Wingstop Inc. — Q3 2022 Form 10-Q
Reporting period: Fiscal third quarter, 13 weeks ended September 24, 2022; year-to-date figures cover 39 weeks. Comparisons are to the corresponding 2021 periods. Wingstop operated 1,898 restaurants, approximately 98% franchised.
Financial and operating performance
| Metric | Q3 2022 | Q3 2021 | 39 weeks 2022 | 39 weeks 2021 |
|---|---|---|---|---|
| Total revenue | $92.7m | $65.8m | $252.7m | $210.5m |
| Operating income | $24.1m | $20.8m | $63.1m | $59.5m |
| Net income | $13.4m | $11.3m | $35.4m | $35.8m |
| Diluted EPS | $0.45 | $0.38 | $1.18 | $1.19 |
| Adjusted EBITDA (non-GAAP) | $28.4m | $21.4m | $74.1m | $68.2m |
| Operating cash flow | — | — | $53.2m | $54.0m |
- Q3 system-wide sales grew 17.7% to $699.6m; domestic same-store sales rose 6.9%. Year-to-date system sales increased 12.6% to $2.0bn, while domestic same-store sales increased 1.6%.
- Q3 revenue rose 40.9%, driven by royalties and franchise growth, higher advertising fees, and company-owned restaurant sales. Advertising fee revenue increased 106.4%; the company said this reflected a higher national advertising fund contribution rate (5% from 4%, effective in Q2), sales growth, and a prior-year $6.9m surplus rebate to franchisees. Advertising expenses rose correspondingly.
- Q3 net income increased 18.4%; year-to-date net income decreased 1.1%. Year-to-date operating income increased 5.9%, but higher interest expense, debt-extinguishment costs, and the prior-year asset-sale gain weighed on pretax income. Adjusted EBITDA is a company-defined non-GAAP measure and should not be viewed as a substitute for GAAP results or cash flow.
- At company-owned restaurants, Q3 cost of sales was 78.0% of sales versus 87.5% a year earlier, primarily reflecting lower bone-in wing costs. Year-to-date cost of sales was 80.5% versus 80.2%; labor and other operating costs, including New York City occupancy costs, rose as a share of sales.
Cash, debt, and capital allocation
- At September 24, cash and cash equivalents were $173.5m; total cash, cash equivalents, and restricted cash were $200.9m. Net cash from operations for the 39 weeks was $53.2m; investing cash use was $16.6m.
- Debt principal was $726.4m, with $715.5m reported net of issuance costs, including $7.3m current. The March 2022 securitization added $250m of 3.734% fixed-rate notes and a revolving facility of up to $200m; no revolving borrowings were outstanding. The existing 2020 notes carry a 2.84% fixed rate. The company reported covenant compliance at quarter-end; scheduled amortization resumed in Q3 after leverage rose above 5.0x.
- Financing cash flow included $250m of new borrowing and $135.6m of dividends paid, including the $119.5m special dividend ($4.00 per share) declared in March. Regular dividends paid during the 39 weeks totaled $15.8m. A further $0.19-per-share quarterly dividend was declared after quarter-end.
- Management said operating cash flow and the securitized facility were expected to meet capital expenditure, working capital, and debt-service needs for at least the next 12 months and foreseeable future.
Outlook, risks, and notable items
- The filing provides no specific numeric earnings, revenue, or unit-growth guidance. Management highlighted growth plans and expected liquidity sufficiency, subject to risks and uncertainties.
- Risks include food and supply costs, especially volatile bone-in chicken wing prices; labor availability and cost; franchisee performance and recruitment; new-market expansion; supply-chain disruption; competition; technology, cybersecurity, and third-party delivery dependence; and the ability to service and comply with securitized debt. A hypothetical 10% rise in wing costs would have increased year-to-date cost of sales by approximately $1.2m.
- Unusual items included the special dividend funded in part by the 2022 securitization, $0.8m of debt-extinguishment loss, and a prior-year $3.6m gain on sale of restaurants. Management also cited $5.2m of stock-award forfeitures year-to-date, affecting compensation expense and the effective tax rate.
- Management stated ordinary-course legal claims were not expected to materially affect the company; it reported no material pending legal proceedings. Disclosure controls were assessed as effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- How much revenue growth reflects underlying royalties and same-store performance versus advertising-fund pass-throughs, contribution-rate changes, and prior-year rebate comparisons.
- Whether same-store sales and new-unit growth can sustain momentum, and how cost inflation, labor, and New York City restaurant economics affect company-owned margins.
- Debt covenants, amortization, refinancing exposure around the 2022 notes’ March 2029 anticipated repayment date, and the capacity to fund dividends alongside debt service and investment.
- Cash flow quality and required capital spending; restricted cash is not equivalent to unrestricted liquidity.
- How non-GAAP adjustments, including recurring or potentially recurring excluded costs, affect comparisons with reported GAAP results.