Wingstop's (NASDAQ:WING) Q4: Strong Sales
Fast-food chain Wingstop (NASDAQ:WING) reported results ahead of analysts' expectations in Q4 FY2023, with revenue up 21.2% year on year to $127.1 million. It made a non-GAAP profit of $0.64 per share, improving from its profit of $0.60 per share in the same quarter last year.
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Wingstop (WING) Q4 FY2023 Highlights:
Revenue: $127.1 million vs analyst estimates of $120.2 million (5.7% beat)
EPS (non-GAAP): $0.64 vs analyst estimates of $0.57 (12.1% beat)
Gross Margin (GAAP): 48.4%, in line with the same quarter last year
Same-Store Sales were up 21.2% year on year
Store Locations: 2,214 at quarter end, increasing by 255 over the last 12 months
Market Capitalization: $9.54 billion
"2023 marked the strongest year on record for Wingstop where we achieved 18.3% domestic same store sales growth, driven primarily by transactions, and we delivered an unprecedented 20 consecutive years of domestic same store sales growth," said Michael Skipworth, President and Chief Executive Officer.
The passion project of two chicken wing aficionados in Texas, Wingstop (NASDAQ:WING) is a popular fast-food chain known for its flavorful and crispy chicken wings offered in a variety of sauces and seasonings.
Modern Fast Food
Modern fast food is a relatively newer category representing a middle ground between traditional fast food and sit-down restaurants. These establishments feature an expanded menu selection priced above traditional fast food options, often incorporating fresher and cleaner ingredients to serve customers prioritizing quality. These eateries are capitalizing on the perception that your drive-through burger and fries joint is detrimental to your health because of inferior ingredients.
Sales Growth
Wingstop is a small restaurant chain, which sometimes brings disadvantages compared to larger competitors benefitting from better brand awareness and economies of scale. On the other hand, one advantage is that its growth rates can be higher because it's growing off a small base.
As you can see below, the company's annualized revenue growth rate of 23.5% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was incredible as it added more dining locations and increased sales at existing, established restaurants.
This quarter, Wingstop reported remarkable year-on-year revenue growth of 21.2%, and its $127.1 million in revenue topped Wall Street's estimates by 5.7%. Looking ahead, Wall Street expects sales to grow 14.6% over the next 12 months, a deceleration from this quarter.
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Same-Store Sales
Same-store sales growth is a key performance indicator used to measure organic growth and demand for restaurants.
Wingstop's demand has outpaced the broader restaurant sector over the last eight quarters. On average, the company has grown its same-store sales by a robust 10.9% year on year. This performance gives it the confidence to rapidly open new restaurants. When a company has strong demand, more locations should help it reach more customers seeking its meals and boost revenue growth.
In the latest quarter, Wingstop's same-store sales rose 21.2% year on year. This growth was an acceleration from the 8.7% year-on-year increase it posted 12 months ago, which is always an encouraging sign.
Key Takeaways from Wingstop's Q4 Results
We were impressed by how significantly Wingstop blew past analysts' gross margin expectations this quarter. We were also excited its revenue, EBITDA, and EPS topped Wall Street's estimates, driven by 21% same-store sales growth (estimates of 15%), 24.5% system-wide sales growth (estimates of 17.9%), and 115 net new restaurant openings (estimates of 105). What's even more impressive is that Wingstop was able to achieve this growth while generating profits, highlighting the attractive unit economics of its scalable franchise model. In its press release, management shared that it sees a path to over 7,000 restaurants (up from 2,214 today).
Looking ahead, Wingstop expects to add 270 new restaurants in 2024 (it added 255 in 2023) while generating same-store sales in the mid-single digit range, a slowdown from the 18.3% growth it posted for the full-year 2023.
Zooming out, we think this was an impressive quarter that should delight shareholders. With the stock trading at such an expensive valuation and guidance suggesting a slowdown in same-store sales growth, however, investors were likely expecting more. The stock is down 4.6% after reporting, trading at $309.78 per share.
So should you invest in Wingstop right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
