Wingstop (WING) earnings preview: Soaring growth potential?

Wingstop Restaurants Inc. (NASDAQ: WING), known for its popular chicken wings and fast-casual dining experience, is set to release its Q2 earnings on July 26th. Analysts eagerly await the company's performance following a series of impressive quarters.

With the stock already up 46% year-to-date, maintaining its growth trajectory will be crucial as it reports against expectations of $0.83 in EPS and $146.04 million in revenue.

Q1 2023 Earnings Recap: A Taste of Success

Wingstop's Q1 success was highlighted by a 21.6% surge in domestic same-store sales, primarily driven by transaction growth.

The company's focus on brand awareness paid off, with advertising expenses increasing by 0.4% YoY to $53.2 million, contributing to the brand's growing popularity. A significant driver of this growth was the rapid expansion of its digital presence, with digital sales accounting for a record 68.3% of system-wide sales.

The digital database expanded to over 40 million users, and Q1 saw a record high in new guest acquisition.

Expanding Footprint: New Restaurants Fueling Growth

Wingstop's aggressive expansion strategy has been a major factor in its success. In Q1, the company opened 65 net new restaurants, a 14% growth rate.

The guidance for 2024 was raised, targeting 275-295 net new restaurants, indicating a commitment to higher than the previously stated 10%+ long-term unit growth rate.

Managing Expectations: FY24 Outlook

As Wingstop prepares to update its fiscal year 2024 guidance, analysts will watch for any adjustments to the low double-digit same-store sales growth, SG&A expense projections, and the revised global net new unit targets.

Wingstop's track record of consistently outperforming expectations in the past seven quarters raises the bar for its upcoming earnings report.

The Bull Case: Can the Growth Fly Higher?

Despite a recent cooling off in July, Wingstop's strong fundamentals and strategic growth initiatives suggest that the company has the potential to continue its upward trajectory.

As it focuses on digital transformation, increasing brand recognition, and aggressive restaurant openings, investors will be keen to see if these efforts translate into another quarter of robust financials.

However, the Bear Argument: Maintaining Momentum

To maintain its growth, Wingstop will need to address potential headwinds such as increased competition in the fast-casual segment, supply chain challenges, and potential labor constraints.

The company must also ensure that its expansion efforts do not compromise quality control or customer experience, which could be key differentiators in the crowded market.

Conclusion

Tomorrow's earnings report will be a crucial test for Wingstop's ability to maintain its momentum. With a strong Q1 performance and a commitment to growth through digital transformation and new restaurant openings, the company has the ingredients for continued success.

Investors should closely monitor the guidance provided and any insights shared during the earnings call to gauge the stock's potential for further gains. As the dust settles, the market will assess whether Wingstop can continue to fly high in its quest for dominance in the wings industry.