Wingstop Inc. Reports Fiscal Third Quarter Financial Results

Financial results

DALLAS, Nov. 3, 2021 // PRNewswire // - Wingstop Inc. ("Wingstop" or the "Company") (NASDAQ: WING) today announced financial results for the fiscal third quarter ended September 25, 2021.

• System-wide sales increased 16.7% to $594.3 million

• 49 net new openings in the fiscal third quarter 2021, an increase of 13.1%

• Domestic same-store sales increased 3.9%

• Domestic restaurant AUV of approximately $1.6 million

• Digital sales were 61.6% of sales, comparable to the prior fiscal third quarter

• Total revenue increased 2.8% to $65.8 million, which was impacted by a rebate of $6.9 million of advertising surplus that was returned to franchisees in the third quarter to partially offset the impact of record high wing inflation.

• Net income increased 12.0% to $11.3 million, or $0.38 per diluted share, compared to net income of $10.1 million, or $0.34 per diluted share in the prior fiscal third quarter. Adjusted net income and adjusted earnings per diluted share, both non-GAAP measures, were $8.6 million and $0.29 per diluted share, compared to $9.1 million and $0.31 per diluted share in the prior fiscal third quarter

• Adjusted EBITDA, a non-GAAP measure, increased 16.2% to $21.4 million

Adjusted EBITDA, adjusted net income, and adjusted earnings per diluted share are non-GAAP measures. Reconciliations of adjusted EBITDA, adjusted net income, and adjusted earnings per diluted share to the most directly comparable financial measure presented in accordance with accounting principles generally accepted in the United States ("GAAP") are set forth in the schedule accompanying this release. See "Non-GAAP Financial Measures."

"Despite the macro headwinds all of us are facing, Wingstop continues to outperform. Our focus on our long-term strategy continues to fuel industry leading same-store sales and restaurant development growth for the brand. While chicken prices remain high due to macro inflationary factors including a labor shortage, we were able to achieve another record quarter for new restaurant development with 49 net new restaurants.

We also continued our strong top-line momentum and grew domestic same-store sales by 3.9%, or 29.3% on a two-year basis, which is on pace for our 18th consecutive year of positive same store sales growth for the brand," stated Charlie Morrison, Chairman and Chief Executive Officer of Wingstop.

"Our results underscore the strength and resiliency of our brand and the resolve of our brand partners to stay focused on the long-term despite the difficult operating environment."

Key metrics

Key operating metrics for the fiscal third quarter 2021 compared to the fiscal third quarter 2020:

Total revenue for the fiscal third quarter 2021 increased to $65.8 million from $64.0 million in the fiscal third quarter last year.

Royalty revenue, franchise fees and other increased $4.0 million primarily due to domestic same-store sales growth of 3.9%, as well as 193 net franchise restaurant openings since September 26, 2020.

Advertising fees decreased $4.1 million due to a $6.9 million rebate of advertising surplus that was returned to franchisees during the fiscal third quarter 2021 in an effort to mitigate record high wing price inflation.

This reduction was partially offset by an increase in advertising fees related to domestic system-wide sales growth in the fiscal quarter ended September 25, 2021 compared to the fiscal quarter ended September 26, 2020. Company-owned restaurant sales increased $1.9 million primarily due to the acquisition of three franchised restaurants in the third quarter of 2021 and the opening of three new company-owned restaurants since the prior year comparable period.

Cost of sales increased to $15.2 million from $11.8 million in the fiscal third quarter of the prior year.

As a percentage of company-owned restaurant sales, cost of sales increased to 87.5% from 76.0% in the prior year comparable period.

The increase was primarily due to a 48.9% increase in the cost of bone-in chicken wings as compared to the prior year period, in which we experienced unusually significant deflation in the cost of bone-in chicken wings. Further, a highly competitive labor market resulted in increases in company-owned restaurant wages and hiring and training costs during the fiscal quarter ended September 25, 2021, but were offset by incentive pay provided to team members in response to the COVID-19 pandemic during the prior year comparable period.

Advertising expenses were $16.2 million compared to $20.2 million in the fiscal third quarter of the prior year primarily due to a decrease in advertising fees during the fiscal third quarter 2021. Advertising expenses are recognized at the same time as the related revenue, which does not necessarily correlate to the actual timing of the related advertising spend.

Selling, general & administrative expense ("SG&A") decreased $1.5 million to $15.0 million from $16.

5 million in the fiscal third quarter of the prior year. The change in SG&A expense was primarily due to a decrease of $3.4 million in variable-based compensation expense, inclusive of stock-based compensation expense, and $0.

5 million related to COVID-19 and support provided to international franchisees in the prior year comparable period. These decreases were partially offset by an increase in headcount-related expenses of $1.2 million to support the growth in our business, as well as increased travel expenses.

Interest expense, net was $3.7 million in the fiscal third quarter of 2021, a decrease of $0.7 million, or 15.5%, compared to $4.4 million in the prior fiscal period. The decrease was due to the refinancing of our securitized financing facility on October 30, 2020, which increased our outstanding debt by $162.4 million and reduced our interest rate from 4.97% to 2.84%.

Income tax expense was $5.8 million in the fiscal third quarter of 2021, yielding an effective tax rate of 34.1%, compared to an effective tax rate of (1.9)% in the prior year period. The increase in the effective tax rate was primarily due to the impact of nondeductible expenses for executive compensation, as well as the impact of excess tax benefits associated with stock options exercised in the prior year comparable period.

Financial Outlook

Financial outlook

The Company expects the following for the fiscal year ending December 25, 2021:

• Domestic same store sales growth of 7-8%

• Unit growth of 12%+

• Total cost of sales of approximately 80% to 83%, as a percentage of company owned restaurant sales

• SG&A of $62.2 to 63.2 million; and

• Adjusted SG&A, a non-GAAP measure, of between $52.5 - $53.0 million. A reconciliation of Adjusted SG&A to SG&A, the nearest applicable GAAP measure, is provided below:

Restaurant Development

As of September 25, 2021, there were 1,673 Wingstop restaurants system-wide. This included 1,493 restaurants in the United States, of which 1,461 were franchised restaurants and 32 were company-owned, and 180 franchised restaurants in international markets. During the fiscal third quarter 2021, there were 49 net system-wide Wingstop restaurant openings.

Quarterly Dividend

In recognition of the Company's strong cash flow generation and our commitment to returning value to stockholders, our board of directors authorized and declared a quarterly dividend of $0.17 per share of common stock, resulting in a total dividend of approximately $5.1 million. This dividend will be paid on December 10, 2021 to stockholders of record as of November 19, 2021.

Domestic average unit volume ("AUV") consists of the average annual sales of all restaurants that have been open for a trailing 52-week period or longer. This measure is calculated by dividing sales during the applicable period for all restaurants being measured by the number of restaurants being measured. Domestic AUV includes revenue from both company-owned and franchised restaurants.

Domestic AUV allows management to assess our company-owned and franchised restaurant economics. Changes in domestic AUV are primarily driven by increases in same-store sales and are also influenced by opening new restaurants.

Domestic same-store sales reflect the change in year-over-year sales for the comparable restaurant base. We define the comparable restaurant base to include those restaurants open for at least 52 full weeks. This measure highlights the performance of existing restaurants, while excluding the impact of new restaurant openings and permanent closures.

System-wide sales represents net sales for all of our company-owned and franchised restaurants, as reported by franchisees.

Adjusted EBITDA is defined as net income before interest expense, net, income tax expense (benefit), and depreciation and amortization (EBITDA) further adjusted for losses on debt extinguishment and refinancing transactions, transaction costs, costs and fees associated with investments in our strategic initiatives, gains and losses on the disposal of assets, and stock-based compensation expense. We caution investors that amounts presented in accordance with our definitions of EBITDA and Adjusted EBITDA may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate EBITDA and Adjusted EBITDA in the same manner.

Adjusted net income is defined as net income adjusted for losses on debt extinguishment and refinancing transactions, transaction costs, costs and fees associated with investments in our strategic initiatives, gains and losses on the disposal of assets, and related tax adjustments.

Adjusted net income per diluted share is defined as adjusted net income divided by weighted average diluted share count.

Adjusted SG&A is defined as selling, general and administrative expenses adjusted for losses on debt extinguishment and refinancing transactions, transaction costs, costs and fees associated with investments in our strategic initiatives, and stock-based compensation expense.

The Company will host a conference call today to discuss the fiscal third quarter 2021 financial results at 10:00 AM Eastern Time.