Wingstop Inc. Reports Fiscal Third Quarter Financial Results

By: Wingstop Restaurants Inc. | 0 Shares 160 Reads

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.

Highlights for the fiscal third quarter 2021 compared to the fiscal third quarter 2020:

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

	Thirteen Weeks Ended
	September 25, 2021			September 26, 2020
Number of system-wide restaurants open at end of period	1,673			1,479
Number of domestic franchise restaurants open at end of period	1,461			1,277
Number of international franchise restaurants open at end of period	180			171
System-wide sales (in thousands)	$	594,300		$	509,155
Domestic restaurant AUV (in thousands)	$	1,579		$	1,435
Domestic same-store sales growth	3.9		%	25.4		%
Company-owned domestic same store sales growth	(0.2)		%	15.2		%
Net income (in thousands)	$	11,290		$	10,081
Adjusted net income (in thousands)	$	8,579		$	9,144
Adjusted EBITDA (in thousands)	$	21,399		$	18,409

Fiscal third quarter 2021 financial results

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.

Change in Presentation

Beginning in the fiscal first quarter 2021, we have reclassified headcount related expenses that support our national advertising fund to Advertising expenses on the Consolidated Statements of Operations. These expenses were previously presented within SG&A and totaled $2.0 million for each of the thirteen weeks ended September 25, 2021 and September 26, 2020. Prior period amounts have been reclassified to conform to the current presentation. This reclassification had no impact on operating income, the consolidated balance sheets or statements of cash flows.

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:

	2021 Outlook
	Low		High
SG&A, reported	$	62.2	$	63.2
Stock compensation expense	9.7		10.2
Adjusted SG&A ^(a)	$	52.5	$	53.0

^(a)Adjusted SG&A is a non-GAAP measure.

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.

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 (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.

Conference Call and Webcast

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

WINGSTOP INC. AND SUBSIDIARIES Consolidated Balance Sheets (amounts in thousands, except share and per share data)

	September 25, 2021		December 26, 2020
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	50,125	$	40,858
Restricted cash	3,456		4,815
Accounts receivable, net	6,052		4,929
Prepaid expenses and other current assets	4,156		5,532
Advertising fund assets, restricted	25,013		16,486
Total current assets	88,802		72,620
Property and equipment, net	49,151		27,948
Goodwill	56,877		53,690
Trademarks	32,700		32,700
Customer relationships, net	10,626		11,600
Other non-current assets	22,243		13,007
Total assets	$	260,399	$	211,565
Liabilities and stockholders' deficit
Current liabilities
Accounts payable	$	4,382	$	3,658
Other current liabilities	29,914		26,729
Current portion of debt	—		3,600
Advertising fund liabilities	25,013		16,486
Total current liabilities	59,309		50,473
Long-term debt, net	469,084		466,933
Deferred revenues, net of current	27,154		24,962
Deferred income tax liabilities, net	6,475		4,480
Other non-current liabilities	12,509		6,027
Total liabilities	574,531		552,875
Commitments and contingencies
Stockholders' deficit
Common stock, $0.01 par value; 100,000,000 shares authorized; 29,825,763 and 29,687,123 shares issued and outstanding as of September 25, 2021 and December 26, 2020, respectively	299		297
Additional paid-in-capital	1,067		421
Retained deficit	(315,326)		(342,028)
Accumulated other comprehensive loss	(172)		—
Total stockholders' deficit	(314,132)		(341,310)
Total liabilities and stockholders' deficit	$	260,399	$	211,565

WINGSTOP INC. AND SUBSIDIARIES Consolidated Statements of Operations (amounts in thousands, except per share data)

	Thirteen Weeks Ended
	September 25, 2021		September 26, 2020
	(Unaudited)		(Unaudited)
Revenue:
Royalty revenue, franchise fees and other	$	32,829	$	28,806
Advertising fees	15,575		19,653
Company-owned restaurant sales	17,380		15,529
Total revenue	65,784		63,988
Costs and expenses:
Cost of sales ⁽¹⁾	15,206		11,804
Advertising expenses	16,232		20,240
Selling, general and administrative	15,020		16,542
Depreciation and amortization	2,061		2,334
Gain on sale of restaurants and other expenses, net	(3,567)		(1,233)
Total costs and expenses	44,952		49,687
Operating income	20,832		14,301
Interest expense, net	3,724		4,405
Other income	(22)		—
Income before income tax expense	17,130		9,896
Income tax expense (benefit)	5,840		(185)
Net income	$	11,290	$	10,081

Earnings per share
Basic	$	0.38	$	0.34
Diluted	$	0.38	$	0.34

Weighted average shares outstanding
Basic	29,799		29,642
Diluted	29,963		29,854

Dividends per share	$	0.17	$	0.14

⁽¹⁾ Cost of sales includes all operating expenses of company-owned restaurants, including advertising expenses, and excludes depreciation and amortization, which are presented separately.

WINGSTOP INC. AND SUBSIDIARIES Unaudited Supplemental Information Cost of Sales Margin Analysis (amounts in thousands)

	Thirteen Weeks Ended
	September 25, 2021				September 26, 2020
	In dollars		As a % of company- owned restaurant sales		In dollars		As a % of company- owned restaurant sales
Cost of sales:
Food, beverage and packaging costs	$	8,353	48.1	%	$	5,655	36.4	%
Labor costs	4,269		24.6	%	3,944		25.4	%
Other restaurant operating expenses	2,980		17.1	%	2,512		16.2	%
Vendor rebates	(396)		(2.3)	%	(307)		(2.0)	%
Total cost of sales	$	15,206	87.5	%	$	11,804	76.0	%

WINGSTOP INC. AND SUBSIDIARIES Unaudited Supplemental Information Restaurant Count

	Thirteen Weeks Ended
	September 25, 2021	September 26, 2020
Domestic Franchised Activity:
Beginning of period	1,415	1,244
Openings	44	34
Closures	(1)	(1)
Acquired by Company	(3)	(5)
Re-franchised by Company	6	5
Restaurants end of period	1,461	1,277

Domestic Company-Owned Activity:
Beginning of period	34	30
Openings	1	1
Closures	—	—
Acquired by Company	3	5
Re-franchised to franchisees	(6)	(5)
Restaurants end of period	32	31

Total Domestic Restaurants	1,493	1,308

International Franchised Activity:
Beginning of period	175	162
Openings	10	10
Closures	(5)	(1)
Restaurants end of period	180	171

Total System-wide Restaurants	1,673	1,479

WINGSTOP INC. AND SUBSIDIARIES Non-GAAP Financial Measures - EBITDA and Adjusted EBITDA (Unaudited) (amounts in thousands)

	Thirteen Weeks Ended
	September 25, 2021		September 26, 2020
Net income	$	11,290	$	10,081
Interest expense, net	3,724		4,405
Income tax expense (benefit)	5,840		(185)
Depreciation and amortization	2,061		2,334
EBITDA	$	22,915	$	16,635
Additional adjustments:
Gain on disposal of assets, net ^(a)	(3,567)		(1,233)
Stock-based compensation expense ^(b)	2,051		3,007
Adjusted EBITDA	$	21,399	$	18,409


^(a)	Represents a gain resulting from the re-franchise of company-owned restaurants to a franchisee which is included in Gain on sale of restaurants and other expenses, net in the Consolidated Statements of Operations.

^(b)	Includes non-cash, stock-based compensation.

WINGSTOP INC. AND SUBSIDIARIES Non-GAAP Financial Measures - Adjusted Net Income and Adjusted EPS (Unaudited) (amounts in thousands, except per share data)

	Thirteen Weeks Ended
	September 25, 2021		September 26, 2020
Numerator:
Net income	$	11,290	$	10,081
Adjustments:
Gain on disposal of assets, net ^(a)	(3,567)		(1,233)
Tax effect of adjustments ^(b)	856		296
Adjusted net income	$	8,579	$	9,144

Denominator:
Weighted-average shares outstanding - diluted	29,963		29,854

Adjusted earnings per diluted share	$	0.29	$	0.31


^(a)	Represents a gain resulting from the re-franchise of company-owned restaurants to a franchisee which is included in Gain on sale of restaurants and other expenses, net in the Consolidated Statements of Operations.

^(b)	Represents the tax effect of the aforementioned adjustments to reflect corporate income taxes at an assumed effective tax rate of 24% for the periods ended September 25, 2021 and September 26, 2020, which includes provisions for U.S. federal income taxes, and assumes the respective statutory rates for applicable state and local jurisdictions.