Wingstop Inc.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Wingstop Incorporated Fiscal First Quarter 2021 Earnings Conference Call. Please note this conference is being recorded today, Wednesday, April 28th, 2021. On the call, we have Charlie Morrison, Chairman and Chief Executive Officer, and Michael Skipworth, Executive Vice President and Chief Financial Officer. I would now like to turn the conference over to Michael. Please go ahead, sir.

Thank you and welcome. Everyone should have access to our fiscal first quarter 2021 earnings release. A copy is posted under the investor relations tab on our website at ir.wingstop.com. Our discussion today includes forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to numerous risks and uncertainties that could cause our actual results to differ materially from what we currently expect. Our SEC filings describe various risks that could affect our future operating results and financial condition. We use certain non-GAAP financial measures that we believe can be useful in evaluating our performance. Presentation of such information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are contained in our earnings release. We will discuss preliminary sales results for the first four weeks of the second fiscal quarter. We have not, of course, completed closing procedures for the second fiscal quarter, so preliminary sales results discussed today are subject to change pending finalization and actual results could differ materially. Lastly, for the Q&A session, we ask that you please each keep to one question and a follow-up to allow as many participants as possible to ask a question. With that, I would like to turn the call over to Charlie.

Thank you, Michael. We had a fantastic first quarter for Wingstop and a carryover of the incredible momentum we experienced during 2020. While the COVID-19 pandemic is far from over, we are glad to see that an economic recovery appears to be well underway, and our long-term growth strategies continue to fuel strong results for the brand. During the first quarter, we opened 41 net new Wingstop restaurants, an all-time record first quarter that translated to year-over-year unit growth of 11.7%. This growth is representative of our strongest new restaurant development pipeline in the history of our brand, with over 700 commitments at the beginning of 2021. This compares to 610 development commitments a year ago. We anticipate our new unit growth to achieve record levels this year, and as such, we are providing guidance of 11% plus unit growth for 2021, highlighting our confidence in this acceleration. Same-store sales grew by 20.7% in the first quarter, which represents a 30.6% two-year comp, an acceleration from the fourth quarter of 2020. Our average unit volume of $1.5 million, combined with an average initial investment of under $400,000, can generally yield cash-on-cash returns in excess of 50% for our brand partners, fueling the acceleration in restaurant development. The growth in our average unit volume has created efficiencies in our restaurant P&L that have resulted in growth in four-wall profits for our franchisees, despite record high bone-in chicken wing prices. We value the strong relationships we have with our supplier partners, which have allowed us to successfully mitigate this inflationary period with landed prices for our wings that are well below the spot market prices. We believe that these prices are likely to continue to be elevated in 2021 as suppliers are struggling, just as many in our industry are, to hire people to process chicken, thus placing unexpected pressure on the amount of birds that can be processed and negatively affecting supply of all parts of the chicken in the US, not just wings. However, at these current higher wing prices, we believe our brand partners have seen an increase in profit dollars thanks to our strong two-year same-store sales growth of more than 30%. While there is a significant amount of government stimulus in the economy right now driving people to avoid accepting open positions for employment and fueling a near-term sales tailwind for almost all restaurant brands, we remain focused on our long-term strategy as we continue to pull a number of levers we have to drive sustainable growth and deliver on our three- to five-year target of mid-single-digit domestic same-store sales growth. Our digital mix of over 60% has fueled the growth of a database of unique users to Wingstop, totaling over 20 million, which enables us to leverage our robust CRM architecture to increase customer retention levels to a 12-month high in the first quarter. We also put our multi-million dollar surplus of advertising dollars from 2020 to work at the end of the first quarter to deliver more TRPs and premium national advertising placements, focusing those ads on moments we all know that drive the crave for Wingstop and pointing guests to delivery as a convenient channel to get their wings. And we know these drivers are working, and coupled with the significant amount of government stimulus support, our domestic same-store sales have remained positive during the first four weeks of our second quarter, which represents an acceleration in the two-year comp. We are also pleased with the performance and continued recovery of our strategic international markets, which, like other global brands, have been more impacted by the pandemic over the past year. Our timely investments in 2020 have helped position these markets to emerge in a position of strength. The events in 2020 validated our growth strategy which will be focused in markets where we can have a premium brand positioning and can operate a high off-premise business. As such, we will continue to be very strategic in which markets we focus our resources and efforts. An example of this is the exciting announcement yesterday of our plans to take Wingstop to Canada. This new development agreement is intended to yield 100 new restaurants over the next 10 years. Canada is a market very similar to the US that is seeing high growth and off-premise and supports our premium brand positioning. Canada will be the first market to take our domestic digital platform global, something we expect to pay significant dividends in the future. The validation of our international strategy and success in our strategic markets like Mexico and the UK has translated into encouraging progress in our business development pipeline in other parts of the world. A significant contributor to our results has been our leading restaurant technology platform. And over the past few years, we've been making investments in our digital platform to sustain a best-in-class infrastructure, which have paid off well. Digital sales mix has sustained above 60% over the past year, demonstrating a high level of stickiness with our guests, and the high quality experience they have with our digital platform. But we won't stop at 60% plus. We have a stated goal of digitizing every Wingstop transaction and believe it is important to protect our investment and digital foundation to operate a global restaurant brand. We believe having a global mindset and approaching these solutions from a global standpoint will give us a competitive advantage. As a result, we are doubling down on our technology efforts and will be investing to elevate our capabilities in this area. We are embarking on a multi-year project that will take our digital capabilities to the next level. During the next five years, we plan to invest significantly to execute initiatives that center around first, globalizing our best-in-class domestic digital platform to ensure a blueprint for success for our international business. Second, modernizing and building a leading business intelligence platform. And third, elevating and advancing the end-to-end customer experience. In 2021 alone, we expect to invest over $10 million in capital to establish the foundation for this transformational approach. Now is not a time to rest on our laurels, but instead we must invest. We believe that brands that have gone before us regret not making such an investment and realize how hard it is to unwind multiple platforms all over the world after the fact. We're at another inflection point in our business and believe this critical investment will protect and grow our leading digital position well into the future. I'm really excited about the future of our brand and our continued efforts to position our business for long-term growth. Our two-year same-store sales growth of more than 30%, strong AUVs of 1.5 million, and opening 100 net new units in just the last two quarters gives us confidence in the road ahead. We remain confident that our long-term strategic focus will continue to reward our shareholders, brand partners, and team members as we continue on our journey of becoming a top 10 global restaurant brand. With that, I'd like to turn the call over to Michael.