Wingstop Inc. — Q2 2022 Form 10-Q
Business context and period. The unaudited quarter covered 13 weeks ended June 25, 2022; year-to-date covered 26 weeks. Wingstop had 1,858 restaurants, about 98% franchised, including 1,819 franchise locations and 39 company-operated locations. Fiscal 2022 has 53 weeks.
Financial results
| Metric | Q2 2022 | Q2 2021 | 26 weeks 2022 | 26 weeks 2021 |
|---|---|---|---|---|
| Total revenue | $83.8 million | $74.0 million | $160.0 million | $144.7 million |
| Operating income | $22.4 million | $18.9 million | $39.0 million | $38.7 million |
| Net income | $13.3 million | $11.3 million | $22.0 million | $24.5 million |
| Diluted EPS | $0.44 | $0.38 | $0.73 | $0.82 |
| Adjusted EBITDA (non-GAAP) | $23.7 million | $22.9 million | $45.8 million | $46.8 million |
- Q2 revenue increased 13.2%, led by franchise growth and higher advertising-fee revenue; system-wide sales rose 7.5% to $633.6 million. Year-to-date revenue increased 10.6%, with system-wide sales up 10.0% to $1.264 billion.
- Domestic same-store sales declined 3.3% in Q2 and 1.1% year to date, versus increases of 2.1% and 10.4% in the prior-year periods. Domestic AUV was $1.581 million, compared with $1.556 million.
- Q2 cost of sales at company-owned restaurants was 79.5% of sales, up from 77.7%; year-to-date it was 81.9%, up from 76.7%. Lower bone-in wing costs helped food-cost ratios, but labor, occupancy, and New York City pre-opening costs pressured overall restaurant costs.
- Cash provided by operations was $29.5 million for the first half, down from $31.6 million. Capital spending net of asset-sale proceeds contributed to $9.1 million of investing cash outflow. Financing provided $116.3 million, principally reflecting new debt and offset by dividends.
- At June 25, cash and cash equivalents were $165.8 million and total cash, including restricted cash, was $191.6 million. Debt totaled $727.6 million before unamortized issuance costs; balance-sheet debt net of costs was $716.2 million, including $6.7 million current. Stockholders’ deficit was $415.5 million.
Material changes and notable items
- On March 9, Wingstop issued $250 million of 3.734% fixed-rate securitized notes and established a $200 million variable-funding facility; no amounts were drawn on that facility at quarter-end. The transaction raised debt and contributed to a 60.7% increase in Q2 net interest expense. The company expects scheduled amortization payments to resume in Q3 2022.
- A $119.5 million special dividend was paid in April, alongside regular quarterly dividends of $0.17 per share in each of the first two quarters. The balance sheet shows the resulting increase in retained deficit. A subsequent $0.19-per-share regular dividend was declared for payment in September.
- First-half GAAP net income declined 10.2%, while Q2 net income increased 17.6%. First-half results included $0.8 million of debt-extinguishment loss and $0.8 million of asset-disposal loss. Q2 SG&A fell 13.2%, primarily due to $4.1 million less stock-based compensation expense following forfeitures; first-half stock-based compensation expense was also reduced by forfeitures.
- Advertising-fund contribution rates rose from 4% to 5% beginning in Q2, increasing both advertising-fee revenue and advertising expense. These fees should be considered alongside the corresponding expense.
Outlook, risks, and contingencies
Management stated that operating cash flows and available securitized-facility borrowings are expected to cover capital expenditures, working capital, and debt service for at least the next 12 months and the foreseeable future. The filing provides no specific revenue, earnings, or comparable-sales guidance. Management cited continuing uncertainty around inflation, food and supply costs, wages, consumer pressures, and COVID-19 impacts; bone-in chicken wing prices are particularly exposed to market conditions. Other disclosed risks include franchisee performance, labor availability and costs, supply-chain disruption, food safety, competition, digital platforms, international expansion, and the ability to meet debt obligations. The company was in compliance with financial covenants at quarter-end. Ordinary-course legal claims were described as not expected to materially affect financial condition, results, or cash flows; the company reported no material pending legal proceedings.
Key facts for investors to verify
- Whether domestic same-store sales and transaction trends recover after the Q2 declines.
- How food inflation, wing-price movements, wage pressure, and New York City restaurant costs affect company-owned margins.
- Debt-service requirements, covenant headroom, and scheduled amortization following the 2022 financing; assess debt alongside the special dividend and future capital returns.
- Underlying performance after considering advertising-fund pass-throughs and non-GAAP adjustments, including stock-compensation forfeitures and financing or asset-disposal costs.
- Whether restaurant openings and franchisee health sustain system-wide growth and the company’s stated liquidity expectations.