Wingstop Inc.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Wingstop Inc. Fiscal Second Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal your conference specialist by pressing the start key followed by zero. Please note that this conference is being recorded today, Wednesday, August 2nd, 2023. On the call today are Michael Skipworth, President and Chief Executive Officer, and Alex Kalida, Senior Vice President and Chief Financial Officer. I would now like to turn the conference over to Alex. Please go ahead.

Thank you and welcome to the fiscal second quarter 2023 earnings conference call for Wingsop. Our results were published earlier this morning and are available on our investor relations 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 conditions. 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 an isolation or as a substitute for results prepared in accordance with GAAP. Reconciliation is the comparable GAAP measures are contained in our earnings release. Lastly, for the Q&A session, we ask that you please each keep the one question in 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. Our second quarter results showcase the underlying strength of the Wingstop brand and the staying power of our strategy. Our results would not have been possible without the incredible work by our team members in the Global Support Center, the restaurant team members, our supplier partners, and our brand partners who work tirelessly each day to serve the world flavor. We delivered another industry-leading quarter, led by 16.8% domestic same-store sales growth. Consistent with the underlying strength in our brand we saw in the first quarter, substantially all of our comp in Q2 was driven by transaction growth. Within our sales growth, we saw further expansion in our digital channels, achieving a record 65.2% digital sales mix for the quarter. We opened 50 net new units during the quarter. This pace of development and same-store sales growth translated to system-wide sales growth of 27.8% in the quarter. Adjusted EBITDA totaled $34.4 million, an increase of 47% versus the prior year, highlighting the strength of our asset-light model. Our unit economics are near our historical highs, and we have an energized base of brand partners. We are extremely excited by the strength we are seeing in our development pipeline, positioning us for a record year across development metrics, whether it be our development agreement sales, site approvals, and new restaurant openings. We are also making great progress increasing brand health metrics, We hit record highs across brand awareness, purchase consideration, and intent, as well as media related perception metrics that include positive buzz, word of mouth, and likelihood to recommend. And we are also seeing positive trends in value scores with guests in an environment where many brands are measuring decline. While we are encouraged by the progress we are making, We continue to see sustainable growth in front of us when we benchmark Wingstop's brand awareness to other national brands. The roughly 30% growth we've seen in system-wide sales during the first half of the year gives us the firepower in our national ad fund to continue chipping away at this opportunity. In our 19 consecutive years of same-store sales growth, we have a proven playbook and a multi-year strategy that we are working in we continue to execute against. We believe our sales strategies provide us with clear line of sight to growing AUVs north of $2 million. Our strategy remains consistent and clear, building brand awareness, menu innovation, expanding our delivery channel, digital transformation, and data-driven marketing. One of the strategies we've talked about over the years is to broaden the top of the funnel by targeting heavy QSR users a group that represents over 60% of all QSR visits and has either not heard of or not tried Wingstop. We're excited by the progress we continue to make against this meaningful opportunity and are bringing a lot of new guests that are experiencing Wingstop for the first time. These new guests that are coming into Wingstop tend to be Gen Z or millennials, multicultural, tech forward, party size of two or more, and willing to spend a little more for quality or indulgence, the profile of a heavy QSR user. While we are encouraged by the progress we are making and the tremendous momentum we have in the brand, there remains a significant awareness opportunity helping Puel continued sales growth. The progress we are seeing in expanding brand awareness will be further bolstered by the launch of our new creative campaigns. our first in more than three years, coinciding with the start of football season. This new creative, combined with our growing ad fund, will allow us to continue closing our gap in brand awareness with Breakthrough Creative, along with Wingstop showing up in more premium placements focused on live sports. And to help us continue to execute our proven strategy, I couldn't be more excited about the addition of our new Chief Growth Officer, Ann Fisher. Her experience will position us to advance our best-in-class technology platform and allow us to further unlock our growing first-party digital database as we work towards our aspirational goal of digitizing every transaction. Another sales driver on our path to $2 million-plus AUVs is the expansion of our delivery channel, where we see the potential to nearly double our channel mix. In July of last year, we launched a second delivery provider for the entire domestic system. The addition of Uber Eats has allowed us to access a new guest that's proven to be highly incremental, and we see the two delivery marketplaces as another avenue to build awareness. Benchmarks suggest delivery sales mix can be north of 50%. Today, we sit at approximately 30% delivery mix in the systems. And reflecting on our first year of expanding to an additional delivery provider, we continue to see a substantial opportunity ahead. We have lapped the launch of Uber Eats in July of last year, and we are encouraged by the results we are seeing. We have commented over the last few quarters that we continue to see growth with both DoorDash and Uber Eats delivery channels, and we see continued growth in front of us within these channels. In addition to delivery, our chicken sandwich innovation continues to be a sales lever. Oh, and by the way, I'm sure many of you by now have tried at least one of our 12 chicken sandwiches, but yet we are only scratching the surface on the opportunity. With more than 2.8 billion chicken sandwich servings annually in the US, we are looking to capture our fair share of the category. This strategy is broader than just winning our fair share. It is also about broadening how consumers view Wingstop. It presents us with the opportunity to capture more occasions beyond that indulgent wing occasion, which we believe can ultimately impact frequency and presents us a huge opportunity for us over the long term. Wingstop chicken sandwiches provide another access point for the brand among new consumers and introduces our differentiating flavors and quality our core fans have enjoyed over the years. Another benefit we have seen as we bring in new guests into the brand through Chicken Sandwich is a halo effect on our core wing business as guests learn to navigate the rest of the menu, something we believe just further strengthens our unique position. Chicken Sandwich has also helped advance our supply chain strategy. The combination of increasing our utilization of breast meat and our size and scale has positioned us to make meaningful progress towards our goal of minimizing volatility we see in food costs. As we sit here today, the majority of our chicken we purchased is not directly tied to the week-to-week volatility that is seen in the spot market. This is a fundamental shift in our model and is helping us mitigate the volatility we have historically seen in food costs. As we continue to win more chicken sandwich occasions, we see a path to 50% plus boneless mix which we believe could result in a structural change to our long-term food cost target, potentially yielding COGS in the low 30% range and further enhancing our best-in-class unit economics. These multi-year sales drivers that we are executing against have combined to drive significant transaction growth and gives us confidence in achieving our targeted AUV in excess of $2 million. Our supply chain strategy and growth in AUVs have strengthened unit economics. The average investment to open a Wingstop is still a relatively modest $450,000. And with system AUVs of $1.7 million, brand partners are seeing a payback in less than two years. Our brand partners recognize the staying power of our strategies and the strength of our unit economics, which is supported by the fact that over 90% of new restaurant openings come from existing brand partners reinvesting back into the brand, a strong statement supporting our best-in-class returns and translates into significant demand for growth. Brand partners are motivated and excited to grow their Wingstop footprint as we continue to see our pipeline strengthened, not only for new site approvals, but also for new development agreements, giving us confidence in our path to achieve our long-term goals of 7,000 plus global restaurants. You've heard me say that we believe our international business is well positioned for growth. During the first half, we saw an acceleration in international same store sales growth, and the investments we have been making in the team are paying off. We signed two new markets during the quarter, Netherlands and Puerto Rico, which fit perfectly within the regional expansion strategy we have discussed over the years. We're growing our footprint in our newest markets, Canada and Korea, while AUVs are accelerating. The business development pipeline remains strong, and I'm excited about the momentum that is building in our international business. As we sit here today, the consumer is proving to be more resilient than what many of us might have expected to start the year. Whether it is continued inflation, rising interest rates, or even the restart of student loan payments later this year, We acknowledge the macro backdrop continues to have a fair amount of uncertainty. However, despite the uncertainty ahead, we believe we are well positioned to deliver another industry leading year. In the second quarter, we opened our 2,000th global restaurant. Our system sales have surged past $3 billion on a trailing 12-month basis through June, which is nearly double when comparing to just three years ago during the same time period. This is a direct reflection that our multi-year strategies are working and showcases the underlying momentum in the brand. It's also what gives us confidence to raise our full year 2023 outlook on domestic same-store sales growth from high single digits to a 10% to 12% range with our sights clearly set on delivering an industry-leading 20th consecutive year of same-store sales growth. In addition, with the visibility that we have in our construction pipeline, we are updating our development outlook from approximately 240 net new units to between 240 and 250 net new units, which would translate to a record number of net new units open in a year for Wingstop. Before I hand it over to Alex, I wanted to share some exciting news on the ESG front. A key focus area in our ESG efforts is giving back to the communities in which we serve. Our Wingstop Charities mission is to amplify the flavor of our communities through service while focused on environment, education, sports, food, and entrepreneurship. In December of 2022, we launched Roundup, a program in which our guests have the ability to round up their digital checks to the nearest dollar to donate to Wingstop Charities. This provides an opportunity to partner with more organizations in need of support. I'm excited to announce that in the third quarter, Wingstop Charities is partnering with No Kid Hungry, where 100% of the Roundup contributions made between August 1st and September 30th will go to support this terrific organization. No Kid Hungry is an organization that is changing the way that schools and communities ensure our youth have the food they need to learn, grow, and succeed. Their mission is to end childhood hunger. and to help ensure every single child in America has the food they need to grow up healthy and strong. I'm thrilled with our efforts and the opportunities to have an even greater impact in the communities we serve. At the foundation of our strategies is people and our culture, which we refer to as the Wingstop way. We believe these are competitive advantages for us. And as we look ahead to the second half of 2023, I'm excited by how the Wingstop team is positioned to deliver another industry-leading year. With that, I'd like to turn the call over to Alex.

Thank you, Michael. The second quarter continued to demonstrate the strength of our long-term strategies. We delivered 27.8% growth in system-wide sales in the second quarter, which, as you heard Michael mention, now exceed $3 billion. Total revenue increased to $107.2 million from $83.8 million in the prior year fiscal second quarter. Royalty revenues, franchise fees, and other revenue increased by $11.9 million in Q2, driven primarily by 182 franchise restaurant openings since the prior year comparable period, and a 16.8% increase in domestic same-source sales, which was driven almost entirely by transaction growth. Company-owned restaurant sales totaled $22.6 million in Q2, an increase of $3.8 million primarily due to a 5.7% increase in company-owned same-store sales driven by transaction growth and six net new restaurants versus the prior year comparable period. Cost of sales as a percentage of company-owned restaurant sales improved by more than 580 basis points compared to the prior year, mainly driven by a reduction in food, beverage, and packaging costs, which included a nearly 40% decrease in the cost of bone-in wings. Our supply chain strategy is to mitigate volatility in our food costs, and a component of our strategy where we've made a lot of progress is around shifting more of our buy from the spot market. Based on the progress we are making against our supply chain strategy and leading indicators for our core commodities, We entered the second half of the year with greater predictability, and we continue to have line of sight to a food cost for 2023 in the low 30% range. And consistent with our outlook last quarter, we anticipate company and restaurant cost of sales to be approximately 75%. With the progress we are making on our supply chain strategy, this visibility into food costs extends beyond 2023. and is generating quite a bit of excitement among our brand partners as unit economics have strengthened to near record levels. In the second quarter, SG&A totaled $22.1 million, an increase of $8.2 million versus the prior year comparable period. This quarter lapped a significant stock award forfeiture last year, and in the current quarter included investments in headcount and strategic projects, to support the long-term growth of the business, as well as an increase in performance-based stock and incentive compensation as a result of our performance. Adjusted EBITDA, a non-GAAP measure, was $34.4 million during the quarter, an increase of 47% versus the prior year. Adjusting for non-recurring items, we delivered adjusted earnings per diluted share, a non-GAAP measure of 57 cents, a 27% increase versus the prior year. Our highly franchised asset light model continues to deliver strong free cash flows. As of the end of the second quarter, we had $521 million in net debt. Our net debt to trailing 12-month adjusted EBITDA was at four times, which is a half turn lower than at the end of the fourth quarter. underscoring our ability to quickly de-lever through a combination of adjusted EBITDA growth and strong free cash flow generation. We are maintaining a strong cash balance that stands at approximately $200 million, and we believe puts us in a position of strength as we enter the back half of this year. A component of our return of capital strategy is through our regular quarterly dividend, which is targeted at approximately 40% of free cash flow. Our board of directors today approved a 16% increase in our quarterly dividend to 22 cents per share of common stock, resulting in a total dividend value of $6.6 million. This dividend will be paid on September 8th, 2023 to stockholders of record as of August 18th, 2023. Now moving on to our outlook for 2023. With the strong start to the year, We now anticipate domestic same-source sales growth of 10% to 12% for full year 2023, an increase from high single digits. Based on the visibility we have in our pipeline, we are raising our development outlook to a range of 240 to 250 net new units. And consistent with our prior comments, we also anticipate our pace of openings to be weighted more towards the fourth quarter. SG&A guidance is estimated to be between $91 and $93 million, including $3.9 million in non-recurring consulting projects to support our strategic initiatives and an estimated $14 to $15 million of stock-based compensation expense, which was increased from $12 to $13 million due to the performance of the business. For modeling purposes, we anticipate SG&A in the second half will be evenly split between the two quarters. Our strategies remain consistent and we are focused on execution, which is evident with the strong start in the first half of the year. Our multi-year growth strategies, a unique part of the story for Wingstop, have staying power and give us the confidence in delivering upon our increased outlook for 2023. I want to thank our team members, supplier partners, and brand partners for all their hard work and dedication to deliver a best-in-class experience for our guests. With that, I'd like to now turn to Q&A. Operator, please open the line for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then two. And also as a reminder, we do ask that you please limit yourself to one question and a single follow-up. Today's first question comes from David Tarantino with Baird. Please go ahead.

Hi. Good morning and congratulations on great results. My question is on the comp trend that you're seeing and, you know, clearly still very strong on an absolute basis in Q2. it was a little lower than in Q1. So I wanted to ask how you're viewing, you know, that change in the business from Q1 to Q2 and whether you think it's an underlying deceleration or not, you know, given, you know, I know it's kind of tough for us to tell given all the noise and the comparisons related to COVID. So I guess, how are you viewing the business trend, you know, kind of Q1 to Q2?

Hey, David. Good morning, and thank you for the question. You know, I think as we think about the comp that we delivered in Q2, it's something we're obviously extremely proud about, particularly when it speaks to the underlying momentum and strength of the brand to deliver a comp of 16.8%, which it's been substantially driven by transaction growth, speaks a lot to the effectiveness of our strategies that we're executing against and just the The overall health of the brand. I think you heard us in our prepared remarks talk about whether it's from brand health metrics. We're setting record levels for the brand and seeing really strong improvement. And then when you look at some of the metrics around value as an example where we're showing and measuring really great progress and improvements in value scores when the industry is measuring declines. And so I think it really differentiates our position. But as we think about the quarter, I think obviously we talked about this in prior quarters. We saw a bit of a perfect storm hit our business in April of last year. But then we moved quickly and deployed or leaned into our proven playbook, our value playbook, and was able to reverse that trend pretty quickly. So the compares did get a little bit more challenging as we moved through the quarter and not nearly as easy as what we lapped in April. But I think overall, we feel really good about where we stand and the trends that we're seeing in the business. I think if we take a step back, I can remember just about a year ago, we were celebrating achieving $1.5 million AUVs for the brand. And at that point in time, We shared a broader strategy that showed what we believe is the growth levers we can execute against to scale AUVs north of $2 million. And fast forward to today, we're already up over $1.7 million. And so as we think about the unit economics and the strength that we're seeing there and how that's feeding into a significant amount of demand with brand partners, we're really encouraged by the underlying momentum we see.

Great. And just to follow up to that, Michael, I think one thing that's on investors' minds is how you lap this big performance you've seen in the first half of this year. So I guess what are your thoughts on being able to maintain kind of positive momentum on top of what you've seen recently as you think about the next four quarters playing out?

Yeah, no, another – Thank you, David. Another good question. And I think it's something we're actually really confident in because as we think about these sales levers that we're executing against, whether it's continuing to grow brand awareness, whether it's through menu innovation and capturing new occasions through chicken sandwich, and as we mentioned in our prepared remarks, seeing that halo effect on the rest of our business as these new guests come in through a very familiar and easy entry point of chicken sandwich and are able to navigate the rest of the menu. Or the expansion of delivery, where we mentioned it's at 30% today, but we still see an opportunity as we benchmark ourselves to other more mature, heavy off-premise brands, an opportunity to almost double that channel mix. And then obviously continued digital expansion and then leveraging our first-party data. And so all of these things give us a lot of confidence in our ability to continue to grow AUVs. and sustain continued sales growth and deliver on our long-term algorithm. And I think what's unique about our story is these aren't LTOs or one-time sales benefits. These are new sales layers that we continue to build upon. And I can remember answering this same question a couple years ago when we saw extensive growth in our business from the pandemic. And we talked about that just simply being a pull forward of growth. And we were able to build on top of some and comp on top of some pretty incredible numbers back then. And we don't think next year will be any different.

Great. Thank you very much. Thank you.

Thank you. And our next question today comes from Jeffrey Bernstein with Barclays. Please go ahead.

Thank you very much. First question is just on the unit growth. know you raised your opening target modestly for 23 now it looks like 12 to 13 growth just wondering if you could talk about maybe where the incremental growth is coming from whether by geography or by presumably a lot more existing franchisees any reason to believe that the 2024 year will see any kind of slowdown in growth if we were to see a tougher macro or is your line of sight pretty strong that that 10% is the base, but that you have demand to exceed that going into 24, where maybe the macro might be a little bit more challenged. I'm going to add one follow-up.

Thank you, Jeff, and good morning. We're definitely bullish about development for this year in particular, and what we're encouraged by is it's balanced. It's balanced through fortress markets, non-fortress markets, and again, you did mention it, but it is the majority of our development coming from existing brand partners that are reinvesting in the brand. We mentioned it in our prepared remarks, but there's a significant amount of demand and excitement from our brand partner community to continue to grow. We're seeing our pipeline of sold restaurant commitments for next year continue to build very nicely. In addition to that, We continue to see a really strong, steady flow of sites coming in to be approved, giving us a lot of confidence in continuing to be able to expand our footprint. And I think for us, a lot of that centers around the progress that we've made, obviously driving top line, but probably equally as important as continuing to advance our supply chain strategy, where we've been able to move more and more of our buy away from the spot market in how we structure some of the agreements with our supplier partners. And that's enabled us to provide a lot more predictability. And ultimately, as what our supply chain strategy has stated, is to minimize the volatility that we see in food costs. And so we feel really good about how that's coming together, the progress that we're making. And I think as you heard in Alex's comments in our prepared remarks, reiterating what we told you last quarter around cost of self margins for our company restaurants, I think is a good indication.

Understood. And then the follow-up is really on something you didn't necessarily mention in your prepared remarks, but AI, which I know from recent conversations, it sounds like you were testing AI in, I think, your 40 or so company operating units in Dallas. I know that region still gets a fair amount of orders over the phone. So I'm just wondering if you can share any early feedback, maybe on benefits of the shift to digital or other potential AI opportunities. Obviously, this is a sector where that getting a fair amount of discussion. I know you guys tend to be on the forefront from a technology perspective. So any color on the AI test or future opportunities would be great. Thank you.

Yeah, thank you, Jeff. We're really excited about this AI solution that we've expanded the test on as it relates to intercepting phone orders, which still represent roughly 15% of our sales today. And so as we think about our digital sales mix, which we mentioned for Q2, was at a record 65.2%. We see a ton of runway to continue to expand our digital sales mix. And I think when you look at the overall industry and you've seen consumers revert back to pre-pandemic behaviors, you're seeing digital sales mix for a lot of brands go the other direction. And we're continuing to expand and we think this AI solution is a great catalyst for further expansion where we enjoy and benefit from a higher average check. But what we've seen in the additional restaurants that we've expanded to is pretty consistent with what we mentioned last quarter, and that is we think it's capturing more calls that were previously missed. It's offering a better guest experience. And then obviously, if the team member's not on the phone while guests are at the counter picking up an order, And having to manage both of those things at the same time, it provides a better team member experience. And so we're really excited about the progress we're seeing within the test and the opportunity we have in front of us to lean in and leverage AI.

Thank you.

Thank you.

And our next question today comes from Andrew Charles at TD Conlin. Please go ahead.

Thank you. I have two questions for Alex. First, I want to get your updated thoughts on accelerating cash returns to shareholders. Last March, you fortified the balance sheet with about $130 million of unrestricted cash as you pursued the supplier strategy. You're on pace to end this year with less than four times the net debt that you had. So I'm curious, what do you need to see to accelerate cash returns to shareholders? And how would you think this is more likely to be executed through releasing that excess cash in the balance sheet or through perhaps a dividend recap?

Good morning, Andrew. Great question. Consistent with our comments we made in the prior quarter, we intended to enter the second half in a position of strength with our balance sheet. So we are set up to be opportunistic with this cash, which could include a return of capital. And we are having regular dialogue with our board on how to best optimize our return of capital strategy. So I think you've seen that cadence from us over the years. around that, you know, every 18-month window. And we also, you know, obviously deploying the cash will move our leverage up a bit, but we're also, you know, comfortable at a little higher leverage than where we're at today, to your point.

Great. And then my follow-up question is on bone and wing prices. I think you said bone and wings are going to continue to be benign in the back half of the year, and then you have line of sight into 2024. And so, I'm wondering, can you expand more on that? You know, what are the early indicators for 2024 wing costs that, you know, helped lead to or helping to lead to record store-level cash flows in 2023? I know, Michael, last call you talked about, obviously, beef inflation is going to lead chicken suppliers to increased production, increased supply. You know, is that a level of thought for 2024?

Yeah, Andrew, this is something we're really excited about and our brand partners as well. You know, I think this is the first year, starting earlier in the year, we've been able to articulate where we see our food costs in that low 30% range for the year. And that's a function of what Michael mentioned on the call around moving more of our buy off the spot market. While we do watch the market, you know, we're less reliant on that week-to-week buy because of the way we've been able to introduce different pricing arrangements with our suppliers. And for the first time, frankly, in years or in our history, we've been able to lean into 2024 as well, deploying this strategy of mitigating volatility in our food costs. And so it's more about, you know, it's less about the market dynamics and more about where our strategy is leading us into the following year.

That's great. Thanks so much.

Thank you. And our next question today comes from Joshua Long with Stevens. Please go ahead.

Great. Thank you for taking my question. When thinking about the unit development pipeline, Michael, I think you mentioned the ongoing strength and the fact that it continues to build globally. I was curious if you could quantify what that pipeline looks like. I think in prior calls, you had built something along the lines of 1,200 units. But just curious if you could add an additional layer of texture on that and then Secondarily, just within the current environment, just what that development backdrop looks like. Obviously, you're able to take up the development range for the year, which is exciting, but curious what your brand partners and what you all are facing in terms of either permitting or supply chain headwinds in the current environment.

Hey, Josh, thank you for the question. I think we mentioned it on the call. we're trending towards record levels in just about every metric across development, whether that's our DA commitment sales, whether it's sites approved, or obviously based on our guide for the balance of the year, 2023 is shaping up to be a record year of new restaurant openings, and that pipeline continues to build. I think a lot of that has to do with some of my prior comments I made around just the strengthening of the unit economics that our brand partners see, the staying power of these sales drivers that we're executing against, and then as we mentioned earlier, the progress that we're making against our supply chain strategy that's providing more predictability and mitigating the risk around volatility that we see in food costs. We're pretty encouraged by that progress, and obviously our brand partners are really excited about it. I think another thing they're really excited about is we talked about last year's vintage of new restaurants that came in at $1.3 million on average, and those restaurants today are comping strong. I think that's something we've demonstrated consistently over the years, that our restaurants come out of the gates strong and then just build from there. another unique element to our growth story. And then as we look at the restaurants we've opened this year, they're actually coming out of the gates and trending at above 1.3 million, which again, furthers the excitement that we see from our brand partners and I think ultimately fuels that development we talked about.

That's very helpful. Thank you. As a follow-up, when we think about the momentum behind Chicken Sandwich and the opportunity to bring new guests into the brand through that funnel that you mentioned, A lot of work there and still more work to be done for sure. But can you talk about what you've seen thus far in terms of how you engage with guests when they enter the system, how they start to explore the menu and what that Wingstop journey is for them? It seems like there's an opportunity to support some of that boneless mix that you talked about and then perhaps even kind of your core heritage bone-in specialty as well. But just curious what you've learned with them and how they've communicated with you all as they've gotten into the system.

Yeah, it's a great question and something that we're pretty excited about and I think feeds into the overall confidence that we have is that these new guests that are coming in, they're very familiar and understand how to engage with brands with a chicken sandwich, where maybe historically they've only thought of wings as a special occasion, whether it be Super Bowl or some other group gathering. And as they come in, we are seeing them navigate the rest of the menu And I think that is what's translating to a pretty unique situation where this comp growth that we're talking about and the transaction growth that we're seeing, it's pretty consistent across day part, it's pretty consistent across channel, and we're pretty excited about just seeing this overall what we call halo effect to the rest of the menu. But one of the data points I'll share with you that really highlights the progress that we're making is As we exited Q2, our boneless mix was the highest it's ever been at 43%. So we talk about not only can this new guest come in through chicken sandwich and provide an overall benefit to the menu, we see that as continuing to build confidence around driving boneless mix long-term north of 50%, which could structurally change kind of our overall food targets. which typically is mid-30s, we could actually see that move down to something in the low 30 range, which is pretty exciting when you think about combining that with the AUV growth that we're delivering really strengthens those unit economics and feeds that long-term growth story, which is really exciting when you think we just eclipsed 2,000 restaurants and have an opportunity in front of us to scale this brand to north of 7,000. Thank you.

Thank you. And our next question today comes from John Tower at Citi. Please go ahead.

Great. Thanks. I was actually maybe even just following up to that last point on the traffic growth. Is there any way you could break down the traffic growth that you're seeing between new customers versus, say, building frequency from existing customers based on the data that you have today?

I mean, I'm sure we could get to that. What we're seeing, though, and I think is what's really encouraging is these new customers that are coming in are moving up the frequency curve, and that's exactly what we want to see. And we talked about chicken sandwich, where it is a little bit more of a different occasion than our typical wing occasion, and it does over-index towards lunch. And so I did mention the comp was Pretty consistent any way you cut it. But it was stronger over that lunch day part, which I think we like to see and see a lot of opportunity there to continue to grow. But we talk about our chicken sandwich mix. It's still mixing in that mid single digit range. But the fact that we're seeing growth in all areas of the business, we think a better way to look at it and how we measure it is actually in quantity of sandwiches sold per restaurant per week. And we sold more sandwiches in Q2 than Q1, which is encouraging as we think about the back half of the year.

Got it. Thank you. And just I know it's something that you kind of not wanted to pursue in the past, but the idea of a rewards program or a loyalty program, I'm curious to get your updated thinking here. Obviously, you've got a high digital mix of customers here. and clearly driving quite a bit of traffic these days, but thinking about this business over the longer term, when you look across the rest of the landscape, it appears that loyalty has worked relatively well for quite a few brands, particularly within the limited service space. So here's to get your updated thoughts there if anything's changed.

Yeah, I think another thing that's pretty unique about Wingstop is we've built this database 35 million users strong, and we've done that without a loyalty program, which is pretty incredible if you think about the opportunity we have in front of us. But we continue to make progress against this roughly $50 million investment we're making in our own proprietary tech stack. And we think that will be an enabler that's going to allow us to really leverage this first-party data to personalize that customer journey and get a lot more targeted with how we engage with guests that we think will help further drive digital expansion. And then obviously as we progress and we know that it could be a lever for us down the road as we aspire to digitize every transaction, we could engage with guests in some form of digitalization. early access, maybe secret menu, some way to specialize the experience for guests that are signed up with the program with Wingstop.

Thank you.

Welcome.

And our next question today comes from Andy Barish with Jefferies. Please go ahead.

Hey, guys. Just a quick one and kind of fleshing out the guide, you know, of 10 to 12 on the same store sales. Obviously the math implies low to mid single digits for the, for the back half of the year. Are you willing to kind of give us sort of as you laugh Uber and then have, you know, the chicken sandwich lap in front of you sort of where things are today or kind of where you're, you know, where you're pointing to, you know, within that, that guidance range at this point.

Hey, Andy. Yeah, absolutely. I think a good way to think about it, and we've shared this, I think, in prior quarters, is when we launched Uber Eats, we saw, call it roughly, a mid-single-digit sales mix through that platform. And we've talked over the quarters about continued growth in Q2. kind of our exit rate, if you will, that channel mix through Uber Eats platform was roughly double where it was when we launched. And so that gives us a lot of confidence in our ability to lap that and really what we alluded to in our prepared remarks. And so I think chicken sandwiches is really no different in that we are selling more sandwiches and we continue to see this overall halo effect to the rest of our business. And you couple that with our growing ad fund, increased media, this new creative that we have coming around football season. We're entering the back half of the year with confidence, but obviously, like most other brands, there's still that overall uncertainty that's in the macro backdrop that everybody has to kind of navigate and measure.

Got it. Thank you. And then just Just quickly on the consulting fees that are running through the GNA this year, can you give us a little color on where that is? I imagine some of it is looking at China again, but anything else that you'd care to call out?

Yeah, Andy, I think over the years we've been a brand or we've demonstrated that when we see an opportunity to put our foot on the gas and drive growth, that's exactly what we do. And so as we think this work and kind of the consulting fees here are really centered around strengthening our category one position and just further bolstering our strategy for us to execute on this next phase of growth. Okay.

Thank you.

Thank you. Thank you.

And our next question today comes from Jeff Farmer with Gordon Haskett. Please go ahead.

Great, thanks. Just a big picture follow-up to a handful of earlier questions. So really just looking back at your traffic growth drivers over the better part of the last year, a lot of things in play. But if you think about the move to always advertising, the chicken sandwich launch, delivery growth, What can you share with us in terms of what has proven to be the most impactful driver over the last year in terms of thinking about drivers moving forward, which you continue to see being a driver as we get into back half of 23 into 24? Hey, Jeff.

Good morning, and thank you for the question. I think we got a similar question last quarter, and it's, When you think about the elevated advertising dollars that we have going into our media spin, and you think about us leveraging Chicken Sandwich as part of the messaging, or using some of those dollars to drive just general awareness, it gets kind of challenging to tease apart. I think the thing that we talked about last quarter, Continued this quarter is this overall strength that we're seeing in our brand is really the result of all of these things kind of working in concert with one another. And I think we mentioned it last quarter, but we obviously over-delivered even beyond what we expected, and we're continuing just the overall strength.

Okay, and then just one quick follow-up as it relates to the 10% to 12% full-year stands for sales guidance. Again, I might have missed it, but what level of menu pricing is contemplated in that guidance?

We basically are reverting back to our historical approach in pricing, and that is one to two points of price through two windows. We did execute a window in the first half of the year, and we will execute another pricing window in the back half of the year.

Thank you. And our next question today comes from Brian Harbor with Morgan Stanley. Please go ahead.

Yeah, good morning. Thank you. This was sort of asked, but I think maybe just asked a different way. Have you kind of seen evidence that some of the customers that have come for the chicken sandwich or maybe some of the customers that have come in through Uber, are those – Are they increasing their frequency over time? Are they, in fact, higher frequency than some of your existing customers or perhaps the reverse? I think the point is you've done a very good job kind of driving trial. Have you seen evidence that those are becoming very loyal customers?

Hey, Brian, good morning and appreciate the question. I think the short answer is yes, we have seen evidence. these guests come in, and as I mentioned before, we're seeing them move up the frequency curve after that initial trial or initial visit. And for the quarter, we actually did see a nice uptick in frequency, and I think we mentioned it in our prepared remarks, beyond just frequency, if you look at all brand level metrics, we saw really strong improvement, record levels for the brand, kind of across the board. And I mentioned in my prepared remarks, when you think about this overall macro backdrop, to be sitting here driving transaction growth like we are and have value scores improving really gives us a lot of confidence in our ability to navigate the back half. And if there is a significant shift in consumer sentiment, we have a proven playbook. We know that we can lean into value, retain those indulgent occasions. And so we feel really good about where we stand today.

OK, thanks. Could you also just maybe provide more detail on international? You kind of mentioned the acceleration in same-store sales. We obviously don't see some of those metrics reported regularly, but is it consistent with the U.S.? Any markets that are kind of doing better there? What's the additional opportunity to drive sales internationally?

Yeah, Brian, we're really excited about the momentum we see in our international business and the demand that's in our pipeline. I'll give you one example, and I think this is – we've talked about it before. This is the playbook that we're leveraging in new markets, and that is the progress we've made in the U.K. And last week, our U.K. business set another record week of sales, and in fact – Our original restaurant in the UK, in London, in Cambridge Circus, that opened five years ago roughly, last week had a record week and sold over $100,000 in sales for the week. And so I think that just speaks to some of the momentum that I referenced. And we're seeing that same playbook be deployed in Canada. We're seeing it deployed in Korea. And we're seeing those AUVs continue to grow while we expand our footprint there. And then obviously we talked about the two new markets that we signed in the quarter, and the pipeline for new territory is really strong. So we're pretty excited about how our international business is performing, how the team is executing the strategy, and then ultimately how it will become more of the growth story as we look a little further out.

Thank you. And our next question today comes from Brian Mullen with Piper Sandler. Please go ahead.

Thanks. Just a question on the delivery sales channel, follow up on some of the comments from the prepared remarks. Now that you're firmly established on both of the large platforms, what do you think is the primary driver of the growth in the coming years from the 30% sales mix to 50% sales mix? Do you just believe more and more consumers will migrate to aggregators over time and you will benefit because of your offering or are you actually potentially working on some strategies or some marketing to help influence that growth forward on your side as well? Hi, Brian. This is Alex. I can jump in here. You know, I think we've talked about a bit that we essentially turned on Uber Eats last year with the launch. And so we haven't invested in the platform that is an opportunity for us to deploy our advertising dollars to build more awareness. You know, even though we've seen our mix double since the launch week, as we've lapped that You know, that's a big opportunity for us to build awareness in those two platforms. Both DoorDash and Uber Eats marketplaces continue to grow as we expand our awareness, we build frequency, as Michael referenced. And so it is an opportunity for us to invest in those platforms that can lead us on that path towards those benchmarks of 50% plus.

Okay, thank you.

Thank you. And our next question today comes from Chris Carroll with RBC Capital Markets. Please go ahead.

Hi. Good morning, and thanks for taking the question. I guess just following up on the chicken sandwich and the potential long-term benefits you're seeing from it, how, if at all, does the momentum you're seeing with the sandwich influence how you're thinking about restaurant formats or real estate strategy longer term?

Yeah, no, I appreciate the question and good morning. I think for chicken sandwich, one of the things, if you reflect back on Wingstop in our 30 years, our degree of menu innovation has really been limited to flavor. So we, you know, go back a couple decades, we added boneless wings. and then shortly thereafter added tenders, and then last year we added chicken sandwich. And I think one of the things that was key in all of those is to not compromise the simplicity of our operations. And we put a lot of work in in partnership with our brand partners to ensure that when we launched chicken sandwich, it didn't impact the simplicity and efficiency of our box. I think that supports the fact that I don't really think it's going to change the overall format of the box, the layout. We continue to, as we sit here today, we'll call it 94, 95% of our sales are off-premise, and so we'll continue to execute that because with that efficient footprint, heavy off-premise in the AUVs that we have grown, The unit economics are really strong. As we sit here today, we continue to see a big opportunity with Chicken Sandwich that we've talked about. And I think longer term, we can see that continuing to influence frequency, in addition to just bringing in new guests to the brand as well. So something we're pretty excited about.

Okay, great. And then I know you touched on this in your prepared remarks, but Can you expand maybe a bit more on brand awareness and if you could maybe provide any quantitative measures around this relative to peers? And then obviously new store growth and system sales growth is going to help fuel advertising, but is there anything else you would highlight as part of your strategy to drive awareness higher? Thanks.

Yeah, we've made considerable progress on awareness, but it still remains a significant gap to where our numbers are relative to what we measure as those top 10 QSR brands. And so that's what our advertising dollars, we just surpassed $100 million for the first time last year. The system sales growth gives us opportunities to add more weeks on air, have an always-on message through the year, and increase the density of our advertising during the weeks we're on. And so Really, when you compare our advertising funds to those larger, more mature brands, we have a large runway ahead to make Wingstop more mainstream.

Thank you. And our next question today comes from Gregory Frankfurt with Guggenheim. Please go ahead.

Hey, guys. Thanks. I just wanted to maybe follow up on, I think it was two questions ago. Can you tell me how you're thinking about deploying advertising dollars to into either DoorDash or Uber Eats or your native platforms and how you're balancing those priorities? Thanks.

Yeah, no, I think it's a good question, and it's one of those things we see as a big opportunity for us. If you reflect back on our overall progress in delivery at roughly 30% sales mix today, that really hasn't been based with us deploying a significant amount of our ad dollars on their platforms. A lot of the advertising you see, the promotions you see are funded by those partners because we deliver a really nice high average check and that's good for their drivers and good for their business. And so we've seen them a willingness to invest in Wingstop, which we appreciate. And obviously, when we think about that opportunity to over double or almost double our delivery channel mix, we obviously know that as we drive awareness of our brand on those platforms, we'll capture more occasions. So we see that as one of those multi-year sales drivers that we talked about earlier that allow us to sit here today and raise our outlook for the year and then obviously continue to see expanded AUV growth, which is strengthening the unit economics.

Thank you. And our next question today comes from Michael Tarnas with Oppenheimer and Company. Please go ahead.

Hi, thanks. Good morning. You were way ahead of the industry in terms of taking less menu pricing and even leaning into value more, which I think was a big advantage and likely widened your relative pricing after competitors. So now it seems like value is becoming a little more widespread across the industry and menu pricing also coming down. So Do any of these changing dynamics cause you to think about your sales strategies differently as it relates to value or promotions?

Hey, good morning. You know, I think we're definitely in a unique position, whereas if you look at Q2 as an example, I think the QSR industry on average had about 10 points of price increase. on the menu and we were sitting in a very unique position. I think that speaks to the comments we made about improvements in our value scores. What we are hearing from consumers in our research is they value or they're being a little bit more discerning with their dollars and what they're looking for is quality and indulgence. I think that plays perfectly within Wingstop and how our brand is positioned. We will have a balanced message for those that are value sensitive, but then obviously we still have the opportunity to capture so many new occasions. And so as consumers are looking for quality and indulgence, I think Wingstop's well positioned and just further supports the strategy that we're executing against.

Thanks. And then, you know, you've mentioned a few times about your new supply chain strategy, you know, buying more of the birds, not being so reliant on the spot markets. And you mentioned visibility in the 24. I mean, how long is that sort of agreement in place for? Is it just in the 24? Do you think that there's an opportunity for that to be sort of a much longer term, you know, looking out maybe a couple years?

Yeah, I mean, I think we have made meaningful progress with our supply chain strategy and remain confident in continuing to execute against that. And as we As I mentioned earlier, we exited Q2 at a record level of boneless mix, 43%. And as we win more chicken sandwich occasions, as we see that halo effect on the rest of our business, we see the opportunity to continue to drive that mix. But obviously, with that underlying transaction growth, we're using more breast meat in absolute abundance. pounds perspective and so as we continue to use more breast meat our supplier partners really like that and it's allowing us to have fundamentally different conversations with them around how we structure our pricing arrangements for wings and as we as we sit here today obviously the urnaberry is just north of a dollar a pound but it's even as we sit here today it's well over well over under the five-year average to the tune of roughly 50, 55 cents from the five-year average. And so, you know, obviously we viewed this as a time to look longer term and talk differently and structure the arrangements differently with our supplier partners to ensure more predictability and, as we mentioned before, ultimately mitigate the volatility that we see in food costs. So we're pretty encouraged about the progress we've made.

Thank you. And, ladies and gentlemen, this concludes today's question and answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.