Wingstop (WING 2.04%), known for its distinctive wing varieties and franchise-driven model, recently released its fiscal third-quarter 2024 results on October 30, 2024. This quarter highlighted remarkable financial achievements and strategic expansions despite some margin pressures. Revenue rose to $162.5 million, exceeding the previous year's $117.1 million, reflecting a 38.8% growth. Net income increased 31.9% to $25.7 million, with diluted earnings per share (EPS) at $0.88. This quarter's performance underscores Wingstop's effective strategies in system-wide sales, which jumped 39.4% to $1.2 billion. However, rising input costs, notably tied to bone-in chicken wings, increased the cost of sales to 77.8%. Despite challenges, the company shows promising prospects as evidenced in its quarterly outcome.
| Metric | Current Quarter | Prior Year Quarter | Percentage Change |
|---|---|---|---|
| Total Revenue | $162.5 million | $117.1 million | 38.8% |
| Net Income | $25.7 million | $19.5 million | 31.9% |
| Adjusted EBITDA | $53.7 million | $38.5 million | 39.5% |
| Domestic Same Store Sales Growth | 20.9% | 15.3% | 5.6 points |
| Cost of Sales (% of Company-Owned Sales) | 77.8% | 73.6% | 4.2 points |
Source: Analyst estimates for the quarter provided by FactSet.
Wingstop's Business Model and Recent Focus
Wingstop specializes in making "The Wing Experts" label come to life through an asset-light franchise model. Approximately 98% of its eateries are franchised. This tactic not only maximizes operating margins but also limits capital expenditure, fostering substantial free cash flow. Thus, the company skinfully combines low-investment requirements with high margin incentives for its franchisees.
Current business focuses for Wingstop involve further digital integration and expanding its global presence. The digital initiatives aim to boost customer engagement by maintaining digital sales above 60%. Expansion aligns with its vision to double the domestic footprint and elevate global reach, emphasizing a strategic push to increase brand presence.
Quarterly Achievements and Financial Outcomes
In Q3 2024, system-wide sales exploded to $1.2 billion, compared to $885 million in the previous year. This growth corroborates Wingstop's strategic franchise expansion and robust same-store sales tactics, driving a 20.9% rise in domestic outlets. Digital remains key, capturing 69% of system-wide transactions, up from earlier quarters, supporting higher average checks and order efficiency.
However, economic pressures, notably in chicken wing costs, raised cost of sales to 77.8% from 73.6% in the prior year, impacting margin stability. Strategic expansion efforts saw Selling, General and Administrative (SG&A) costs climb $9.2 million to $32.3 million, tied to stock compensation and growth expenses. These moves set a solid foundation despite cost challenges.
The company added a net 106 new stores, manifesting a 17.1% growth in its unit footprint. Strong sales and franchisee demand facilitated this growth. Domestic Average Unit Volume (AUV) reached $2.1 million, up from $1.755 million, showcasing heightened consumer demand while underscoring the benefits of enhanced franchise engagement.
Dividend declarations showcased Wingstop's commitment to returning shareholder value, with a quarterly dividend of $0.27 per share. The ongoing share repurchases also highlight corporate confidence in future value and potential growth.
Looking Forward
Wingstop's forward-looking plans emphasize an aggressive expansion strategy, projecting net new units to reach 320-330 in 2024. The company aims to electrify global and domestic markets, underscored by reinforced SG&A spending and stock-based compensations aimed at scaling operations efficiently. These ambitious targets reflect its strategic focus on maintaining strong, long-standing growth.
Management holds a steadfast forecast of 20% for same-store sales growth domestically in 2024. Investors should keep an eye on metrics like digital engagement levels, input cost variability, and continued franchise momentum, which could define Wingstop's trajectory. Enhanced digital platforms and franchise strategies should sustain momentum, aligning with management outlook and expansion goals.
