Wingstop Inc. — Q3 2023 Form 10-Q
Reporting period: Thirteen weeks ended September 30, 2023; year-to-date comparisons cover 39 weeks. Amounts below are in U.S. dollars.
Business context
Wingstop is primarily a franchisor: at quarter-end it had 2,099 restaurants, including 2,053 franchised locations and 46 company-owned restaurants. The company reported 53 net new openings during the quarter and 140 year to date.
Financial performance
- Q3 revenue: $117.1 million, up 26.4% year over year. Royalty revenue, franchise fees and other revenue were $53.2 million; advertising fees, $40.0 million; company-owned restaurant sales, $24.0 million.
- Q3 profit: Operating income was $30.7 million, up 27.3%; net income was $19.5 million, up 46.0%. Diluted EPS was $0.65 versus $0.45. Operating margin was approximately 26.2%, compared with 26.0% a year earlier.
- Year to date: Revenue was $333.0 million, up 31.8%; operating income was $82.8 million, up 31.3%; net income was $51.4 million, up 45.3%; diluted EPS was $1.71 versus $1.18.
- Restaurant and system measures: System-wide sales were $885.0 million, up 26.5% in Q3; domestic same-store sales grew 15.3%, and company-owned domestic same-store sales grew 6.0%. Domestic AUV was $1.755 million. Digital sales represented 66.9%.
- Company-owned restaurant costs: Cost of sales was 73.6% of company-owned sales in Q3 versus 78.0% a year earlier. Food, beverage and packaging costs declined to 33.0% of sales from 37.2%, primarily reflecting a 13.5% decrease in bone-in wing costs. Labor was 23.6%, up from 23.1%.
- Cash flow: Year-to-date operating cash flow was $83.7 million versus $53.2 million. Investing used $33.5 million, mainly for capital expenditures and restaurant acquisitions. Financing used $149.0 million, chiefly for the $125.0 million share repurchase and dividends.
- Liquidity and debt: Cash and cash equivalents were $78.0 million; total cash, cash equivalents and restricted cash were $106.9 million. Debt principal was $720.9 million ($711.9 million net of debt issuance costs). The company had no borrowings on its $200 million variable funding facility. Its leverage ratio was below 5.0x, allowing principal payments to be suspended under the debt terms; the notes were classified as due after fiscal 2026.
Material changes and notable items
- Quarterly revenue growth reflected higher same-store sales, franchise development and system-wide sales. Year-to-date advertising fee growth also benefited from the national advertising fund contribution rate increasing to 5% from 4% in Q2 2022.
- SG&A rose 38.1% in Q3, including higher incentive and performance-based stock compensation, headcount and $1.3 million of consulting fees for a strategic review. Year-to-date SG&A also reflects $10.0 million of stock-based compensation, compared with $2.1 million in the prior-year period, which benefited from forfeited awards.
- On August 23, the company entered an accelerated share repurchase for $125.0 million and initially received and retired 567,151 shares. Final settlement was scheduled for Q4 2023. Approximately $125.0 million remained authorized for repurchases at quarter-end.
- The company paid $18.0 million in dividends year to date. The board subsequently declared a $0.22-per-share dividend, approximately $6.5 million in total, payable December 8, 2023.
- Management reported adjusted EBITDA of $38.5 million for Q3 and $107.4 million year to date. These non-GAAP measures include adjustments such as stock compensation and strategic consulting fees and should be considered alongside GAAP results.
Outlook, risks and contingencies
No specific full-year financial guidance is provided in the filing. Management expects operating cash flows and available capacity under the securitized financing facility to be sufficient for capital expenditures, working capital and debt service for at least the next 12 months. Key risks include franchisee performance and recruitment, food and wing-cost volatility, labor and supply availability, competition, food safety, digital and cybersecurity exposure, international expansion, and the ability to meet debt obligations. Management stated ordinary-course employment- and franchise-related legal matters are not expected to materially affect the company; a significant increase in claims could be adverse.
Important facts for investors to verify
- Whether elevated domestic same-store sales and system-wide growth persist, and how much growth comes from pricing, transactions and new openings.
- Whether bone-in wing costs remain favorable and how changes in food and labor costs affect company-owned restaurant economics.
- Final share count and settlement economics of the accelerated repurchase, and any use of the remaining repurchase authorization.
- Debt repayment terms, leverage-covenant headroom and liquidity available under the undrawn variable funding facility.
- Underlying performance excluding non-GAAP adjustments, including strategic consulting costs and stock-based compensation.