Wingstop Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 25, 2021 (52 weeks); comparison is with the 52 weeks ended December 26, 2020. This is an annual report, not a standalone fourth-quarter report. Wingstop operates a highly franchised restaurant system and reports as one segment.
Business context and key metrics
At year-end, Wingstop had 1,731 restaurants worldwide: 1,695 franchised and 36 company-owned. The company describes its asset-light model as supporting capital-efficient growth. System-wide sales rose 20.2% to approximately $2.345 billion, while total company revenue increased 13.5% to $282.5 million.
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Total revenue | $282.5 million | $248.8 million | +13.5% |
| Operating income | $73.8 million | $57.4 million | +28.5% |
| Net income | $42.7 million | $23.3 million | +83.0% |
| Diluted earnings per share | $1.42 | $0.78 | +82.1% |
| Adjusted EBITDA (non-GAAP) | $88.4 million | $71.9 million | +23.0% |
| Operating cash flow | $48.9 million | $65.5 million | Down $16.7 million |
| Capital expenditures | $28.0 million | $6.1 million | Higher |
Operating margin was approximately 26.1%, versus 23.1% in FY2020; net margin was approximately 15.1%, versus 9.4%. Operating cash flow less reported property-and-equipment purchases was approximately $20.9 million; this is a simple calculation, not a company-defined free-cash-flow measure.
Domestic same-store sales increased 8.0% (after rising 21.4% in FY2020); the two-year increase was 29.4%. Company-owned same-store sales increased 3.4%, domestic average unit volume reached approximately $1.592 million, and digital sales remained above 60%. System-wide restaurant count grew 12.5%, with 193 net openings.
Material changes and financial position
- Royalty revenue, franchise fees and other revenue rose 20.0% to $130.7 million, primarily reflecting domestic same-store sales growth and net franchise openings. Advertising fees rose 8.8% to $81.5 million; company-owned restaurant sales rose 8.2% to $70.3 million.
- Company-owned food, beverage and packaging costs increased to 44.8% of company-owned sales from 35.9%. Management attributed the increase primarily to a 40.9% rise in bone-in wing costs, described as record-high inflation. Total company-owned cost of sales rose to 81.7% of sales from 74.7%.
- Interest expense declined 10.7% to $15.0 million following the October 2020 refinancing, which reduced the fixed interest rate from 4.97% to 2.84%. FY2020 included $13.7 million of debt-extinguishment and refinancing expense; FY2021 had none. FY2020 also included a $148.4 million special dividend.
- Cash and restricted cash totaled $54.9 million at year-end. The company reported $46.5 million of borrowing availability under its variable funding notes. Operating cash flow decreased partly due to timing of advertising-fund payments; investing outflows increased with technology and headquarters projects and a foreign investment.
- Debt was $477.6 million before unamortized issuance costs, comprising fixed-rate 2.84% securitized notes with an anticipated repayment date in December 2027. The company had no variable-funding-note borrowings outstanding, although $3.5 million of letters of credit were issued. It reported compliance with financial covenants and a leverage ratio below 5.0x; qualifying leverage allowed suspension of scheduled principal payments.
Outlook, risks and unusual items
Management expects labor availability, wage inflation, supply-chain challenges and inflationary pressures to continue into at least FY2022. The filing does not provide numerical FY2022 revenue, earnings or same-store-sales guidance. Management’s longer-term priorities are sustaining same-store-sales growth, maintaining unit economics and expanding domestically and internationally; it sees potential for more than 4,000 U.S. and 3,000 international restaurants.
- COVID-19: Most domestic locations remained open, with many dining rooms closed and sales supported by carryout and delivery. Management cautioned that the future effects on demand, costs and customer behavior remained uncertain.
- Commodity and operating pressure: Chicken is the largest product cost, and bone-in wings have no established fixed-price market. Labor costs, food inflation and the ability to pass costs through pricing could pressure restaurant economics and franchisee performance.
- Concentration and execution: Growth depends heavily on franchisees’ financing, development and operating performance. Supply disruption, competition, new-market execution and the concentration of domestic restaurants in a few states are additional risks.
- Other material exposures: The filing highlights cybersecurity and privacy, food safety, employment and franchise regulation, litigation, international expansion and restrictive securitized-debt covenants. Management said no material legal proceedings were pending to its knowledge; ordinary-course indemnification liabilities were considered remote.
- Unusual FY2021 items: The company recorded a $3.5 million pretax gain from selling six company-owned Colorado restaurants to a franchisee, received $7.2 million in proceeds, and returned a $6.9 million advertising surplus to franchisees partly to mitigate wing inflation. It also invested $4.2 million for a 20% non-controlling interest in its U.K. master franchisee.
- Domestic franchisees’ advertising-fund contribution rate was 4% in FY2021; the standard rate was scheduled to increase to 5% beginning in FY2022. The board declared a $0.17-per-share quarterly dividend for March 2022, subject to the board’s ongoing discretion.
Investor verification points
- Track wing costs, menu pricing and company-owned restaurant margins, alongside labor availability and wage trends.
- Assess whether same-store-sales growth and high digital sales persist as pandemic-related consumer behavior normalizes.
- Compare franchise commitments and openings with actual net unit growth, and monitor franchisee returns and financial capacity.
- Review cash generation after capital spending, the timing of advertising-fund cash flows, and dividend capacity.
- Monitor debt-service coverage, covenant compliance, variable-funding availability and the 2027 anticipated repayment or refinancing requirement.
- Distinguish GAAP results from Adjusted EBITDA and adjusted net income, including the effect of gains, stock compensation and other adjustments.