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    Runway is Clear for Wingstop's Takeoff

  • The chain wants to become a “top 10 global restaurant brand."

    wikimedia commons/Leahdi
    Wingstop's stock soared following a stellar second quarter.

    Here’s a scary sentiment for Wingstop competitors. According to CEO Charlie Morrison, the 1,188-unit (1,040 domestic) brand is seeing awareness levels as much as 21 percent below its peer group. If you move further down Wingstop’s funnel to consideration, the gap is as wide as 30 percent. Given that Wingstop first launched its national advertising campaign in early 2017, these figures aren’t surprising. But couple that with what’s going on sales wise, and Wingstop’s self-described goal of becoming a “top 10 global restaurant brand,” sharpens into focus.

    Wingstop’s stock popped as much as 16 percent Friday following a door-busting second quarter. The chain totaled revenue of $37 million, up from $31.6 million last year, and saw its domestic same-store sales rise 4.3 percent versus the prior-year period. Net income of $6.8 million, or 23 cents per share, beat Wall Street expectations of 20 cents. Wingstop also topped the revenue call of $36.8 million.

    Perhaps most impressive, though, is how Wingstop was able to generate these positive comps. Stifel analysts figured flattish traffic as a result of franchisees raising menu prices last year to combat record-high wing prices. A logical concern. However, Wingstop proved it could build traffic through effective initiatives, like its discounted bundle offering, 60 cent-boneless wings Tuesday deal, and reintroduction of a popular sauce.

    READ MORE: Wingstop’s plan to survive soaring wing prices

    “We expect above normal ticket growth to be reflected in our comp until we lap the pricing action taken by our franchisees late last year when record high wing prices occurred,” Morrison said. “We mentioned during the quarter that we implemented a number of transaction-driving initiatives aimed at offsetting any risk of declines driven by those price increases.”

    The reality these “transaction-driving initiatives” worked so well fueled investor optimism in Q2. But is it just the beginning? That’s a question Morrison took to task during an August 2 conference call.

    The fact wing prices stabilized was a key factor. Morrison said Wingstop, “benefited from over 1,000 basis-point improvement in margins at our company-owned restaurants due to favorable wing prices and leverage on labor and other operating expense lines from continued positive same-store sales growth.” The decrease was driven by a 750-basis point reduction in food, beverage, and packaging costs due primarily to a 23 percent deflation in wing prices compared to Q2 last year.

    Returning to the exposure idea, Wingstop is planning an expanded on-air and TV campaign in August around its bundled offers and promotions, with some new creative from freshly minted CMO Maurice Cooper, the former global vice president of the Holiday Inn Brand Family, who joined Wingstop in June. He has a strong base to build from.

    "We believe Wingstop is truly a brand in a category of one. We lack a true competitor and have multiple long-term sales drivers and a significant amount of white space in front of us for growth." — Charlie Morrison, WIngstop CEO.

    Wingstop’s digital sales reached 24.3 percent of total sales at the end of Q2. About 75 percent of the entire domestic company base currently generates more than 20 percent of their sales from digital channels. These digital checks are averaging $5 higher than Wingstop’s average of $17. When you consider that 75 percent of the company’s business is takeout and a large percentage of orders still come via phone, Wingstop believes it has “ample incentive and opportunity for further digital expansion,” Morrison said.

    And here’s a breakdown of what Wingstop is doing to overrun the whitespace.

    The chain is working to launch a new front-end guest-facing app and website that will provide a better customer experience and be optimized for delivery.

    Wingstop implemented a CRM platform that allows it to organize existing data and build unique customer records for more engaging interactions with guests.

    It is also working on natural voice recognition technology for orders that come in via phone, a la the artificial intelligence pilot taking place at Domino’s, where orders be digitalized and converted into online orders. This would save on labor, improve order accuracy, and allow employees to divert their attentions elsewhere.

    And the big announcement: Wingstop said it has completed the preparation steps to launch its national rollout of delivery. The company started testing the service April 2017 in Las Vegas and expanded to Chicago and Austin, Texas, later in the year. “In all test markets, we have experienced sustained mid to high single-digit sales blips. The lift in sales from delivery is highly incremental and profitable at the restaurant level,” Morrison said.

    Wingstop said it has made “great progress” with partner DoorDash in the past 90 days across technology, integration, visibility into key metrics and data, and defining processes and procedures “such that we are in a position now to move forward,” Morrison said.

    He added that the chain would follow a phased approach to the rollout, working closely with DoorDash to map its domestic footprint with theirs and prioritize certain markets. “We expect to launch delivery in another small mark market at first, and then add one or two larger markets before the end of 2018.” By the end of 2018, Wingstop could see as much as 15–20 percent of the U.S. system offering delivery, Morrison said.

    “The long-term sales drivers of national advertising, digital expansion, and delivery will further sustain our best in class unit-level economics and support further domestic development from existing and new franchisees,” Morrison said.

    Wingstop has noted before that it wants to open 2,500-plus domestic units in time. Morrison said existing franchisees are making up 80 percent of the pipeline for new unit development. The chain achieved total systemwide sales increases of 13.5 percent in the quarter driven by 12.5 percent unit growth. In Q2, Wingstop opened 21 domestic and 10 international restaurants. And those operators who are growing are simply making money.

    “Our domestic target year one average-unit volume per Wingstop is $820,000,” Morrison said. “We believe our franchisees can achieve a year two unlevered cash-on-cash return of approximately 35– 40 percent.”

    Wingstop’s brief run as a public company has been a lucrative one. Since going public a little more than three years ago, the chain has delivered a total shareholder return of nearly 200 percent.

    Part of taking that next step is flying into the international market. Wingstop is operating in nine countries outside the U.S., with the latest being Panama, a country Wingstop opened its first store in June. This fall, the chain will enter what Morrison said, “we believe to be the three largest international markets for Wingstop.” The U.K., France, and Australia. And all in the fall of this year.

    “We currently have sold commitments for 13 countries consisting of a pipeline of approximately 600 international locations, but we are just getting started internationally,” Morrison said.

    “We believe Wingstop is truly a brand in a category of one,” he continued. “We lack a true competitor and have multiple long-term sales drivers and a significant amount of white space in front of us for growth. We will continue to build upon what we have already accomplished across our four key strategic priorities of national advertising, digital expansion, delivery and international development.”

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