Wingstop Inc.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Wingstop Incorporated Fiscal First Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Please note that this event is being recorded today, Wednesday, May 4, 2022. I would now like to turn the conference over to Susana Arevalo, Vice President of FP&A and Investor Relations. Please go ahead.

Thank you, and welcome to the Fiscal First Quarter 2022 Earnings Conference call for Wingstop. On the call today are Michael Skipworth, President and Chief Executive Officer, and Alex Kalida, Senior Vice President and Chief Financial Officer. Our Fiscal First Quarter 2022 results were published earlier this morning and are available under the Investor Relations tab on our investor relations website at ir.wingstop.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 Michael.

Thank you, Susana, and good morning, everyone. It is truly an exciting time to be a part of Wingstop, and I am humbled by the opportunity to be hosting the call today as president and CEO of this incredible brand that I've now had the opportunity to be a part of for almost eight years. I've now been in my new role for almost two months, And during this time, one of the most common questions I've been asked is whether I plan to fundamentally change anything around Wingstop's strategic growth priorities. The short answer is no. The strategy at Wingstop, one I have had the opportunity to help shape and build over the years, has staying power and positions us well to execute the long-term growth opportunity for Wingstop. We will remain focused on sustaining same-store sales growth, maintaining best-in-class returns, and accelerating development as we build Wingstop into a top-ten global restaurant brand. We have carefully constructed our strategies with a technology-forward and growth-oriented mindset, and that is precisely what has enabled the success of the model and our industry-leading growth. It is what has driven 18 consecutive years of domestic same-store sales growth, a feat that few, if any, restaurant peers can lay claim to. It is also what's fueled our culture, how we behave, and the core values that are at the forefront of every decision at Wingstop. Our strategy is built upon a foundation rooted in both living the Wingstop way and investing in people as our competitive advantage. This enables our core growth pillars, so preserving our culture is key. Our first core pillar in our strategy is sustaining same-store sales growth. Building brand awareness continues to be a big opportunity for Wingstop as we have a large gap to other national brands. We have made good progress over the years on closing this gap, but there remains a meaningful opportunity for us to continue to attack. In a span of a few years, we have doubled the size of our national ad fund, going from less than $60 million in 2019 to what we anticipate will be over $120 million in 2022, giving us the firepower to build our awareness as we continue to close the gap to national brands. 2022 provides another inflection point in our national advertising. where beginning in the second quarter, we will consolidate the local 1% advertising spend into the National Ad Fund, taking the National Ad Fund contribution rate to 5%, which will deliver more efficient advertising and allow for premium placement while deploying an always-on media approach. Another component of our same-store sales growth is our digital business, which has sustained mixed levels of more than 60%. and has allowed us to grow our database to over 27 million guests. We continue to invest in technology to advance our best-in-class digital platform. We are working to transform our digital marketing with data-rich strategies and scalable global platforms. These new insights will further improve our customer targeting, guest acquisition, new guest retention levels, and frequency among our core. We are in the early stages of this transformation and are excited about the growth opportunities we anticipate for our brand in coming years. The next core element of our strategy is maintaining our best-in-class returns. As you have seen over the years, wings are a highly volatile commodity. While we are currently enjoying meaningful deflation in wings, we remain committed to our supply chain strategy. We believe that mitigating long-term cost volatility for our restaurants will further accelerate our pace of restaurant development. We will also continue to fine-tune our model and explore ways we can shrink the size of the box, change the workflow and adapt new technologies or areas of innovation that can help enhance our unit economics. We believe our strategies of sustaining same-store sales growth and maintaining best-in-class returns translates to an acceleration in unit growth. One we are already seeing with the record Q1 openings of 60 net and an increase in our unit outlook for this year of 220 plus net new restaurants. With only 1,791 restaurants today and line of sight to 7,000 plus global restaurants in the future, We are just getting started with the global growth opportunity for Wingstop. Our first quarter performance is a strong demonstration of the excitement of our brand partners to grow with Wingstop and highlights the unit growth potential. Despite coming out of a year with record inflation in 2021, we posted a record unit development year and entered 2022 with one of the strongest development pipelines we've ever had. This was showcased by a record first quarter with 60 net new restaurants. We find ourselves in a unique position in 2022. While most in our industry are facing inflationary headwinds and margin pressures, we anticipate significant deflation in our core commodity, bone and wings. While we will see some level of inflation in our business, we expect this will be more than offset by the deflation we are seeing in wings. To provide some context, the spot market for wings hit a record $3.22 per pound in 2021. And as we sit here today, the spot market is at $1.64 per pound. This significant deflation in wing prices as we exited the first quarter has bolstered restaurant-level cash flows to the tune of delivering a payback of less than two years on an initial investment to build out a wing stop. These factors support our confidence as well as that of our brand partners, and we are increasing our unit guidance to 220-plus global net new restaurants for 2022, which translates to accelerated growth of over 12.5% and another record year. While we see a lot of strength in the underlying fundamentals of our domestic business, this is only half of the long-term growth story. We have an international business that is supercharged for growth. Sales for our international markets are now at or exceeding pre-pandemic levels. In fact, in the first quarter, international same-source sales growth was 23.8%. Our UK market is a clear demonstration of the power of our international growth strategy, one focused on a heavy off-premise digital business with premium positioning. Our UK brand partner now operates 20 restaurants with 15 openings slated for 2022. The AUVs in the UK are $2 million, despite the market just opening in late 2018. This market provides us with a solid playbook and a blueprint for success as we accelerate our global growth as a brand. This past quarter, we celebrated the opening of our 200th international restaurant. a proof point for the portability of our brand and the strength of our business model. And just last week, we announced a new development agreement for Indonesia. A new agreement is expected to take the market from its current restaurant count of 50 to 120. We couldn't be more excited for the Wingstop brand's long-term potential in the Asia-Pacific region and continue to be encouraged by business development conversations in key growth markets. Our domestic business delivered 1.2% same-store sales growth for the quarter, or 32% on a three-year stacked basis, resulting in AUVs now exceeding $1.6 million and further strengthening the unit economic model. As we entered 2022, the first two months were delivering on our expectations and was consistent with our growth rate as we exited 2021, and that's despite challenges associated with the Omicron variant. However, this trend changed in March, driven by the combination of very strong comps in the year-ago period fueled by stimulus and a shift in consumer behaviors. In March, we observed in industry data a significant amount of pent-up demand for dine-in occasions as cases associated with Omicron variants subsided to some degree. We believe this resulted in a near-end acceleration in dine-in on-premise occasions. We saw this as the right time to reopen our dining rooms, which we did at the end of March. If you recall, pre-pandemic, our dine-in sales mix was approximately 20%, and this represents an opportunity to capture our share of these dine-in occasions, which we believe are highly incremental. That said, history tells us that one of the first areas consumers will pull back on spending when navigating sustained inflation is dining out. While we believe we will continue to grow as we build awareness of the availability of this occasion within our restaurants, we will remain focused on investing behind our digital and off-premise businesses, which was successful pre-pandemic and will be so in the future. We also saw a shift in consumer sentiment as a result of the Russian invasion of Ukraine, the high inflation, including $4 gas prices, that created an immediate and measurable impact to disposable income for many consumer segments, particularly those in lower income demographics. Like many others, we saw an initial pullback in spending, but this is not the first time in our history where we have observed these behaviors. We have a playbook that's proven to be successful in times like these and has allowed us to navigate environments like this and grow same-store sales for 18 consecutive years. We can showcase value across our variety of menu options and drive consideration that preserves Wingstop as an indulgent occasion, and we have started to execute these tactics. As an example, we recently launched a bundle that includes 20 boneless wings, four flavors, and two dips, all for only $15.99. Without TV support, the bundle is driving transactions and achieving mix levels above 5%. We are very pleased with these early results. There's no question the industry will be faced with some volatility the remainder of this year. And recognizing this, we have updated our domestic same-store sales guidance to low single digits. Despite this volatile backdrop, we have confidence in our strategies and our ability to deliver a 19th consecutive year of same-store sales growth. And when coupled with our increase in unit development for 2022, we believe we are well positioned to deliver another industry-leading year. As I mentioned earlier, our growth strategy is unchanged and long-term algorithm remains intact. We are focused on sustaining same-source sales growth, maintaining best-in-class returns, and accelerating development. These strategies have staying power and position us well to execute the long-term growth opportunity for Wingstop. Before I turn it over to Alex, I would like to thank our brand partners, team members, and shareholders for their support as we continue to drive long-term growth and deliver against our vision of becoming a top 10 global restaurant brand. It is an exciting time to be at Wingstop, and we look forward to seeing many of you at our upcoming Investor Day on May 17th. With that, I'll turn the call over to Alex.