Wingstop (WING) Sales Jump 39% While the Stock Pulls Back in Price

Stock (Symbol)

Wingstop (WING)

Stock Price

$291

Sector

Data is as of

Expected to Report

Company Description

Wingstop Inc. is a fast-casual chicken wings-focused restaurant chain, with over 1,600 locations across the world.

The Company is in the business of franchising and operating Wingstop restaurants. It is primarily a franchisor, with approximately 98% of its restaurants owned and operated by independent franchisees.

It offers classic wings, boneless wings, and tenders, always cooked to order, and hand-sauced-and-tossed in about 11 distinctive flavors.

It offers various order options, including eat-in, to-go, individual, combo meals, and family packs.

It also developed a custom Website and mobile ordering application.

It has approximately 1,461 domestic franchised restaurants and 180 international franchised restaurants.

It owns and operates approximately 32 restaurants. Source: Refinitiv

Sharek’s Take

Wingstop is the largest fast-casual chicken wing-focused restaurant chain in the world. As of December 2023, the company has 2,214 restaurants in operation with 98% of them being franchises. Wingstop grew its restaurants 13% in 2023, and opened 255 new units. Management’s vision is to become a top 10 global restaurant brand, with a goal of 4,000 restaurants in the U.S. and another 3,000 Internationally. Management is determined to become one of the world’s largest restaurant chains and has been spending on International consultants to do it correctly. It recently tapped in two new International markets, namely: France and Australia. The company previously entered the UK, Canada and South Korea.

Here are some company stats as of Fiscal 2023:

• 2,214 Wingstop restaurants worldwide, up 13% from 1,959 in 2022, 1,731 in 2021, 1,538 in 2020, 1,385 in 2019, 1,252 in 2018, and 712 in 2014.
• 288 International franchised stores, up from 238 in 2022.
• Digital sales, which are more margin-efficient, increased to 67% of total sales versus around 63% in 2022.
• 20 consecutive years of same-store sales growth, including: 18% in 2023, 3% in 2022, 8% in 2021, 21% in 2020, 11% in 2019, and 7% in 2018.
• Average Unit Volume (AUV) increased by more than $200,000 to $1.83 million in 2023, up from $1.61 million in 2022, $1.59 million in 2021, $1.5 million in 2020, $1.25 million in 2019, and $1.14 million in 2018.
• Initial investment of $440,000, excluding lease costs and pre-opening expenses, with a cash-on-cash return of approximately 50% in year two of operation.
• Franchisees pay a fee of $20,000 for each restaurant opened, plus 6% of gross sales as a royalty fee and 5% of gross sales for national marketing.

WING stock has a high Estimated Long-Term Growth Rate (Est. LTG) of 34% a year. Investors think that growth opportunity is big as they have given the stock a lofty P/E of 64. Management tries to return 40% of free cash flow to investors via quarterly dividends. WING also pays occasional big one-time dividends and does stock buybacks. WING is part of the Growth Portfolio. The big picture here is that the company has more than 2,400 locations now, with a potential of 7,000 locations long-term.

One Year Chart

This stock is digesting some huge gains. It recently doubled in price within a year (from $200 to $400). I don’t mind the pullback that the stock is having as I would like to add shares to clients’ portfolio.

WING always has a high P/E. This quarter, the P/E is 64, down from 102 last quarter. Note that this quarter, I’m calculating the P/E off of 2025 estimates, and it was on 2024 numbers last quarter. This is the lowest the P/E has been in my quarterly reports since May 2022.

The Est. LTG of 34% seems right.

Quarterly profit growth is always erratic.

Earnings Table

Last quarter, Wingstop delivered 28% profit growth and missed estimates of 36%. Revenue increased 39% year-on-year and beat estimates of 37%.

• Wingstop’s supply chain efficiencies shielded the company from inflationary pressures, maintaining food costs in the mid-30% range of total expenses.
• Digital sales reached 69% of the mix, while the first-party database grew by over 35% year-over-year.
• Wingstop’s international expansion in France and Australia, coupled with its strong domestic operations and partnerships like becoming the NBA’s official chicken partner, boosted revenues and brand awareness.
• These efforts support its long-term strategy to reach a $3 million AUV target and become a top 10 global restaurant brand.

Annual Profit Estimates decreased across the board. This could be due to management’s guide of 20% same-store sales growth in 2024, which implies 10% growth this quarter, which is Q4. For 2024, management expects to open 320 to 330 new stores globally, an increase from the previous estimate of 285 to 300 new stores.

Estimates are 38%, 11%, 19%, and 24% profit growth in the next 4 quarters. Analysts believe that Wingstop’s revenue will grow 30% next quarter.

Fair Value

WING has historically had a high P/E. It is a young company with a huge market to penetrate (especially in Europe).

My Fair Value P/E is 75. The stock currently has a P/E of 79 using 2024 profit estimates. When we look at 2025 estimate, that is 15% upside. 

WING has paid some HUGE one-time dividends. In the past, management issued debt and used part of the proceeds to reward shareholders with big dividends, in 2016, 2018, 2020, and 2022. The last special dividend was $4 a share paid on April 7, 2022.

Bottom Line

Wingstop (WING) has been an excellent investment since it opened for trading in $24 in June 2015. But the stock is prone to big swings in price. The stock just completed a parabolic move and is digesting prior gains.

I like the 64 P/E.

WING moves up from 19th to 17th in the Growth Portfolio Power Rankings. I will look at accounts and perhaps add to my position in the upcoming week.

Power Rankings

17 of 30

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

N/A