Wingstop Inc.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Wingstop Incorporated Fiscal Third Quarter 2023 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. After today's presentation, there will be an opportunity to ask questions. Please note that this conference is being recorded today, Wednesday, November 1st, 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 third 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 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 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. It is an exciting time at Wingstop, and I'm honored to be leading such a talented team who deliver industry-leading results year after year. Our AUVs now average $1.8 million, and we are on track for our 20th consecutive year of same-store sales growth. Wingstop continues to see double-digit transaction growth, a true sign of the underlying health and momentum of our brand. In fact, we exited the quarter with more momentum than when we started. This growth we are seeing is consistent across all vintages of restaurants, and our new restaurants are opening even stronger. We are achieving record levels of new guest acquisition across all channels. Our core guests continue to engage with us, and we are seeing an increase in our average frequency. Our team has been laser-focused on operational excellence within the four walls of the restaurant, and we are seeing that show up in our guest scores. Our supply chain strategy is working, translating into industry-leading unit economics, and we are on pace for a record year for development. We recently held our annual Brand Partner Convention, While it provided an opportunity to reflect on the exceptional results in our business, we and our brand partners are focused on the road ahead for Wingstop, which is even more exciting than our accomplishments to date. The visibility we have into 2024 and beyond give us confidence to deliver against our strategies of sustaining same-store sales growth, maintaining best-in-class returns, and accelerating growth. Wingstop is truly in a category of one and our results demonstrate that year after year. In the third quarter of last year, we expanded our delivery platform to add Uber Eats nationally. And we also launched the Wingstop chicken sandwich or technically 12 chicken sandwiches. These two sales growth strategies brought a lot of new guests into the brand during the second half of 2022. This momentum has clearly continued into 2023. Throughout this year, we have explained how these sales growth strategies that we are executing against are multi-year drivers, giving us confidence to increase AUVs well north of $2 million. We believe this was showcased in the third quarter as we lapped the launch of both Uber Eats and our chicken sandwich delivering 15.3% same-store sales growth that was almost driven entirely by transactions. To further the point, we acquired more new guests this past quarter than we did during our incredibly successful launch of Chicken Sandwich in Q3 of 2022. We are unique in the industry, an industry that has experienced significant price inflation, contributing to transaction loss for many brands. But that is not Wingstop. And as lower-income consumers pull back from those higher-frequency QSR occasions, or even as higher-income consumers trade down into dining visits, Wingstop is uniquely positioned to gain more new guests and introduce them to that indulgent, high-quality occasion that our core consumers have come to appreciate over the years. The momentum we are seeing in our business led us to increase our outlook. to approximately 16% domestic same-store sales growth for 2023. Wingstop is at an exciting inflection point as a brand. Our strategies are working and have staying power, positioning us well on our path to grow AUVs in excess of $2 million. We are achieving record levels in brand health metrics. Our advertising fund is four times the size it was in 2018, our first year as a national advertiser, giving us the fuel to continue acquiring new guests and drive top of mind consideration. While we are making great progress on building awareness, our opportunity remains significant to reach the awareness levels of other scaled national restaurant brands. Our media strategy is proving highly effective. along with new Breakthrough Creative launched in September. Many consumers are experiencing our flavors for the first time, and they're returning for more. With a year under our belt with chicken sandwich, we are learning a lot about these new guests. About half of our new chicken sandwich guests purchased only a sandwich in their first visit, but we are seeing the majority of them in their second visit navigate the rest of our menu and purchase other proteins. Chicken Sandwich has helped create a halo effect around our brand, and it's positioning Wingsop to win more of these guest occasions. The acquisition of these new guests is translating into stronger new guest retention and increasing frequency. And there's plenty of runway ahead of us as we look to gain our fair share of the 2.8 billion servings of Chicken Sandwiches annually in the U.S. This new guest we are attracting tends to be Gen Z or millennial, middle income, and are less likely to have kids in their household than our existing guests. Their average ticket and bonus mix are higher than our existing guests, and they tend to engage with us through our digital ordering platform. This consumer is right in the sweet spot for our brand. But it is not just with our new chicken sandwich. We are seeing strong new guest acquisition across all channels. We continue to see growth in average weekly transactions with DoorDash. And since the launch of Uber Eats, we have sustained Uber Eats delivery transactions at a level that's double the initial launch last year. We see the delivery channel as another opportunity to build awareness for Wingstop. And we are nowhere close to a point of maturity. While these strategies are supporting our path to $2 million-plus AUVs, we are also excited about the progress we are making to continue to scale our best-in-class digital platform, which we believe will help protect the moat around our category of one position. During the third quarter, our digital sales mix achieved a new record at 67%, and we remained focused on our aspirational goal to digitize every transaction. We took a step three years ago to begin investing $50 million to build our proprietary tech platform. This investment serves two purposes, protect our digital business that is quickly scaled to $2 billion in system-wide sales, and unlock new capabilities that tap into our digital database of more than 35 million users to enable further AUV growth. Our proprietary tech stack will deploy an increased level of hyper-personalization that we believe will improve conversion, retention rates, and ultimately drive frequency. We built the platform with the most modern technology within our tech stack. I'm thrilled to share that we are now in a pilot phase testing our platform in restaurants, which positions us for our anticipated launch in Q2 of 2024. We are just scratching the surface on personalization, and we see this as a key part of our strategy for sustaining same-store sales growth. The strength of our AUVs and unit economics are translating into accelerated growth in our development pipeline. The visibility we have into our construction pipeline at this time positions us to deliver on our 2023 guidance of 240 to 250 net new units. which would be a record year for Wingstop. We expect to exit 2023 at our highest level of development agreements ever. Our supply chain strategy is proving to be highly effective, and we have clear line of sight into our food costs for 2024 that lines up with our target of mid 30% range, delivering predictability for our brand partners. Our corporate restaurants are a great example of the impact this strategy is having with margins in the mid-20% range for 2023. At a system AUV of $1.8 million, food costs in the mid-30% range, and based on an initial investment in the mid-$400,000 range, brand partners are seeing an industry-leading payback of less than two years. We've set a target for over 7,000 global restaurants, more than three times our current footprint. And a big part of our growth story is our international business. Not dissimilar from the U.S., our international markets are experiencing double-digit comps driven by transaction growth. They're executing a similar playbook to the U.S. In our U.K. markets, Our first restaurant opened five years ago is hitting record sales volume. New restaurants are opening stronger, including in new markets such as Canada and Korea that are building awareness. We expect our newly signed markets, Netherlands and Puerto Rico, to open within the next two quarters, and our business development pipeline of potential new brand partners is strong. I continue to believe our international business is supercharged for growth. With this incredible growth in our business comes responsibility. A core tenet of our ESG strategy is giving back to the communities in which we serve through Wingstop Charities. I'm proud of what the team has accomplished this past year. Wingstop Charities awarded over $1.3 million in grants so far in 2023, an increase of over more than 400% from the prior year. In the third quarter, Wingstop Charities was able to support a tremendous cause where 100% of contributions made through the Roundup program in the months of August and September going to the No Kid Hungry organization. No Kid Hungry's 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. The contributions provided to No Kid Hungry will provide 3 million meals to our youth. This is just one of the many ways Wingstop Charities is helping support the communities we serve. As I mentioned at the start of the call, I couldn't be more excited about the momentum we have in our brand right now. Wingstop is in a category of one, and our strategies are positioning us well for our next phase of growth. Our highly franchised asset-light model generates strong free cash flow. and allows us to provide what we believe are industry-leading shareholder returns. Since our IPO, we have delivered a total shareholder return in excess of 950%. This past quarter, we announced our inaugural $250 million share repurchase program, which we believe further demonstrates our commitment to enhancing shareholder returns. We have great momentum heading into 2024 with a brand that's on the offense. The underlying health of our brand is the strongest it's been with same store sales being fueled by transaction growth and continued strengthening in our best in class unit economics. I want to thank our team members, brand partners, and supplier partners for their dedication and hard work to deliver these industry leading results. With that, I'd like to turn the call over to Alex.