Wingstop Inc. Reports Fiscal Fourth Quarter and Full Year 2020 Financial Results

Fourth quarter results

DALLAS, Feb. 17, 2021 // PRNewswire // - Wingstop Inc. ("Wingstop" or the "Company") (NASDAQ: WING) today announced financial results for the fiscal fourth quarter and fiscal year ended December 26, 2020.

Highlights for the fiscal fourth quarter 2020 compared to the fiscal fourth quarter 2019:

• System-wide sales increased 26.5% to $502.5 million

• 59 net new openings in the fiscal fourth quarter 2020

• Domestic same-store sales increased 18.2%

• Domestic restaurant AUV increased to approximately $1.49 million, compared to $1.25 million in the prior fiscal fourth quarter

• Digital sales increased to 62.5% of sales, compared to 38.2% in the prior fiscal fourth quarter

• Total revenue increased 19.0% to $63.3 million

• As a result of the $13.7 million of expenses associated with the refinancing of our debt and payment of special dividend, net loss was $6.4 million, or loss of $0.21 per diluted share, compared to net income of $3.0 million, or $0.10 per diluted share, in the prior fiscal fourth quarter. Adjusted net income* and adjusted diluted earnings per share*, both non-GAAP measures, were $5.3 million and $0.18 per diluted share, compared to $4.3 million and $0.14 per diluted share in the prior fiscal fourth quarter

• Adjusted EBITDA*, a non-GAAP measure, increased 14.7% to $16.2 million

Full year results

Highlights for the fiscal year 2020 compared to the fiscal year 2019:

• System-wide restaurant count increased 11.0% to 1,538 worldwide locations with 153 net openings

• System-wide sales increased 28.8% to $2.0 billion

• Domestic same-store sales increased 21.4%, marking the 17th consecutive year of same store sales growth

• Total revenue increased 24.6% to $248.8 million

• Net income increased to $23.3 million, or $0.78 per diluted share, compared to $20.5 million, or $0.69 per diluted share, in the prior fiscal year. Adjusted net income* and adjusted diluted earnings per share*, both non-GAAP measures, were $32.5 million and $1.09 per diluted share, compared to $21.7 million and $0.73 per diluted share in the prior fiscal year

• Adjusted EBITDA*, a non-GAAP measure, increased 26.1% to $71.9 million

** Adjusted EBITDA, adjusted net income, and adjusted diluted earnings per 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."*

"I am extremely proud of the tremendous efforts of our brand partners, supplier partners, and thousands of team members in the face of unprecedented circumstances to deliver our industry leading 17th consecutive year of positive same-store sales growth in 2020. The domestic same-store sales growth of 21.4% drove our domestic average unit volumes to almost $1.

5 million, advancing our best-in-class unit economics. We opened 153 net new restaurants in 2020, and as we enter into 2021, our pipeline of domestic restaurant commitments exceeds 700, up from 610 in the prior year," commented Charlie Morrison, Chairman and Chief Executive Officer of Wingstop. "2020 further proved the resiliency of our model and we're truly humbled by our results.

We remain focused on our strategic long-term growth drivers and driving shareholder value as we work toward our vision of becoming a top 10 global restaurant brand."

Key operating metrics for the fiscal fourth quarter 2020 compared to the fiscal fourth quarter 2019

Fiscal fourth quarter 2020 financial results

Total revenue for the fiscal fourth quarter 2020 increased to $63.3 million from $53.2 million in the fiscal fourth quarter last year.

• Royalty revenue, franchise fees and other increased $4.1 million to $28.0 million from $23.9 million in the fiscal fourth quarter of the prior year. The increase was primarily due to domestic same-store sales growth of 18.2% as well as 152 net franchise restaurant openings since December 28, 2019, partially offset by a decrease in contributions received for our franchisee convention, which occurred in the fourth quarter of 2019. There was no franchisee convention held in fiscal year 2020.

• Advertising fees increased $4.2 million to $19.3 million from $15.2 million in the fiscal fourth quarter of the prior year. The increase was primarily due to domestic system-wide sales growth in the fiscal quarter ended December 26, 2020 compared to the fiscal quarter ended December 28, 2019.

• Company-owned restaurant sales increased $1.8 million to $15.9 million from $14.1 million in the fiscal fourth quarter of the prior year. The increase was due to company-owned same-store sales growth of 10.4%, which was primarily driven by an increase in transaction size, as well as an increase in the number of company-owned restaurants. Since the beginning of the prior fiscal year period, we acquired six company-owned restaurants from franchisees, opened three new company-owned restaurants, and refranchised seven company-owned restaurants to franchisees.

Cost of sales increased to $12.2 million from $10.5 million in the fiscal fourth quarter of the prior year. As a percentage of company-owned restaurant sales, cost of sales increased to 76.7% from 74.2% in the prior year comparable period. The increase was primarily due to a 17.7% increase in the cost of bone-in chicken wings as compared to the prior year period. This increase was partially offset by sales leverage achieved as a result of the increase in company-owned same-store sales of 10.4%.

Advertising expenses were $17.6 million compared to $14.5 million in the fiscal fourth quarter of the prior year primarily due to domestic system-wide sales growth. 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") increased $3.1 million to $21.0 million from $17.

8 million in the fiscal fourth quarter of the prior year. The increase in SG&A expense was primarily due to $1.4 million in higher professional fees primarily related to investments in technology, $1.

3 million of expenses related to COVID-19 and support provided to international franchisees, $1.1 million in higher variable-based compensation expense, and approximately $1.0 million in headcount related expenses to support the growth in our business.

These increases were partially offset by a decrease of $1.8 million related to the franchisee convention held in the fourth quarter of 2019. There was no franchisee convention held in fiscal year 2020.

Interest expense, net was $4.0 million in the fiscal fourth quarter of 2020, a decrease of $0.2 million, or 4.0%, compared to $4.2 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%.

Loss on debt extinguishment and refinancing transactions was $13.7 million in the fiscal fourth quarter of 2020 due to costs and fees associated with the refinancing of our securitized financing facility during the fiscal fourth quarter of 2020.

Net loss was $6.4 million, or $0.21 per diluted share, compared to net income of $3.0 million, or $0.10 per diluted share, in the fiscal fourth quarter of the prior year.

Adjusted net income was $5.3 million, or $0.18 per diluted share, compared to $4.3 million, or $0.14 per diluted share, in the prior year period. Reconciliations between net income and adjusted net income and between earnings per diluted share and adjusted earnings per diluted share are included in the accompanying financial schedules.

Key operating metrics for the fiscal year 2020 compared to the fiscal year 2019

Fiscal year 2020 financial results

Total revenue for fiscal year 2020 increased 24.6% to $248.8 million from $199.7 million in the prior fiscal year. The increase was primarily due to increases in royalty revenue and advertising fees resulting from 152 net franchise restaurant openings since December 28, 2019 and domestic same-store sales growth of 21.4%.

Company-owned restaurant sales increased $9.5 million to $65.0 million from $55.5 million in the prior fiscal year. The increase was primarily due an increase in company-owned same-store sales of 14.2%, which was driven by both an increase in transaction size and transactions.

Net income was $23.3 million, or $0.78 per diluted share, compared to net income of $20.5 million, or $0.69 per diluted share in the prior fiscal year.

Adjusted net income was $32.5 million, or $1.09 per diluted share, compared to $21.

7 million, or $0.73 per diluted share, in the prior fiscal year. The increase in adjusted net income is primarily driven by the increases in total revenues and a lower effective tax rate due to excess tax benefits associated with stock options exercised in fiscal year 2020.

The increases in revenue were offset by increased expenses related to national advertising and additional SG&A expenses primarily related to increased headcount-related expenses to support the growth in our business and higher variable performance-based compensation expense. Reconciliations between net income and adjusted net income and earnings per diluted share and adjusted earnings per diluted share are included in the accompanying financial schedules.

Financial outlook

Financial Outlook

The Company is reaffirming its three- to five-year outlook, consisting of the following:

• 10%+ system-wide annual unit growth

• Mid-single digit domestic same store sales growth

Additionally, the Company expects SG&A for fiscal year 2021 of between $76.0 - $78.5 million, and Adjusted SG&A, a non-GAAP measure, of between $55.1 - $56.6 million.

A reconciliation of Adjusted SG&A to SG&A, the nearest applicable GAAP measure, is provided below:

Restaurant Development

As of December 26, 2020, there were 1,538 Wingstop restaurants system-wide. This included 1,359 restaurants in the United States, of which 1,327 were franchised restaurants and 32 were company-owned, and 179 franchised restaurants in international markets. There were 59 net system-wide Wingstop restaurant openings during the fiscal fourth quarter 2020, and 153 net system-wide restaurants were opened during the fiscal year ended December 26, 2020.

Quarterly Dividend

In recognition of the Company's strong cash flow generation, confidence in the business, and commitment to returning value to stockholders, our board of directors authorized and declared a quarterly dividend of $0.14 per share of common stock, resulting in a total dividend of approximately $4.2 million. This dividend will be paid on March 26, 2021 to stockholders of record as of March 5, 2021.

The following definitions apply to these terms as used in this release:

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, 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, costs and fees associated with investments in our strategic initiatives, gains and losses on the disposal of assets, and related tax adjustments.

Adjusted earnings 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. Additionally, SG&A is further adjusted for items which have offsetting contributions that are included in revenue, such as convention costs and expenses associated with national advertising.

Chairman and Chief Executive Officer, Charlie Morrison, and Chief Financial Officer, Michael Skipworth, will host a conference call today to discuss the fiscal fourth quarter 2020 financial results at 10:00 AM Eastern Time.

The conference call will also be webcast live and later archived on the investor relations section of Wingstop's corporate website under the 'News & Events' section.

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use non-GAAP financial measures, including those indicated above. By providing non-GAAP financial measures, together with a reconciliation to the most comparable GAAP measure, we believe we are enhancing investors' understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. These measures are not intended to be considered in isolation or as substitutes for, or superior to, financial measures prepared and presented in accordance with GAAP.

The non-GAAP measures used in this press release may be different from the measures used by other companies. A reconciliation of each measure to the most directly comparable GAAP measure is available in this news release. In addition, the Current Report on Form 8-K furnished to the SEC concurrent with the issuance of this press release includes a more detailed description of each of these non-GAAP financial measures, together with a discussion of the usefulness and purpose of such measures.

Certain statements contained in this news release, as well as other information provided from time to time by Wingstop Inc. or its employees, may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts.

These statements may include words such as "guidance," "anticipate," "estimate," "expect," "forecast," "outlook," "target," "project," "plan," "intend," "believe," "confident," "may," "should," "can," "have," "will," "likely," "future" and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. Examples of forward-looking statements in this news release include our 2021 fiscal year outlook for system-wide unit growth, domestic same store sales growth, SG&A expenses, Adjusted SG&A and statements regarding our progress toward our goal of becoming a top 10 global restaurant brand. Any such forward-looking statements are not guarantees of performance or results and involve risks, uncertainties (some of which are beyond the Company's control), and assumptions.

Although we believe any forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results and cause them to differ materially from those anticipated in any forward-looking statements.

Any forward-looking statement made by Wingstop Inc. in this press release speaks only as of the date on which it is made. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.