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Wingstop (WING) posts solid quarter; Shares down 4%, highlighting the "sell-the-news" mentality around earnings

Jay's InsightWednesday, Feb 21, 2024 10:09 am ET
2min read

Wingstop, a leading international chain of restaurants, reported its Q4 earnings for the fiscal year 2023, which exceeded expectations. The company's strong performance was driven by an increase in system-wide sales, net new openings, and domestic same-store sales. 

Shares of WING are down 4% in reaction to the news. The stock had rallied 22% in 2024 and 11% over the past month so the move suggests more of a sell-the-news" reaction moreso than disappointment with the results. 

Total revenue for the fiscal fourth quarter of 2023 increased to $127.1 million from $104.9 million in the same period last year. The top line outpaced street expectations of $120 million. This growth was primarily due to an increase in royalty revenue, franchise fees, and other revenue, driven by domestic same-store sales growth of 21.2% and net new franchise development.

WING reported Q1 earnings of $0.64 per share, seven cents better than analyst expectations. 

System-wide sales increased by 24.5% to $965.9 million, while net new openings in the fiscal fourth quarter of 2023 stood at 115. Domestic same-store sales increased by 21.2%, and domestic restaurant AUV increased to $1.8 million. The company's digital sales also increased to 67.0% of system-wide sales. 

The company's advertising fees also increased by $7.8 million, primarily due to a 24.5% increase in system -wide sales in the fiscal fourth quarter of 2023. Company-owned restaurant sales increased by $3.8 million, primarily due to an increase in the number of company-owned restaurants and a 10.8% increase in company-owned domestic same-store sales growth driven primarily by transactions. 

The cost of sales was $19.7 million, compared to $17.1 million in the fiscal fourth quarter of the prior year. As a percentage of company-owned restaurant sales, cost of sales decreased to 75.1% from 76.4% in the prior year comparable period. This decrease was primarily due to sales leverage on labor and operating expenses that benefited from a 10.8% increase in company-owned same-store sales compared to the prior fiscal fourth quarter. 

Selling, general & administrative (SG&A) increased by $9.7 million to $28.1 million from $18.3 million in the fiscal fourth quarter of the prior year. The prior fiscal year was impacted by the benefit of $1.3 million in forfeited stock awards, offset by additional expenses of approximately $1.0 million related to the 53rd week. The increase in SG&A expense was driven by an increase in professional fees of $2.9 million associated with the Company's strategic initiatives, an increase in incentive compensation and performance-based stock compensation expense of $2.7 million primarily related to the Company's current fiscal year performance, and an increase in headcount-related expenses of $1.7 million to support the growth in the business. 

The company expects mid-single-digit domestic same-store sales growth and approximately 270 global net new units in FY24. SG&A is expected to be approximately $108 million, with stock-based compensation expense of approximately $19 million, and depreciation and amortization of between $18 - $19 million.

In conclusion, Wingstop's Q4 earnings report for the fiscal year 2023 was strong,driven by an increase in system-wide sales, net new openings, and domestic same-store sales. The company's strong performance is a testament to its ability to execute its strategic initiatives and deliver value to its shareholders. With its expectations for mid-single -digit domestic same-store sales growth and approximately 270 global net new units in FY24, the company is well-positioned to continue its growth trajectory in the coming year.

$WING(WING)

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