Wingstop Inc.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Wingstock Inc. Fiscal Third Quarter 2021 Earnings Conference Call. Please note that this conference is being recorded today, Wednesday 3rd, 2021. On the call, we have Charlie Morrison, Chairman and Chief Executive Officer, Michael Skipworth, President and Chief Operations Officer, and Alex Khalila, Senior Vice President and Chief Financial Officer. I would now like to turn the call over to Alex Alex, please go ahead.

Thank you and welcome. Everyone should have access to our fiscal third quarter 2021 earnings release. A copy is posted under the investor relations tab on our website at ir.wingsop.com. Our discussion today includes forward-looking statements. These 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. 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, and good morning. We continue to be extremely pleased with our strategies fueling exceptional results for Wingstop. The third quarter continued our streak for record-breaking restaurant development, which is a great demonstration of the resiliency for our model. The results we have shared today underscore the sustaining power of our growth strategies and the interest of our brand partners in continuing growing with Wingstop. Thanks to our proactive investments in technology and delivery platforms, Wingstop was well positioned to navigate this pandemic. I'm pleased to say that just as we did last quarter, we continue to lap the remarkable growth from last year. In the third quarter of 2021, we recorded domestic same-store sales growth of 3.9%, which on a two-year basis represents growth of 29.3%, what we believe to be best in class. This outsized comp growth has raised the average unit volumes for our domestic restaurants to approximately $1.6 million, and these volumes are generated from an average initial investment of only $400,000. The third quarter was another record quarter for development for this time of year. We opened 49 net new restaurants, resulting in 13.1% total unit growth. despite experiencing unprecedented inflation in the cost of bone-in wings. Our restaurant development is a testament to the continued focus of our brand partners on the long term and strength of our unit economics to navigate these challenging times. We are seeing extraordinary results not only in the U.S., but also in key international markets. In the U.K., we have opened 10 restaurants in the last 18 months alone, and the market is generating average unit volumes exceeding $2 million, well above the average we see in the US. This market has been only open since 2018, which underscores the tremendous long-term potential. As we communicated earlier this year, we made a minority investment in our UK operations. We believe this strategic use of our capital will continue to strengthen the development pipeline as we look to double the UK footprint in 2022. We are excited to support our brand partner in achieving the potential for Wingstop brand in the UK, a market we believe will serve as a model for our Western European expansion and other parts of the world. Earlier this year, we announced our expansion into Canada with a 100 restaurant development agreement. Our first location in Toronto is on track to open early next year. We recently served our flavor to Canada with a visit from the Wingstop food truck, and we couldn't be more excited by the consumer response to our products. Canada is a market well poised to replicate the success we have had in markets like the UK and the United States. We are also very encouraged to see our international markets continue to recover from the impact of the pandemic. with most of our existing markets already generating sales volumes above their pre-pandemic levels. And our largest market, Mexico, which was one of the hardest markets impacted by the pandemic, is on track to open nine restaurants this year. Again, a testament to the resiliency of our model and the portability of our brand. While we are facing near-term inflationary pressures, Our growth fundamentals and long-term potential of operating over 6,000 restaurants worldwide remains unchanged, and our brand partners share that vision. We are very pleased with this record pace of restaurant development and the top-line growth our brand has seen, which certainly provided relief from the inflationary environment we operate in today. The strength of our model is a differentiating factor for Wingstop and positioned us well to navigate this unprecedented environment. Since the end of the third quarter, leading indicators such as cold storage inventory levels for wings are beginning to approach 2019 levels for the first time of the year. We have seen sequential improvement in the spot price for bone-in wings, and it now stands at $2.87 per pound. This $0.35 drop versus the third quarter equates to approximately $75 million of cash flowing back into the system, enough annually to build 185 new restaurants. While the price of wings is trending in the right direction, we remain laser-focused on executing against our previously communicated goal of managing cost volatility with greater utilization of the whole bird and controlling more of the chicken pricing and supply process. We believe that the key to unlocking a less volatile food cost for the brand is predicated on the utilization of more parts of the chicken. At the end of the second quarter this year, we launched a virtual brand called ThighStop, initially available only on ThighStop.com and in DoorDash's marketplace. In addition to what we're calling bone-in thighs, we're also offering thigh bites, which are a juicier, flavorful complement to our traditional boneless wings. Just as we pioneered wings as the center of the plate, we also believe we can make thighs a center of the plate item and make them a fan favorite for a long time to come. In September, we integrated thighs into our regular wing stop menu, doubling our thigh sales and allowing us to further progress on our strategy of buying more parts of the bird. Staying true to our entrepreneurial spirit, we are evaluating every phase of the chicken supply chain and looking at others, even outside our industry, to take a page from successful playbooks like those of the retail industry to be disruptive and gain greater control over our destiny. We are following a similar proactive approach to remain competitive in this tight labor market and leading the way in company-owned restaurants. Unlike other restaurant concepts, we have a very streamlined kitchen operation with small roster sizes, which have enabled our system to better weather the severe labor challenges some of our peers are facing. With a long-term view in mind, we have increased the hourly wages and salaries of our company-owned restaurant team members as we believe investing now will help us retain and attract talent to continue offering a great customer experience and maintain our top-line momentum. With the top-line momentum and effectiveness of our strategy, We were able to leverage the surplus in our ad fund and rebate a portion back to brand partners in the third quarter in order to continue to fuel development. This ad fund rebate did not impact our overall media plans and provided immediate relief in this time of unprecedented inflation. It's a proactive example of keeping our brand partners focused on development and the long-term growth ahead of us. We also anticipate brand partners will take an additional 4% to 5% menu pricing, thanks to the disciplined approach in our past by the brand partners and pricing power we believe Wingstop has with consumers. With the ongoing momentum in top line growth, 2021 has seen greater levels of premium media placements. And we continue to invest heavily in our one-to-many and one-to-one communications. We recently decided to take a page from the org structure of many leading tech companies, which often house marketing and digital IT functions together to create a MarTech structure. This structure allows Wingstop to further its transition from the traditional promotion-based marketing approach that is typically seen in the restaurant industry to a digital platform-based strategy. We are already seeing an impact with our first-party database of more than 25 million guests and continuing to grow. Thanks to our investments in CRM and our digital platforms, we continue to sustain digital sales above 60%. Due to the strong results in the third quarter and the results we have seen as we enter the fourth quarter, we are now expecting our same-store sales growth for the full year 2021 to be between 7% and 8%, up from our prior guidance of mid-single digits. With our robust development pipeline, we are reiterating our guidance for restaurant development growth of 12% plus in 2021. At Wingstop, people are the foundation of our strategy, and we serve our flavor in communities throughout the world. Wingstop Charities is dedicated to enhancing and elevating the community work of our brand partners to make a difference in the lives of our youth. We recently completed our grant cycle and achieved a new milestone in the number of organizations we are supporting. Wingstop Charities has provided over $1 million in community grants and team member assistance. We are thrilled with this tremendous milestone for the organization. I'm excited by the momentum in the business, both on our top line and development growth, as well as our progress we are making against our whole bird strategy, that will position us better to weather the next inflationary period in wings. More importantly, I'm encouraged by the strong foundational investments we are making for our long-term growth. We remain confident in our strategies that will continue to reward our shareholders, brand partners, and team members as we continue on our way to become a top 10 global restaurant brand. With that, I'll turn it over to Alex.