Wingstop Inc. — FY2022 Form 10-K Summary
Business context and reporting period
Wingstop is a primarily franchised restaurant company, operating in one reportable segment. At December 31, 2022, it had 1,959 restaurants: 1,916 franchised and 43 company-owned. The fiscal year ended December 31, 2022 and contained 53 weeks, compared with 52 weeks in FY2021. Accordingly, some reported growth reflects the extra week; domestic same-store sales comparisons exclude it.
Financial and operating results
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Total revenue | $357.5 million | $282.5 million | +26.6% |
| Operating income | $91.9 million | $73.8 million | +24.6% |
| Net income | $52.9 million | $42.7 million | +24.1% |
| Diluted earnings per share | $1.77 | $1.42 | +24.6% |
| Adjusted EBITDA (non-GAAP) | $108.8 million | $88.4 million | +23.1% |
| Operating cash flow | $76.2 million | $48.9 million | +$27.4 million |
| Cash used in investing activities | $28.7 million | $29.9 million | +$1.2 million less used |
System-wide sales rose 16.8% to $2.739 billion; system-wide restaurant count increased 13.2% to 1,959, with 228 net openings. Domestic same-store sales increased 3.4% (versus 8.0% in FY2021), company-owned same-store sales increased 1.0%, and domestic average unit volume was approximately $1.606 million. Digital sales remained above 60% of system-wide sales.
Revenue comprised $158.6 million of royalty revenue, franchise fees and other; $119.0 million of advertising fees; and $79.9 million of company-owned restaurant sales. Calculated from reported GAAP amounts, operating margin was approximately 25.7% and net margin approximately 14.8%. Company-owned cost of sales was 79.3% of company-owned sales, down from 81.7%; excluding pre-opening costs, it was 78.2% versus 81.0%.
Cash, cash equivalents and restricted cash totaled $205.7 million at year-end, including $184.5 million of cash and cash equivalents and restricted balances. Gross debt was $724.6 million before unamortized issuance costs. The company also had an undrawn variable funding facility with capacity of up to $200 million, subject to conditions. Capital expenditures were $23.9 million. The filing states that operating cash flow and available financing are expected to cover capital, working-capital and debt-service needs for at least the next 12 months and the foreseeable future.
Material changes versus FY2021
- Revenue growth reflected system sales growth, new restaurants and the 53rd week. Royalty revenue, franchise fees and other rose 21.4%; advertising-fee revenue rose 46.0%; company-owned restaurant sales rose 13.7%.
- The domestic advertising-fund contribution rate increased from 4% to 5% effective the first day of FY2022’s second quarter. Advertising fees also benefited from higher system sales and comparison with a prior-year $6.9 million return of advertising surplus to franchisees.
- Bone-in wing costs fell 26.9% year over year, reducing food and packaging costs as a share of company-owned sales. Higher wages, hiring and training costs, and New York City rent and occupancy costs partly offset the benefit.
- Interest expense increased 41.7% to $21.2 million, primarily following the March 2022 securitized financing, which added $250 million of fixed-rate notes. The financing also supported a $119.5 million special dividend. FY2022 financing cash flow was $103.3 million, compared with $23.4 million used in FY2021.
- Regular dividends totaled $21.5 million in FY2022; including the special dividend, total dividend payments were approximately $141.1 million. A subsequent quarterly dividend of $0.19 per share was declared in February 2023.
Outlook, risks and unusual items
The company describes growth priorities of sustaining same-store sales, maintaining unit economics and expanding domestically and internationally. Its stated long-term potential is more than 4,000 U.S. restaurants and more than 3,000 internationally; this is an ambition, not quantified financial guidance. The filing provides no specific FY2023 revenue, earnings or margin forecast.
Key risks include volatile chicken-wing and other food costs; labor inflation and staffing availability; dependence on franchisee development and performance; reliance on a single distributor for domestic food and packaging distribution; competition and changing consumer preferences; food safety; digital, cybersecurity and privacy risks; and international expansion risks. Debt documents contain financial covenants and rapid-amortization provisions; the company reported compliance with all financial covenants at year-end. The 2022 Class A-2 notes have an anticipated repayment date in March 2029, with additional interest if not repaid or refinanced by then. Management reported no pending legal proceeding it believed would have a material adverse effect, while noting ordinary-course claims and litigation risk.
Unusual or notable items include $0.8 million of GAAP debt-extinguishment and financing loss, a $1.2 million loss on disposal of assets, and $0.9 million of strategic-initiative consulting fees. Adjusted EBITDA and adjusted net income exclude certain items and are non-GAAP measures; the company cautions that they are not substitutes for GAAP results or cash flow.
Important facts for investors to verify
- Separate underlying comparable-store performance from the benefit of the 53rd week and new-unit growth; domestic same-store sales slowed to 3.4% from 8.0%.
- Track chicken-wing prices and labor, rent and other restaurant costs, which drove opposing movements in company-owned restaurant economics.
- Review the advertising-fund rate increase and remember advertising-fee revenue and expenses are largely fund-related and do not equate to company operating profit.
- Assess debt service, covenant headroom, the 2027–2029 anticipated repayment dates and refinancing exposure; distinguish unrestricted cash from restricted cash.
- Evaluate the sustainability of dividends and the long-term store-growth ambition against franchisee financing, development commitments and actual openings.