Pretty consistent to what it was last quarter, maybe ticked up a little bit, but that's a good thing because while we're still seeing growth in those channels, we're seeing growth in all other channels, whether it's digital carryout non digital carryout and so from a mix perspective that number is not moving very much but we think that's a good thing because of the strength.

We're seeing it across all channels, which we think is a really healthy sign for the brand.

Great Congrats on a car.

Did I answer your question excuse me. The next question is from Michael Tamas with Oppenheimer and company. Please go ahead.

Michael Skipworth: This year is playing out exactly how we anticipated or thought it would. And we're right on track and excited about the sites that are in our pipeline and where they are in the construction cycle, which supported our reiteration of our outlook for this year of 240 to 250 net new restaurants, which will be a record year for Wingstop. And we mentioned that our development pipeline, any metric we look at, development agreements, number of approved sites as we go into 2024 or is on pace for record levels.

Thanks, Good morning, Michael I wanted to follow up on your comments about gaining more new customers. This quarter than you did when you first launched chicken sandwich.

It's pretty impressive so can you dig into that a little bit more how are you reaching these new customers for the first time, how do you maintain that momentum is it just the national TV campaigns or what are some other levers you can pull in 'twenty four and beyond to continue gaining new customers.

Yeah. It was the stat. We were we're really excited about you know we we obviously had an incredibly successful launch of chicken sandwich in 2022 and to be able to lap that.

Michael Skipworth: And that shows to us. Obviously, we have a lot of demand, but I think that demand supported by the strength of our unit economics, we still support a pretty low initial investment in that mid $400,000 range. And when our brand partners are seeing paybacks on that initial investment of less than two years, we don't see a lot of headwinds from some of these macro elements that you called out. And a lot of our brand partners in our system, quite frankly, are funding growth with existing cash flows.

Obviously with the comps that we delivered and also acquiring more guests new guests than we did during that time, where we're pretty excited about and we think it's again, we think it's just the effectiveness of these multiple growth strategies that we're executing against and you know the continued.

Expansion of the brands and continuing to scale awareness is obviously, a big catalyst for that.

Michael Skipworth: So there's not a high degree of leverage in our system that this current interest rate environment might impact. And so we're encouraged by how our pipeline is shaping up as we close out 2023. It's a very helpful. I appreciate it.

And as more brands know of Wingstop and are looking for that indulgent quality occasion, which was which is where we think in a time when it's tough out there where we're johnny behaviors tend to trend. We think it puts us in a really unique spot just to continue to navigate this environment different than everyone else in the industry.

Operator: Thank you.

David Tarantino: The next question is from David Tarantino with Beard. Please go ahead. Hi, good morning and congratulations on such a strong result.

Thanks, and then on the international side, you have slowly been rather than the number of new units you are building each year.

Michael Skipworth: Michael, I wanted to take maybe a different tack on the unit growth outlook question. I wanted to ask, you know, the strength and the business you've seen over the past few years is really driven unit economics to levels that are, you know, we're hard to envision the last time you gave the long-term growth outlook. So I was just wondering if you're thinking about the US unit growth opportunity any differently than what you laid out in the past, given the strength you're seeing, especially given the strength, I guess, in attracting new customers into the brand. So any thoughts on what you think the long-term opportunity might be based on what you've seen this year or in recent years.

So should we think about that sort of stair step higher continuing to happen or is there anything that you see as you look at that there's maybe a meaningful step change, whether it's china or somewhere else.

Hey, good morning, Michael This Alex Yeah, we would expect international continue to stair step and its a little bit of the nature of the way we construct our development agreements in the U S or domestic agreements tend to be three to five years smaller.

The amount of restaurants and under commitment international tend to be 10 years, and then they start a little slower than the ramp and then they get to a place like our U K market, which is our playbook for future restaurant development, where we're opening restaurants in the mid teens level and it's a fourth or fifth year into its opening rates and you know we've got new Mark.

It's like Canada, and Korea that are falling that playbook. We've got we're really excited about Canada, just being open with our four restaurants and a little over a year and they're a vs are already pacing at a level that's.

Michael Skipworth: Good morning, David. Thanks for the question. You know, obviously we remain extremely confident in the opportunity we see for our brand in the US. We've previously cited that that's over 4,000 restaurants that we see the opportunity to expand wings up here in the US. And obviously, as you mentioned, with the strengthening of our unit economics, there's a significant amount of demand for that growth. But I think, as we look about at the total opportunity in front of us, obviously, as we continue to build out some of our original or more mature markets, like the Dallas Fort Worth market or even Los Angeles, we continue to see really strong pace of development in those markets.

Michael Skipworth: And we see those restaurants opening up stronger those paybacks continuing to improve. And so we do see that as an opportunity for us to probably lean in and that plus, if you will, on our 4,000 opportunity. But as we sit here today, we remain extremely confident in being able to deliver on that long-term target of over 4,000 in the US. And then, obviously, the business, as we mentioned outside of the US, is strengthening quite well the markets that we're in are on track.

Near the U S. Domestic average they're building awareness theyre, starting to turn that corner just like the U K market did and ramping up. So I think we will expect over time, though international as Michael mentioned on the call to be a big much bigger part of our story.

Yeah.

Thank you.

The next question is from Peter Salad with BTG. Please go ahead.

Great. Thanks for taking my question and congrats on another great quarter.

I didn't want to come back to the conversation around the balance sheet.

This environment of higher for longer and I. Appreciate that we don't know where rates are really going to go over the next 12 months, but it.

Is your intention or for the message here that you'll be more patient until rates, maybe come down a little bit from the current environment to add more leverage.

Michael Skipworth: And we're really encouraged by how the brand is expanding outside of the US, which when you combine that with what we have here in the US, combines for an opportunity for us to over-triple the size of the brand as we sit here today, which is pretty exciting.

Or should we still expect you to move on additional leverage over the next 12 months and then also I know your target you used to be in that six seven times I think in the past you were closer to six times on leverage is.

Michael Skipworth: Great, thank you very much.

Should we think about that target to be a you know a turn or so lower now or just just trying to get some clarity around your comments around the balance sheet going forward. Thank you.

Hey, Peter I'll start and then Alex can jump in but you know I think I think what we were referencing is we leaned in.

Sara Senatore: The next question is from Sara Senatore with Bank of America, please go ahead. Hi, thank you very much. Just a question on a quick follow-up, please. The question is on the food cost you mentioned. I know that you've done a nice job with collars and hedging, but when I look at some of your inputs, like chicken wings or even breast prices, they've come up a lot. So I'm just trying to understand your confidence in 2024.

In our last debt refinancing to be in a position to have options and to be flexible.

And that's exactly where we are we put a lot of cash on the balance sheet.

Providing us a lot of Optionality, but we also entered into a variable funding note.

The pricing at which we entered into at the time was extremely competitive and is quite frankly.

Alex Kaleida: Is it because of this mixed shift towards boneless and so it's sort of structural, or is this maybe perhaps more of a timing where 2024 looks okay, but then some of the hedging or the contracts roll off and perhaps after that you see some of the impact of the recent increase in input cost prices. And then I'll have a follow-up as I mentioned.

At a better rate than I think what we can get that on the on the open market today and so it puts us in a great spot to be flexible and to have options and so we have plenty of cash on the balance sheet.

We generate a ton of free cash flow.

As as being in line with our asset light model and so I think youll see us continue to lean into Optionality in front of us and we think we're in a position just to continue to execute.

Sara Senatore: Hi, good morning, Sara. This is Alex. It's really a combination of the factors you mentioned. The size and scale of our buy year and year out and our increase of our boneless mix has made us has a lot of interest to different pricing conversations with our suppliers. And for the first time, we have visibility into our 2024 food cost, which we shared on in our prepare remarks today. It's something our brand partners are really excited about.

On our current capital structure against our return of capital strategy that we've talked about.

But that said I don't think anything changes from our levels of.

Leverage and where we're comfortable.

We still think that that's a pretty pretty healthy mark for us to be a particularly when you think about the pace at which we delever. When you combined our EBITDA growth rate, which for this quarter. Just just to point out was north of 30% on top of a pretty similar and strong number last year and so that combined.

Sara Senatore: We've seen volatility before when the earnerberry has moved. I mean, it's still today below the five year average, well below the five year average of wing prices. But the price ranges we have in place have moved our buy off the spot market, which gives us that visibility into this year as well as into next year. Got it. Thank you.

With our free cash flow generation allows us to delever really quickly and so.

We feel pretty comfortable about where we are today and the options we have in front of us.

Alex Kaleida: And then on the topic of, you know, you haven't taken very little price. You know, I guess we've heard some about promotional environment getting more intense. Is that something that you've observed as well? I think, you know, the other thing that's emerged is quarters that companies are concepts that have taken less, less price. Just seem to be doing better. So just trying to understand if it's more about the relative value that has accumulated, you know, given how much less price you've taken or if there is something that's going on in the promotional environment.

Okay.

Thank you and then just real quick on the delivery partners you know you have to.

Sizable delivery partners in the past I think you'd indicated about 80% or so loyalty, but for each individual partner was maybe 20% of the customers kind of trading back and forth has anything changed as both of those delivery channels for you guys have grown is that still are those still good metrics to use.

Yes. Peter This is you know we actually that that data point you referenced there was something we had hypothesized based on some research that we had done when launching Uber eats last year, but we have not seen them.

Alex Kaleida: Is there a, you know, I think for us, I think it plays a little bit into this category of one positioning in that we don't really feel like we, we have to get out there and maybe compete in that in that competitive value or promotional landscape with other other national brands because of the uniqueness of our of our offering and the differentiation of our cooked order and high quality. And so for us, we think that consumers are are rewarding us for that indulgent occasion, that quality, that the two components that are highest on some of the guest feedback that we hear and what they're looking for and where they want to spend their dining out dollars.

Cannibalization as we mentioned on the call, we're still growing our door dash business from an average weekly delivery transaction standpoint, Uber eats is growing as well and this is with the.

A very low level of awareness in both marketplaces, and so theres going to be opportunity for us to deploy.

Some of our advertising fund investments into these channels to build awareness and that's what we're focused on doing coupled with the new guest acquisition that we have across all channels.

Thank you very much.

And our final question today comes from Jake Bartlett with Truest. Please go ahead.

Alex Kaleida: And we're able to deliver that with we in a situation or an offer that we believe provides great value to guests. And I think we've mentioned this before, but quarter after quarter, we continue to measure improvements in our value scores with guests. We think that's a combination obviously of of our offering, but we also think it's supported by the improvements we've been making within the four walls of the restaurant on delivering a great guest occasion and we're seeing our guest scores record record levels for the brand right now.

Great. Thanks for taking the question you might my first and then have a follow up on the first question is on G&A. The G&A guidance has gone up about 15% from the initial guidance I just wanted to make sure I understand what's driving that and really most importantly, what the implication is for 2024 I assume there's a lot of.

Incentive comp it's the crude that's being reflected in 'twenty three might not recur in 2014, just to level set us with no.

Alex Kaleida: So the combination of those two things I think are allowing us to continue to lean into a strategy that that's working. And if you look at our Q3 results, a 15.3% comp, which is substantially all driven by transaction growth, I think that supports a little bit of what we're saying here. Thank you so much.

Base to grow from in 'twenty, four and any help there would be great and then I have a follow up.

Sure Jake.

There's two factors really in the increase in our guidance from the prior quarter and it's one is the our investment in consulting fees that were in quarter three of $1 3 million and then the balance relates to an increase in our accrual for our short term incentive based compensation based on the performance in the business and so in total for two.

Andy Barish: The next question is from Andy Barish with Jeffries. Please go ahead. Hey, guys, wanted to just get a little bit of clarification on the tech stack and just understanding what's being highlighted in restaurants now that's different.

'twenty three we have about $5 2 million of nonrecurring consulting fee investments that.

We will lap and then you know obviously the short term incentive will reset going.

Michael Skipworth: As you look forward to, you know, a 24 launch, I may miss something there, but if you could just provide us a little bit more color on that, that would be helpful. Yeah, and we're really excited about the progress we've made, and where we are today with our proprietary tech stack. And this is in to end the entire consumer journey and something we've been able to build, as we mentioned earlier, leveraging the most modern technology, and we think it's something that's going to be a step-changer, even an unlock, as we continue to advance our digital transformation and expand our digital business.

Going into next year, So I would think about G&A.

As a percent of system sales are and we'll have more detail on the 'twenty 'twenty four but something that's consistent with what we see in 2023 for next year.

Okay great.

No question about the G. L P. One.

Potential impact going forward I know, it's really difficult to quantify but just I'm wondering how you're thinking about it whether you're done.

Work is to your exposure, if there's any markets, where you're seeing an impact and then I guess you know if if if you think there would be an impact any kind of way you you think you could react to that.

Michael Skipworth: And this is going to allow us to really lean into personalization, really leverage that database that's over 35 million users strong, and lean into hyper-personalization, and leverage things like AI that I think will ultimately impact conversion, impact frequency.

Sure.

Clearly.

We're not seeing an impact on our business today, which is supported by the strong results that we delivered for Q3.

Jake I think theres still a lot of questions out there around.

G L P. One that remain to be answered.

Michael Skipworth: And so we're really excited about being in pilot in restaurant and starting to move towards that, that broader scale roll out, which we said would be in Q2 of 2024. Great.

Affordability the level of widespread sustainable adoption I think are still relatively unknown, but.

But as we think about our target guests and that group occasion, where we win.

We think we're well positioned and so we're going to remain focused on our long term growth strategies that we're executing against and and just continue to advance our strategies forward.

Michael Skipworth: And then just one follow-up on, you know, customer acquisition, you definitely gave a little bit more detail there in terms of what's been going on with all the programs over the last years. That, you know, is that something new coming kind of out of your, you know, your tech investment, or was that, you know, studies that you've been doing recently on, you know, on your gas that, you know, you've been able to lean results from, just trying to get a little bit more color in that.

I appreciate it.

This concludes our question and answer session and the conference is also now concluded. Thank you for attending today's presentation. You may now disconnect.

Okay.

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Michael Skipworth: Yeah, absolutely. As we see in our digital business grow to a record level of 67 percent, that's allowed us to gain a lot more data on our guests and be able to learn more about them where they died, how they engaged with our brand, and as we mentioned on our prepared remarks, having a year under our belt with Chicken Sam, which where we've brought a lot of new guests in, that's allowed us to really look at and understand how they engage with our brand, how quickly they return into the brand, and then what they buy on that second visit.

Right.

Yeah.

Okay.

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Michael Skipworth: And that's providing what we've called a halo effect to our overall business, and that new guest that we're bringing in, we mentioned, is tends to be Gen Z or Millennials, more middle income, less likely to have kids at home than our core, and their average ticket tire and their boneless mix is higher, which is helping support continued growth in our boneless mix, which is a beautiful thing because it ties directly to our supply chain strategy that's allowing us to ultimately impact the unit economics and just further enhance those which are already best in class.

Okay.

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Joshua Long: Thank you.

Joshua Long: The next question is from Joshua Long with Stevens, please go ahead. Great. Thank you for taking my question. When we think about the opportunity to drive boneless mix above that 50% threshold that you called out Alex, just curious, you know, in stores that have been driving, you know, meaningfully higher mix here now. Just curious, any sort of strategies or earnings you've seen in terms of what's been successful for getting either that level awareness up or just the frequency and engagement with that boneless category higher and just maybe what that has to input that has into thinking about the broader system.

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Yeah.

Joshua Long: Hey, Joshua. I appreciate the question. You know, it's interesting. There's there's there's a plenty of restaurants in our system that have a boneless mix well north of 50% and those restaurants. You know, they are a little bit of the basis behind that statement we've made that could ultimately as we drive boneless mix higher north of 50% could be a structural change in our food cost target. And those restaurants today are enjoying a food cost that's, you know, call it 300 400 basis points lower than than what we see at the system average and we think as we bring more of these new guests in as we continue to win more of these occasions.

[music].

Joshua Long: It's not just boneless. It's not just sandwiches. There's tenders as well. And so there's a ton of opportunity for us to go after to continue to win more of these guest occasions that we believe give us line of sight to driving that boneless mix north of 50% which is pretty exciting for us. It's exciting for our brand partners because it's just going to further bolster those best in class unit economics, which we know will just continue to fuel demand for development.

Joshua Long: And allow us to continue to deliver on our long term algorithm of growing units over 10% each year, which we believe will ultimately translate to best in class shareholder returns. Thank you for that. And as a follow up when we think about your commentary around being able to drive awareness across all the different channels and particularly called out the strength and delivery. And just the thing power that the brand has curious what you've seen in terms of the brand journey, depending on maybe what channel customers come to you from it.

Joshua Long: Is there an opportunity and how have you kind of navigated the opportunity around bringing customers that may become through the third part of delivery channel onto your own wings up branded platform over time. Yeah, absolutely. I mean, it's been a really exciting for us to see the growth in the delivery channel, but what's really exciting is we've seen growth in all channels. And I think that's really healthy for our brand and we believe it's a demonstration that our advertising strategies working the execution with the restaurants is really well.

Joshua Long: And so we're really encouraged, encouraged by that. But as we think about continuing to win more occasions, I really want to kind of tie back to the investments we've made in e-commerce and how we really believe that's going to be an unlock for us to control and really customize that that customer journey in a way that allows us to win more of their occasions. It makes them think to go to wingsstop.com or our app to engage with our brand.

Michael Skipworth: And we think as we continue to advance this pilot towards our national launch in Q2 of 2024, that's going to be an exciting unlock for a brand.

Brian Harbour: The next question is from Brian Harbour with Morgan Stanley. Please go ahead Yes, thank you. Maybe first just one quick one, was there a certain pricing assumption when you talk about where you think food costs will run next year? Now I think our comments around food costs really are centered around the progress we've made against our supply chain strategy. We continue to be committed to that disciplined approach to pricing that we've had over the years which is a one to two points of price taken over two windows each year.

Brian Harbour: Okay, thanks. And then I think it's clear that you're larger advertising budget and what you've done with media has really been quite successful in driving awareness. Where do you think, you know, where else do you think you kind of want to be just in terms of ad placement? If you kind of thought about today versus, you know, where you'd like to be in one to two years, you know, where else do you think you can deploy dollars? And then do you think that that new creative campaign in September was a key driver of the moment and you saw exiting the quarter?

Michael Skipworth: Hey Brian, thanks for the question. You know, I think it's interesting. We've our ad fund has grown as we mentioned, you know, over four times what it was when we initially launched national advertising as a brand in 2018. So that's significant growth and it's allowed us to to show up in these premium placements like the NFL and NBA. But even as we show up there, I think you're only seeing us in one or two spots again.

Michael Skipworth: And so there's a ton of runway just within linear TV for us to continue to show up more and continue to drive brand awareness. We mentioned and we've talked about it over the years that the opportunity we have to scale our brand awareness to where other more mature national brands are is that opportunity in front of us is significant. And we think as our ad fund continues to grow with system cells will continue to show up more.

Michael Skipworth: But at the same time, we we definitely lean into looking at being a digital forward brand and leveraging that first party data that we have to to show up, you know, in the right channel with the right message, even leveraging that database to target consumers who look just like those who engage with us. And so that'll continue to be a key part of our strategy. But you know, the exciting thing for us and what gives us a lot of confidence is our strategies working yet we still have a ton of runway in front of us just to continue to lean in and drive drive the overall brand.

Michael Skipworth: And obviously we're we're excited about the creative. We definitely think that had an impact to the results we saw in Q3, particularly as we as we accident the quarter. But we think it's a it's an aggregate of all the things that we're working that are working together in concert that are supporting these industry leading results and really ultimately driving transactions, which is pretty unique in the industry right now.

Andrew Charles: The next question is from Andrew Charles with TD Cohen. Please go ahead. Great. Thank you. Clearly very encouraging commentary on 3Q comps and how the business is shaping up in 4Q. I know we'll get the 2024 guidance next quarter. But is there anything that gives you concern and your ability to reach meeting in terms of guidance of missing what it just next year? I also have a follow up. Andrew, thanks for the question.

Michael Skipworth: We were obviously really excited and pretty pleased with the results we saw in Q3 and really it was one thing that we felt was really important, something we really wanted to highlight. On the call today, and that is we've talked about these gross strategies that we've been executing against, whether it's winning more occasions, bringing in new guests via chicken sandwich, whether it's continuing to expand our brand awareness on the delivery channel and win more delivery occasions, continuing to scale our national advertising in a way that's seeing us measure record levels from a brand awareness perspective, or even expanding our digital channel, and all of those, we've talked about them being multi-year drivers for our business, and as we laughed, some pretty meaningful levers that we pulled in 2022, we hope that it's understood and appreciated that these are in fact multi-year drivers, and so as we think about 24, it gives us a lot of confidence for us to continue to drive AUVs and continue to advance the ball north of that $2 million target that we have, which we know will just further enhance the best in class unit economics. Excellent. Okay, great.

Alex Kaleida: And then Alex, looking ahead, what's the philosophy of the balance sheet and use of cash is you're in the year closer to four times leverage versus the six to seven times target. You know, is the plan for the foreseeable future to use for cash flow for stock buyback? Obviously, you have 125 million still authorized, but looking beyond that, you know, if the plan is to use free cash flow for stock buyback until conditions become more favorable for pursuing leverage recap because historically done.

Alex Kaleida: Good morning, Andrew. Yeah, I think we are sensitive a bit to the current backdrop we're operating in, but as you may recall last year, we were opportunistic in the last debt transaction that we had made that position our flexibility on our balance sheet to navigate uncertainty ahead, and that includes. You know, with the strength of our free cash flow generation, this asset light highly franchise model, we deliver fairly quickly, but we can put that free cash flow to work, whether it's the support our growth initiatives or return of capital strategies, which also include beyond share repurchases of regular dividend that's funded at about 40% of free cash flow. So we think we have ample flexibility and liquidity available to us that continue to to support those gross strategies.

Operator: So, thank you, guys.

Karen: The next question is from John tower with city, please go ahead. Hi, it's actually a care and hold house on for John today, thinking about the new technology platform that you're hoping to roll out to stores in the second quarter. It sounds like there's customer facing and then also, you know, analytical or operational pieces to it, if you could maybe expand on kind of the new capabilities.

Karen: And then also, you know, other companies have started to talk about recouping some of their investments in digital capabilities through, you know, pro order fees or other fees to franchise these. And it philosophically, how do you think about, you know, that as a service to your franchisees that's, you know, part of just already being a winged up franchisee or something that's replaced in third parties that you should get paid for, that you should get paid for. Just kind of again philosophically, how do you think about that.

Michael Skipworth: Hey Karen, good morning. Yeah, we're really excited about what we're calling my wingstop, this tech platform that we've built. And we do believe it's going to just continue to advance the ball forward and provide a best-in-class consumer experience, visual order and experience that'll allow us to continue to win more digital occasions. And we think it'll last ultimately improved conversion. And as we mentioned, also we believe what ultimately impact frequency. And you're right, it is providing more insights and more visibility into the business within the four walls of the restaurants for our brand partners, which we think will just that added visibility, the additional analytics will just further help them improve profitability over time, which is pretty exciting.

Michael Skipworth: And as we deploy this, we will be replacing certain costs that sit on their P&L today. And as we think about the ongoing operating expense associated with operating my wingsstop, we would expect to structure it in a way to where it's cost neutral in our P&L and the ongoing cost is covered by the brand partners. And we think that's the right approach to do it. And ultimately we think this is something that will just further enhance their unit economics over the long-term.

Michael Skipworth: Great, thank you.

Daniel Gold: The next question is from Andrew Stazellac with BMO. Please go ahead. This is Daniel Gold on for Andrew Schausack. Thanks for taking my question. Regarding your supply chain initiatives, you've noted moving the buy-off spot. Have you completely disconnected the model from the spot link prices? There's no doubt how that link is structured if there's one.

Michael Skipworth: Good morning. I think we're pretty excited about the progress we've made in our supply chain strategy. And I think what's important is this strategy is designed around minimizing the volatility that we see in food cost. And Alex referenced it in his prepared remarks where we've made some meaningful progress over the past year. And it puts us in a position quite frankly, a position we haven't been in before as a brand to have visibility into what we expect food cost to be for 2024.

Michael Skipworth: And that's something that's really exciting for our brand partners. And we're going to continue to work on advancing that strategy. Our supplier partners are right there with us. And we think it's a great strategy that works for both sides. And so it's something we think we can continue to advance forward. And we'll move more and more of our buy away from the spot market ensuring that we minimize the volatility in food costs.

Michael Skipworth: And then as Alex mentioned, we see a line of sight to continuing to drive boneless mix to something north at 50 percent that could ultimately be a structural change to food costs in that low 30 range, which is that in the mid-30s today. And that would just further bolster those unit economics that our brand partners enjoy today.

Michael Skipworth: Can you give us an update on your delivery mix and how you're looking to drive growth in that channel? I understand there's some pressure on delivery in this environment and are additional partners a factor there in driving growth? Yeah, I mean, we're pretty encouraged by the growth that we've seen in delivery. We actually mentioned in our prepared remarks that we've seen growth both in DoorDash and UberEats and we're continuing to believe there's a meaningful amount of upside in that channel for us.

Michael Skipworth: From a mixed perspective, it's pretty consistent to what it was last quarter, maybe ticked up a little bit, but that's a good thing because while we're still seeing growth in those channels, we're seeing growth in all other channels, whether it's digital carry out, non-digital carry out, and so from a mixed perspective, that number's not moving very much, but we think that's a good thing because of the strength. We're seeing across all channels, which we think is a really healthy sign for the brand.

Michael Thomas: Great, congrats on the car.

Michael Skipworth: The next question, excuse me, the next question is from Michael Thomas, with Oppenheimer Company, please go ahead. Thanks, good morning. You know, Michael, I wanted to follow up on your comment about gaining more new customers as quarter than you did when you first launched chicken sandwich. It's pretty impressive, so can you dig into that a little bit more? How are you reaching these new customers for the first time? How do you maintain that momentum?

Michael Skipworth: Is it just the national TV campaign? What are some other levers you can pull in 24 and beyond to continue gaining new customers? Thanks. Yeah, it was the stat we were really excited about. We obviously had an incredibly successful launch of chicken sandwich in 2022, and to be able to lap that, obviously with the comp that we delivered, and also acquiring more guests, new guests, than we did during that time, were pretty excited about.

Michael Skipworth: We think it's, again, we think it's just the effectiveness of these multiple growth strategies that we're executing against, and the continued expansion of the brand and continuing to scale awareness is obviously a big catalyst for that. And as more brands know of wingstop and are looking for that indulgent quality occasion, which is where we think in a time when it's tough out there where we're dining behaviors tend to trend. We think it puts us in a really unique spot just to continue to to navigate this environment different than everyone else in the industry.

Michael Skipworth: Thanks. And then on the international side, you've slowly been wrapping the number of new units you're building each year outside the US. So should we think about that sort of stair step higher continuing to happen? Or is there anything that you see as you look out that there's going to be a meaningful step change whether it's China or somewhere else? Thanks. Hey, good morning, Michael of the South. Yeah, we would expect the international to continue to stair step, and it's a little bit of the nature of the way we've construct our development agreements in the US, our domestic agreements tend to be three to five years smaller amount of restaurants and under commitment international tend to be 10 years, and then they start a little slower in the ramp and then they get to place like our UK market, which is our playbook for future restaurant development where we're opening restaurants in the mid teens level.

Michael Skipworth: And it's a fourth or fifth year into its opening rates. And, you know, we've got new markets like Canada and Korea that are following that playbook. We've got it. We're really excited about Canada just being open with four restaurants and a little over a year and their AUVs are already pasting at a level that's near the US domestic average. They're building awareness. They're starting to turn that corner just like the UK market did and ramping up. So I think we will expect over time though international as Michael mentioned the call to be a much bigger part of our story.

Peter Saleh: Thank you.

Peter Saleh: The next question is from Peter Saleh with BTIG. Please go ahead. Great.

Michael Skipworth: Thanks for taking the question and congrats on another great quarter. I didn't want to come back to the conversation around the balance sheet in this environment of higher for longer, and I appreciate that we don't know where rates are really going to go over the next 12 months, but is your intention or the message here that you'll be more patient? Until rates maybe come down a little bit from the current environment to add more leverage, or should we still expect you to move on additional leverage over the next 12 months, and then also I know your target used to be in that six, seven times I think in the past year or closer to six times on leverage, is that should we think about that target to be a, you know, a turn or so lower now or just just trying to get some clarity around your comments around the balance sheet going forward.

Michael Skipworth: Thank you. Peter, I'll start and then Alex can jump in, but you know, I think I think what we were referencing is we leaned in in our last debt refinancing to be in a position to have options and to be flexible, and that's exactly where we are. We put a lot of cash on the balance sheet, providing us a lot of optionality, but we also entered into a variable funding note in the pricing at which we entered into.

Michael Skipworth: That into at the time was extremely competitive and is quite frankly at a better rate than I think what we can get debt at on the open market today, and so it puts us in a great spot to be flexible and to have options, and so we have plenty of cash on the balance sheet, we generate a ton of free cash flow. So as being an asset with our asset light model, and so I think you'll see us continue to lean into optionality in front of us, and we think we're in a position just to continue to execute based on our current capital structure against our return of capital strategy that we've talked about.

Michael Skipworth: But that said, I don't think anything changes from our levels of leverage and where we're comfortable. We still think that's a pretty pretty healthy mark for us to be at, particularly when you think about the pace at which we do lever when you combine our EBITDA growth rate, which for this quarter, just to point out was north of 30% on top of a pretty similar and strong number last year. And so that combined with our free cash flow generation allows us to do the level really quickly. And so we feel pretty comfortable about where we are today and the options we have in front of us. Thank you.

Michael Skipworth: And then just real quick on the delivery partners, you know, you have two sizable delivery partners in the past. I think you indicated about an 80% or so loyalty, but for each individual partner with maybe 20% of the customers kind of trading back and forth has anything changed as both of those delivery channels for you guys have grown. Is that still are those still good metrics to use? Peter, this is, you know, we actually that data point you referenced was something we had hypothesized based on some research that we had done when launching the Uber Eats last year, but we have not seen the cannibalization as we mentioned on the call.

Michael Skipworth: We're still growing our Dordash business from an average weekly delivery transactions standpoint, Uber Eats is growing as well. And this is with a very low level of awareness and both marketplaces. And so there's going to be opportunity for us to deploy some of our advertising fund investments into these channels to build awareness. And that's what we're focused on doing coupled with the new guest acquisition that we have across all channels.

Operator: Thank you very much.

Jake Bartlett: And our final question today comes from Jake Bartlett with Truist. Please go ahead. Great. Thanks for taking the question. You might my first name will follow up. The first question is on GNA. The GNA guidance has gone up about 50% from the initial guidance. Sort of make sure I understand what's driving that and really most importantly, what the implication is for 2024. I assume there's a lot of extensive comp that's the crude being reflected in 23 might not occur in 24. So if you can level set us with a base to grow from in 24 any health there would be great.

Alex Kaleida: And I will follow up. Sir Jake you know there's two factors really in the increase in our guidance from the prior quarter and it's one is the investment in consulting fees that were in quarter three of 1.3 million and then the balance relates to an increase in our growth or short short term incentive based compensation based on the performance in the business and so in total for 2023 we have about 5.2 million of non recurring consulting fee investments that will lap and then you know obviously the short term incentive will reset going into next year. So I would think about GNA as a percent of system sales and we'll have more detail in 2024 but something that's consistent with what we see in 2023 for next year.

Michael Skipworth: Okay great you know when I had a question about the GLP one you know potential impact only for I know it's really difficult to quantify but just wondering how you're thinking about it what do you've done. The only work is to your exposure if there's any markets where you're seeing an impact and then I guess you know if you think there would be an impact any kind of way you think you could react to that.

Michael Skipworth: Sure clearly we're not seeing an impact on our business today which is supported by the strong results that we delivered for Q3 Jake I think there's still a lot of questions out there around GLP one that remain to be answered affordability the level of widespread sustainable adoption I think are still relatively unknown. But as we think about our target guests in that group occasion where we win we think we're well positioned and so we're going to remain focused on our long term growth strategies that we're executing against and just continue to advance our strategies forward. Great I appreciate it.

Operator: This concludes our question and answer session and the conference has also now concluded thank you for attending today's presentation you may now disconnect. Thank you. .