Wingstop Inc.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Winx.Bank Fiscal First Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist for pressing the star key followed by zero. Please note that today's event is being recorded today, Wednesday, May 3, 2023. On the call today are Michael Skipworth, President and Chief Executive Officer, and Alex Kalita, Vice President and Chief Investment Officer. At this time, I would like to introduce Mr. Khalid to begin the presentation. Thank you.

Thank you, and welcome to the fiscal first quarter 2023 earnings conference call for Wingstop. Our results were published earlier this morning and are available on our investor relations website at ir.wingstop.com. Our discussion today includes forward-looking statements. These statements are not guarantees of future performance, 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.

Good morning, and thank you for joining our call. The momentum we saw in our business in the back half of 2022 has continued into 2023 and given us a strong start to the year. While we continue to execute against several multi-year sales drivers, our strong start to 2023 speaks to the resiliency of the Wingstop brand and the staying power of our strategies. This gives us confidence in our ability to deliver another year of industry-leading results. At the foundation of our strategies is people, and I couldn't be prouder of our team and brand partners who are fueling our path to becoming a top 10 global restaurant brand. In the first quarter, we delivered 20.1% same-store sales growth. Substantially, all of our comp was driven by transaction growth, a true demonstration of the underlying strength of the Wingstop brand. Within our sales growth, we saw further expansion in our digital channels, achieving a record 65% digital sales mix for the quarter. We opened 37 net new units during the quarter, representing a unit growth rate of 11.4%. Global system-wide sales grew by 30%, and we are now approaching $3 billion in system sales. Adjusted EBITDA was $34.6 million. an increase of 60% versus the prior year. This strength in transaction growth fueling our same-store sales is driven by multi-year sales drivers we have been executing against and we believe provides us clear line of sight to growing AUVs north of $2 million. These strategic growth levers consist of building brand awareness, menu innovation, expanding our delivery channel, digital transformation, and data-driven marketing. In just the last three years alone, our AUV has grown by nearly $400,000 and is now approaching $1.7 million. But we believe the growth levers we are executing against will continue to increase AUVs, and a huge opportunity within our strategies is to scale brand awareness, Our advertising fund continues to grow at a rate similar to our system sales, which increased 30% in Q1, giving us the fuel to continue making progress against the gap in brand awareness to other national brands. In the first quarter, the ad fund was further bolstered by the conversion of the 1% local advertising requirement to national advertising that became effective at the beginning of Q2 last year. The Growth in Our Ads Fund has allowed us to increase our presence in social, streaming, and digital channels and to be a big buyer in media to include more premium properties such as the NFL and NBA. 2023 will mark our first full year deploying an always-on message, which will keep Wingstop top of mind with consumers throughout the entire year, a strategy we implemented in the back half of 2022 and one that we believe is working. We are making great progress on closing our gap in awareness to other national brands, but there remains a significant opportunity ahead as we look to deliver our 20th consecutive year of same-store sales growth and sustain same-store sales growth over the long term. We recently announced the appointment of our new creative agency, 72 and Sunny, currently the lead agency for the NFL and many other great brands. We feel 72 & Sunny can propel the Wingstop brand into our next phase of growth and help make Wingstop a household name. We're excited about their proven talent and what's in store for our creative later this year. A new creative campaign will further support the growth levers we are actioning against. In fact, we can slightly see new creative that focuses on one of our recent menu innovations like chicken sandwich, which was introduced in August of 2022. Not only did we launch one chicken sandwich, we launched 12 chicken sandwiches that showcase our unique flavor profiles to both new and existing guests. This has proven to be a powerful enabler for building awareness, increasing frequency, and winning new occasions. Chicken sandwich gives us an opportunity to deliver our Wingstop flavor in a category that has upwards of 2.8 billion servings annually. an opportunity we are just scratching the surface on. Not only is chicken sandwich a growth lever, it also advances our supply chain strategy in a meaningful way, where we see a path to 50% plus boneless mix, which we believe could result in a structural change to our long-term food cost, yielding COGS in the low 30% range and would further enhance our already best-in-class unit economics. We also drive innovation through flavor, During the first quarter, we brought back a new fan favorite flavor, Hot Honey Rub, which has been our highest mixing flavor LTO on record. Flavor LTOs are a proven tactic in our toolkit to drive relevance and repeat occasions with our core, as well as bring in new guests to the brand. And we have a pantry full of consumer-tested flavor options with tremendous potential that we can lean into for future LTOs. Another contributor to our AUV growth is the delivery channel. And in our case, this channel has not shown any signs of slowing down. The launch of Wingstop on Uber Eats platform in July of last year, combined with continued growth on DoorDash's platform, provides us with an additional base of consumers to build awareness and capture new occasions. You've seen growth in all channels, but expansion in our delivery channel showcases the opportunity we believe we have to continue to scale this channel long-term and drive further AUV growth. We hit a record digital sales mix in Q1, surpassing 65%, and our first-party database continues to grow, now at an incredible $35 million. This database feeds our marketing engine, allowing us to drive improvement in retention rates, increase frequency, and win new occasions. Even with our early success in leveraging first-party data to drive our business, it remains a significant opportunity for Wingstop to further impact retention and frequency. As we continue to lean into innovation and pursue our aspirational goal of digitizing every transaction, we are excited about early results from a test we just completed around AI-enabled phone orders. We are expanding this test to where we convert phone orders, which still represent about 10% of our sales today, into digital orders through AI voice ordering technology. The early results are promising as we see an improvement in the team member experience, order time, guest satisfaction, and an increase in ticket size with the ability to capture this guest digitally. This also allows team members to focus on taking care of our guests that is picking up their order in the restaurant. The transaction growth fueling 20% same-store sales in Q1 is bringing a lot of new guests into the brand, winning new occasions with these guests, and moving them up the frequency curve, which is a powerful unlock for our continued AUV growth. And we know how important it is to provide a great guest experience. A key to that is operating with excellence, something we have been extremely focused on. We are encouraged by the progress our restaurants are making to deliver a best-in-class guest experience, and the results back it up. But we know there continues to be opportunity to further enhance the guest experience that we know will contribute to further top-line growth. The multiyear sales levers we are executing against give us confidence in our goal to drive AUVs above $2 million. But even at our current AUVs of almost $1.7 million and an initial investment in the mid-$400,000 range, we are generating best-in-class returns for our brand partners. A good proxy for our system is our company-owned restaurants. which in Q1 we saw our unit economics strengthen to margins of 27.6%. We're not resting on our laurels and remain committed to executing our supply chain strategy to become less reliant on the historically volatile spot price for wings and deliver a more predictable food cost for our brand partners. The combination of our size and scale combined with our strategy has enabled a fundamental change in how we go to market, from a supply chain standpoint and is allowing us to make great progress towards moving more of our buy away from the spot market to longer term pricing arrangements. Our brand partners are excited by our progress and the strength in our business, and this is translating it to significant growth in our development pipeline set in the backdrop for another strong development year in 2023. Based on the strength of our pipeline and the visibility we have today into approved sites and stages in our construction pipeline, we are reiterating our guidance for 2023 of approximately 240 net new restaurants, which would be another record year for Wingstop. As we exited 2022, a year where we surpassed more than 200 net new restaurants for the first time, we have an energized base of brand partners that are ready and willing to acquire and develop more territory. In fact, as of the end of the first quarter, we now have a record global development pipeline that's approaching 1,200 restaurant commitments. We also are seeing a record number of approved sites through the start of the year, which supports our outlook for openings in 2023. This strength and momentum and development helped us hit an exciting milestone for the brand opening our 2,000th restaurant this past month. Truly exciting times for Wingstop with an accelerated pace of development and the incredible opportunity we have in front of us to scale to more than 7,000 global restaurants. We're making great progress in our international markets, where we see an opportunity to open more than 3,000 restaurants. Our UK market, which serves as a playbook for future market launches, continues to expand AUVs past $2 million, while unit economics are at levels comparable to our domestic business. Our Canada market launched in June last year, and we're thrilled by the consumer response. We opened the first Wingstop in Korea during Q1. And most recently, we signed a 30-restaurant commitment to bring our flavor to Puerto Rico, another example of the strength of our business development pipeline. This week, Raj Kapoor, new head of international, joined my leadership team. Raj is a tremendous business leader, and I am thrilled to have the opportunity to partner with him as we scale Wingsop globally. He brings a wealth of experience and an eagerness to shepherd our international business into our next phase of growth. Wingstop is well positioned for another industry-leading year. I'm excited by our start to 2023 and our sights clearly set on a 20th consecutive year of same-store sales growth. With a strong start to the year, we are raising our full-year 2023 outlook to high single-digit same-store sales growth from our prior guidance of mid-single digits. Our brand partners are seeing some of the strongest unit economics in our history. We believe this positions us to deliver upon our target of approximately 240 net new units. Wingstop is well positioned as an asset-light, high-growth brand supported by best-in-class unit economics with unique, sustaining same-source sales growth drivers and an industry-leading pace of restaurant development. We believe this really highlights the opportunity we have in front of us here at Wingstop and positions us well to deliver best-in-class shareholder returns. Before I hand it off to Alex, I want to thank our brand partners, our team members in the restaurant, and the team members at the Global Support Center for all their incredible work and commitment. With that, I'd like to turn the call over to Alex.