WING - NASDAQ

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Wingstop Inc. Fiscal First Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note that, today's event is being recorded today Wednesday May 3, 2023. On the call today are Michael Skipworth, President and Chief Executive Officer; and Alex Kaleida, Vice President and Chief Investment Officer. At this time I would like to introduce Mr. Kaleida to begin the presentation. Thank you.

Thank you, and welcome to the Fiscal First Quarter 2023 Earnings Conference Call for Wingstop. Our results were published earlier this morning and are available on our Investor Relations website at ir.wingstop.com. Our discussion today includes forward-looking statements. These statements are not guarantees of future performance and are subject to numerous risks and uncertainties that could cause our actual results to differ materially, from what we currently expect. Our SEC filings describe various risks that could affect our future operating results and financial condition. We use certain non-GAAP financial measures that we believe can be useful in evaluating our performance. Presentation of such information should not be considered in isolation, or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are contained in our earnings release. Lastly, for the Q&A session, we ask that you please each keep to one question and a follow-up to allow as many participants as possible to ask a question. With that I would like to turn the call over to Michael.

Good morning, and thank you for joining our call. The momentum we saw in our business in the back half of 2022 has continued into 2023, and given us a strong start to the year. While we continue to execute against several multiyear sales drivers, our strong start to 2023 speaks to the resiliency of the Wingstop brand and the staying power of our strategies. This gives us confidence in our ability to deliver another year of industry-leading results. At the foundation of our strategies is people, and I couldn't be prouder of our team and brand partners who are fueling our path to becoming a top 10 global restaurant brand. In the first quarter, we delivered 20.1% same-store sales growth. Substantially, all of our comp was driven by transaction growth a true demonstration of the underlying strength of the Wingstop brand. Within our sales growth we saw further expansion in our digital channels achieving a record 65% digital sales mix for the quarter. We opened 37 net new units during the quarter representing a unit growth rate of 11.4%. Global system-wide sales grew by 30% and we are now approaching $3 billion in system sales. Adjusted EBITDA was $34.6 million, an increase of 60% versus the prior year. This strength in transaction growth fueling our same-store sales is driven by multiyear sales drivers we have been executing against and we believe provides us clear line of sight to growing AUVs north of $2 million. These strategic growth levers consist of building brand awareness menu innovation, expanding our delivery channel digital transformation and data-driven marketing. In just the last three years alone, our AUV has grown by nearly $400,000 and is now approaching $1.7 million. But we believe, the growth levers we are executing against will continue to increase AUVs and a huge opportunity within our strategies is to scale brand awareness. Our advertising fund continues to grow at a rate similar to our system sales, which increased 30% in Q1 giving us the fuel to continue making progress against the gap in brand awareness to other national brands. In the first quarter, the ad fund was further bolstered by the conversion of the 1% local advertising requirement, to national advertising that became effective at the beginning of Q2 last year. The growth in our ad spend has allowed us to increase our presence in social streaming and digital channels, and to be a big buyer in media, to include more premium properties such as the NFL and NBA. 2023 will mark our first full year, deploying an always-on message, which will keep Wingstop top of mind with consumers throughout the entire year, a strategy we implemented in the back half of 2022 and one that we believe is working. We are making great progress on closing our gap in awareness to other national brands, but there remains a significant opportunity ahead, as we look to, deliver our 20th consecutive year of same-store sales growth and sustain same-store sales growth over the long term. We recently announced the appointment of our new creative agency, 72andSunny, currently the lead agency for the NFL and many other great brands. We feel 72andSunny can propel the Wingstop brand, into our next phase of growth and help make Wingstop, a household name. We're excited about their proven talent and what's in store for our creative, later this year. A new creative campaign will further support the growth levers, we are actioning against. In fact, we can slightly see new creative that focuses on one of our recent menu innovations like chicken sandwich, which was introduced in August of 2022. Not only did we launch one chicken sandwich, we launched 12 chicken sandwiches that showcase our unique flavor profiles to both new and existing guests. This has proven to be a powerful enabler for building awareness, increasing frequency and winning new occasions. Chicken sandwich gives us an opportunity to deliver our Wingstop flavor, in a category that has upwards of 2.8 billion servings annually, an opportunity we are just scratching the surface. Not only is chicken sandwich a growth lever, it also advances our supply chain strategy in a meaningful way where we see a path to 50% plus boneless mix, which we believe could result in a structural change to our long-term food costs, yielding COGS in the low 30% range and would further enhance our already best-in-class unit economics. We also drive innovation through flavor. During the first quarter, we brought back a new fan-favorite flavor Hot Honey Rub, which has been our highest mixing flavor LTO on record. Flavor LTOs are a proven tactic in our toolkit, to drive relevance and repeat occasions with our core as well as bring in new guests to the brand, and we have a pantry full of consumer-tested flavor options with tremendous potential that we can lean into for future LTOs. Another contributor to our AUV growth is, the delivery channel. And in our case, this channel has not shown any signs of slowing down. The launch of Wingstop on Uber Eats platform in July of last year, combined with continued growth on DoorDash's platform, provides us with an additional base of consumers to build awareness and capture new occasions. We have seen growth in all channels, but expansion in our delivery channels showcases the opportunity we believe we have to continue to scale this channel long-term and drive further AUV growth. We hit a record digital sales mix in Q1 surpassing 65% and our first-party database continues to grow now at an incredible 35 million. This database feeds our marketing engine allowing us to drive improvement in retention rates increased frequency and win new occasions. Even with our early success in leveraging first-party data to drive our business, it remains a significant opportunity for Wingstop to further impact retention and frequency. As we continue to lean into innovation and pursue our aspirational goal of digitizing every transaction, we are excited about early results from a test we just completed around AI-enabled phone orders. We are expanding this test to where we convert phone orders would still represent about 10% of our sales today into digital orders through AI voice ordering technology. The early results are promising as we see an improvement in the team member experience order time, guest satisfaction and an increase in ticket size with the ability to capture this guest digitally. This also allows team members to focus on taking care of our guests that is picking up their order in the restaurant. The transaction growth fueling 20% same-store sales in Q1 is bringing a lot of new guests into the brand winning new occasions with these guests and moving them up the frequency curve, which is a powerful unlock for continued AUV growth. And we know how important it is to provide a great guest experience. A key to that is operating with excellence something we have been extremely focused on. We are encouraged by the progress our restaurants are making to deliver a best-in-class guest experience and the results back it up, but we know there continues to be opportunity to further enhance the guest experience that we know will contribute to further top line growth. The multiyear sales levers we are executing against give us confidence in our goal to drive AUVs above $2 million. But even at our current AUVs of almost $1.7 million and an initial investment in the mid-$400,000 range we are generating best-in-class returns for our brand partners. A good proxy for our system is our company-owned restaurants, which in Q1 we saw our unit economics strengthen to margins of 27.6%. We're not resting on our laurels and remain committed to executing our supply chain strategy to become less reliant on the historically volatile spot price for wings and delivering more predictable food cost for our brand partners. The combination of our size and scale combined with our strategy has enabled a fundamental change in how we go to market from a supply chain standpoint and is allowing us to make great progress towards moving more of our buy away from the spot market to longer-term pricing arrangements. Our brand partners are excited by our progress and the strength in our business and this is translating into significant growth in our development pipeline setting the backdrop for another strong development year in 2023. Based on the strength of our pipeline and the visibility we have today into approved sites and stages in our construction pipeline we are reiterating our guidance for 2023 of approximately 240 net new restaurants, which would be another record year for Wingstop. As we exited 2022, a year where we surpassed more than 200 net new restaurants for the first time, we have an energized base of brand partners that are ready and willing to acquire and develop more territory. In fact, as of the end of the first quarter, we now have a record global development pipeline that's approaching 1,200 restaurant commitments. We also are seeing a record number of approved sites through the start of the year which supports our outlook for openings in 2023. This strength in momentum and development helped us hit an exciting milestone for the brand opening our 2000th restaurant this past month. Truly exciting times for Wingstop with an accelerated pace of development and the incredible opportunity we have in front of us to scale to more than 7,000 global restaurants. We're making great progress in our international markets where we see an opportunity to open more than 3,000 restaurants. Our U.K. market which serves as a playbook for future market launches continues to expand AUVs past $2 million, while unit economics are at levels comparable to our domestic business. Our Canada market launched in June last year, and we're thrilled by the consumer response. We opened the first Wingstop in Korea, during Q1. And most recently, we signed a 30-restaurant commitment to bring our flavor to Puerto Rico, another example of the strength of our business development pipeline. This week Raj Kapoor, new Head of International joined my leadership team. Raj is a tremendous business leader and I'm thrilled to have the opportunity to partner with him as we scale Wingstop globally. He brings a wealth of experience and an eagerness to shepherd our international business into our next phase of growth. Wingstop is well positioned for another industry-leading year. I'm excited by our start to 2023 and our sights clearly set on the 20th consecutive year of same-store sales growth. With a strong start to the year, we are raising our full year 2023 outlook to high-single-digit same-store sales growth, from our prior guidance of mid-single digits. Our brand partners are seeing some of the strongest unit economics in our history. We believe these positions us to deliver upon our target of approximately 240 net new units. Wingstop is well positioned as an asset-light high-growth brand, supported by best-in-class unit economics with unique sustaining same-store sales growth drivers in an industry-leading pace of restaurant development. We believe, this really highlights the opportunity we have in front of us here at Wingstop, and positions us well to deliver best-in-class shareholder returns. Before I hand it off to Alex, I want to thank our brand partners, our team members in the restaurant and the team members at the Global Support Center for all their incredible work and commitment. With that, I'll -- I'd like to turn the call over to Alex.

Thank you, Michael. As you just heard from Michael, the first quarter demonstrated the strength of our long-term strategies. We delivered 30.4% growth in system-wide sales in the first quarter, which now totals $2.9 billion on a trailing 12-month basis. Total revenue increased to $108.7 million from $76.2 million in the prior year fiscal first quarter. Royalty revenues, franchise fees and other revenue increased by $13.1 million in Q1, driven primarily by 199 net franchise openings since the prior year comparable period and a 20.1% increase in domestic same-store sales. The transaction growth we experienced in the second half of the prior year continued, and the majority of our first quarter comp was driven by transaction growth. Company-owned restaurant sales totaled $23.1 million in Q1, an increase of $4.5 million primarily due to a 10.3% increase in company-owned same-store sales driven entirely by transaction growth and six net new restaurants versus the prior year comparable period. Cost of sales as a percentage of company-owned restaurant sales improved by more than 1,100 basis points compared to the prior year mainly driven by a 1000-basis-point reduction in food beverage and packaging costs. We are pleased to see this continued improvement in restaurant margins, which for the first quarter benefited from a 53% decrease in the cost of bone-in chicken wings. With our supply chain strategy and based on what we know today with leading indicators for our core commodities, we believe we have line of sight to a predictable food costs for 2023 in the low 30% range. As a result, we anticipate company-owned restaurant cost of sales to be approximately 75%. Combined with this deflation in our core commodity, our supply chain strategy to reduce the volatility in our food cost is paying dividends, and is generating quite a bit of excitement among our brand partners as unit economics have strengthened to near record levels. In the first quarter, SG&A increased by $5.6 million versus the prior year comparable period to a total of $23.6 million driven by investments in strategic projects to support the long-term growth of the business, and an increase in performance-based stock compensation and incentive compensation as a result of the business' performance. We will continue to make investments in strategic areas of our business, such as in technology, development and international to allow us to sustain these industry-leading results. Adjusted EBITDA a non-GAAP measure was $34.6 million during the quarter, an increase of 60% versus the prior year. Adjusting for non-recurring items, we delivered adjusted earnings per diluted share a non-GAAP measure of $0.59, an 80% increase versus the prior year. Our highly franchised asset-light model continues to deliver strong free cash flows. As of the end of the first quarter, we had $513.3 million in net debt. Our net debt to trailing 12-month adjusted EBITDA was at 4.3 times, which is a 0.5 times lower than at the end of the fourth quarter underscoring our ability to quickly delever through a combination of adjusted EBITDA growth and a strong free cash flow generation. We are maintaining a strong cash balance that stands at over $200 million, and it allows us to be opportunistic as we navigate any uncertainty in the macro backdrop in the back half of this year. We will also continue to explore opportunities with this cash to maximize shareholder returns. We remain committed to driving shareholder value and returning capital to shareholders through our regular quarterly dividend. Today, we announced a dividend of $0.19 per share of common stock a demonstration of the strength of our model. This dividend totaling approximately $5.7 million will be paid on June 9, 2023 to stockholders of record as of May 19 2023. Now, shifting to our outlook for 2023. With the strong start to the year, we have increased our outlook to high-single-digit same-store sales growth for 2023 from mid-single-digit same-store sales. Based on the visibility we have in our pipeline at this point in the year, we are reiterating our development outlook of approximately 240 net new units, translating to a unit growth rate of more than 12% versus the prior year. We also anticipate our pace of openings to be weighted more towards the second half. SG&A guidance is estimated to be between $85.5 million and $87.5 million, including $2.8 million in consulting projects to support our strategic initiatives and an estimated $12 million to $13 million of stock-based compensation expense. We are excited by the momentum in our business, the underlying health of the Wingstop brand and the opportunity that lies ahead for 2023 and beyond. Our growth strategy is a unique part of the story for Wingstop, have staying power and give us the confidence in delivering our outlook for 2023. With that, I'd like to now turn to Q&A. Operator, please open the line for questions.

Yes. Thank you. At this time, we will begin the question-and-answer session. [Operator Instructions] And the first question comes from David Tarantino with Baird.

Hi. Good morning and congratulations on such a strong start to the year. My question is related to the strength you're seeing in the domestic comps or AUVs. I guess, the way we look at it on a seasonal basis, it looked like you had a pretty strong surge in volumes relative to normal seasonality. And I was wondering, Michael, if you could maybe talk about the factors that drove that step up from the last quarter? And whether you think those are structural or whether you think there was some temporary benefit in the first quarter? And then I have a follow-up.

Hi, David. Good morning. Yes. I think we mentioned this on our last call, how we did acknowledge that we saw the comp momentum build as we progress through Q4 and that continued into Q1 this year giving us a really strong start to the year as you mentioned. And we really believe, it is structural, not a seasonal change in our business in that these growth levers that we're executing against putting us in a pretty unique spot to have so many different levers that are not only continuing to drive repeat visit with our core consumers, we're bringing a lot of guests into the brand, whether that's through just expanding brand awareness through the growth in our national ad fund or expansion in the delivery channel or winning occasions with chicken sandwich, just to name a few that we've been executing against. And so we saw that momentum build as we progressed through the quarter. And obviously, as we think about the rest of this year and kind of how it's going to shape up, everyone is trying to get their arms around the back half of the year the consumer. But we feel pretty confident in the strategies that we're executing against and in our ability to deliver on our outlook which would result in the 20th consecutive year of same-store sales growth.

Great. Thank you. Michael I did want to ask about the guidance. I guess the guidance assumes your comps moderate pretty significantly and maybe even your seasonally adjusted volumes moderate pretty significantly from what you just reported for Q1. So, I guess first question is are you already seeing that, or are you seeing something, or is this just maybe a bit of conservatism as you think about the second half of the year?

Yes David I think it's probably more of the latter. Obviously there's still a fair amount of uncertainty with the macro environment the consumer recession. Everyone is trying to really understand what's going to happen later today with the Fed as an example. And so we're all trying to get our arms around exactly what that means to the overall consumer. That said, and I mentioned it just a second ago we feel like, we're in a pretty unique spot as a brand to be able to raise our guidance this year even considering that overall macro backdrop and deliver a really strong year.

Great. Makes sense. Thank you.

Thank you.

Thank you. And the next question comes from Jeffrey Bernstein with Barclays.

Great. Thank you very much. Two questions. The first one just on the unit growth. Clearly there are concerns of macro easing and rate increases and just over the best month or two a lot of small bank concerns. So, I'm just wondering if any or all of those factors you think are having any impact on your unit growth outlook. I know you've reiterated the guidance for this year for 12% plus. But just trying to get some color on whether you think that has any impact at all. I think you mentioned your pipeline is 1200 units. So, I'm just wondering maybe that could provide some color maybe what was that pipeline last year and the year before? Any kind of color in terms of the any headwinds on that unit growth outlook based on the current macro? And then I have one follow-up.

Jeff, good morning. Yes, the pipeline as we sit here today we mentioned is at a record level 1,200 strong. And just to provide some perspective that was close to 1,000 this time a year ago. And then you layer on top of that the openings we had over the past year of 200 roughly. It really speaks to the demand that we're seeing from our brand partners to reinvest in Wingstop and their desire to continue to grow. And as we sit here today we have pretty good visibility into our pipeline. And in fact the number of sites that we need to deliver on that that outlook that we reiterated of 240 net new units are sitting in our pipeline today. And so we feel pretty confident regardless of what happens in the overall macro to be able to continue to deliver industry-leading unit development. And a lot of that has to do if you think about financing the rate environment or these regional banks there's not a lot of lending or leverage conversations we have with our brand partner community. A lot of their growth is fueled by cash flow from operations. And then on top of that compared to other brands it's a relatively modest initial investment to open a Wingstop. So, I think all those things help position us to be able to sit here today with confidence in delivering another industry-leading return from a unit development perspective.

Understood. And then the follow-up is just on the commodity cost outlook. Clearly the deflation of 50% plus on the bone-in wings is incredible. Just wondering your outlook for that for the second quarter or the back half just wondering when you would think it might turn into a headwind? And I think you mentioned something about from a supply chain's perspective, you're shifting more to long-term buys versus spot market. If there's any incremental color, you could provide in terms of new details that would be great. Thank you.

Jeff, we're really encouraged by the commodity backdrop that we see today. As we look at some of the leading indicators, around the price of -- that leads to the price of wings, those are favorable as well. Seems to signal to, a little bit of softness maybe out there from a more macro perspective, but obviously, nothing we're seeing in our business. And we're seeing some pretty favorable pricing, as we sit here today in the Urner Barry. But we do expect that to normalize -- the Urner Barry to revert back to what I would describe, as a more seasonal trend, which if you get into the back half of the year football season, you see the price of wings usually tick up a little bit. But even that, with that environment in front of us, we still see a pretty favorable overall food cost, not only for our company-owned restaurants that we guided to in the overall margin there, but for our brand partners something that we think is going to continue to fuel overall demand for growth. But you mentioned it, and we talked about it in our prepared remarks. The combination of our size and scale and then just the continued execution against our overall supply chain strategy, is allowing us to shift more and more of our buy, away from the spot market and be able to negotiate longer-term pricing arrangements that give us more predictability in food cost as the further we look out. And some of these arrangements are actually giving us some comfort and confidence into what 2024, is starting to shape up as well.

Understood. And just to clarify, in your response there I think you mentioned, the macro outlook maybe softening a little bit, but not anything you're seeing in your results. I think it was questioned earlier, but is that safe to assume then without giving specifics that the momentum you saw through the first quarter there really hasn't been a change in trend, at least through the month of April?

Jeff, I can jump in here. One of the leading indicators is around frozen inventory levels on wings and breast meat. And I think that's the one that we're pointing to, that signals some softness as suppliers are are rebalancing that equilibrium, between demand and supply right now.

I'm sorry. I was talking about the comp momentum, with the 20% plus in the first quarter and I think you've indicated, you really haven't seen a slowdown from a top line comp perspective, thus far in the second quarter, despite the macro concerns. I wasn't sure, if that was the message you were trying to convey about April?

No, I don't think we were trying to be intentional about April, but more just around some of the leading indicators that influence the outlook and what the Urner Barry will do. As it relates to our business and overall demand, I think all of that factored into kind of our outlook for the balance of the year, which resulted in us raising our guidance for the year from mid-single digits to high-single digits.

Thank you.

Thank you. And the next question comes from Jon Tower with Citigroup.

Great. Thanks for taking the questions. One question, and then a follow-up. Just curious on the chicken sandwich where that mixed in in the quarter, but more importantly, just looking at the LTO you talked about the Hot Honey Rub, doing quite well. I'm curious, if you could speak to how a product makes its way from an LTO, to a permanent menu item especially, given the success that this product seemed to have during the quarter?

Hi, Jeff or Jon, I'm sorry. Good morning. I would say, as it relates to the LTO and maybe I'll start there. As we reflect on Wingstop as a brand over our almost 30 years, there hasn't been a significant amount of menu innovation and specifically related to flavors. I think we've eliminated one and added two. So it is a decently high bar to make it on our menu permanently. That said obviously, we look at and listen to the overall consumer sentiment and demand for a flavor like Hot Honey Rub, which has been significant. And so we'll continue to evaluate that and monitor it John. But as it relates to Chicken Sandwich, what's exciting for our brand and kind of what we've seen is, we've seen growth in all channels. If you look at digital carryout, non-digital carryout you look at delivery you name it we saw growth across all channels. And Chicken sandwich we saw that mix sustain from what we've seen in prior quarter of about a mid-single-digit mix range. And we're encouraged by that because it's a bit of a halo effect in that we're seeing bone-in wings boneless wings tender cells all categories rise as we're experiencing some of the strength in the overall business. And so we're encouraged by that. And really excited to see that we continue to see that Chicken Sandwich sales mix sustain, which means we're winning more occasions and bringing new guests into the brand as we mentioned earlier which we're really excited about what that can mean for the brand long-term.

Got it. Thank you. And then just going to -- I think thinking about the consulting projects that you talked about. Can you give us a little color as to what's going on? Is that going back to the supply chain side of the business and looking at the opportunities there? Is there something else happening that you're looking at right now that might impact the business going forward?

Yes, John, I think as we take a step back and sit here, we kind of feel like as a brand this is another one of those put-our-foot-on-the-gas moments. And so we've -- you've known us over the years to make some strategic investments in areas where we think we can continue to advance our growth strategy and continue to deliver industry-leading results. And I would kind of generally put this in that bucket, where we're leaning in just to make sure we are taking advantage of the momentum that we have in the brand today. We're playing offense and leaning in to position the brand for this next phase of growth that's in front of us that we're excited about.

Okay. So this is not to do with the supply chain examination you've done previously?

Yes. It's not specifically related to that overall supply chain strategy that we've talked about historically correct.

Great. Thanks. I’ll pass it on.

Thank you. And the next question comes from Andrew Charles with TD Cowen.

Great. Thanks. Michael in 1Q is impressive comps with your higher 2023 outlook what's the plan with the surplus the ad fund that comes on top of what was already a robust planned 20% ad fund increase that followed the 40% increase in 2022? Is the plan to deploy this later in 2023, or are you able to hold on to the surplus to beef up 2024 TRPs?

Andrew, good morning. I think it ties back a little bit to my comment I just made to John about this feeling like a little bit of a put-our-foot-on-the-gas moment. And so we are leaning in and finding opportunities to strategically invest any surplus that we do see coming into the ad fund to continue to drive growth and take advantage of this growth levers we have in front of us that are bringing a lot of new guests into the brand that we mentioned in our prepared remarks. And we're really excited about what we're seeing not only within the four walls of the restaurant, but how we're able to retain more of those guests and see them move up the frequency curve with the brand which is what you want to see. And we think to tie-back to an earlier comment as part of an overall structural change that we're seeing in AUVs for the brand.

Okay. Great. And then, I wanted to just check-in as well just on the opportunity to mitigate bone-in wings volatility. You described that you're very flexible in the approach here and so, roughly a year later after first detailing the project. Just kind of want to see the progress that's been made. Just kind of where your head is with this? And obviously when you did the recap a year ago, you took on about $130 million of cash on the balance sheet to help fortify. Is that something you still view as really needed to help you with your efforts, or is there perhaps more of a lower intensity, lower cash usage approach here that may be able to lead to the cash to be deployed to shareholders?

Good morning, Andrew. This is Alex. Thanks for the question. Yeah, I think as you will recall our supply chain strategy included multiple tenets of the strategy which include, more of a cost plus pricing model moving our buy away from the spot market, potential co-investment scenario, an acquisition of a complex or a potential build scenario. And we've been working that first element of our strategy really hard, where as Michael mentioned on the call, just with our articulation of our strategy that has fundamentally changed conversations that we're having on our buy year-in and year-out. So you're starting to see some of that come into our outlook. And I think this is really the first one of the first years we've been able to articulate the visibility we have into food costs in that low-30% range for 2023. So we're going to work that -- continue to work that less capital-intensive approach, as we continue to see the benefits from that. And then, as you mentioned, we are positioned with the cash on our balance sheet to be opportunistic, whether it is something in our supply chain strategy or a return of capital to shareholders down the line.

Very good. Thanks guys.

Thank you.

Thank you.

Thank you. Our next question comes from Brian Harbour with Morgan Stanley.

Yeah. Thanks. Good morning guys. Can you talk about just demographic exposure a little bit? Because, I know about a year ago we had talked about kind of some of the lower-end customers pulling back. I think the higher-end customers have since come to you in quite a strong way especially given kind of delivery. But what do you observe more recently? Has some of the lower end improved, or what have you seen just from a demographic perspective?

Hey. Brian, good morning. If you recall several years ago we had a stated strategy where we saw an opportunity to broaden kind of the top of the funnel and go after this heavy -- we described it as a heavy QSR user. And this QSR user represents about 60% of all QSR visits and is a little -- just skew a little bit more higher income, a little bit less equity diverse than our core. And we're pretty excited about the progress we've made over the years, as it relates to bringing those heavy QSR users into the brand. And so call it, four or five years ago that lower-income consumer was over half of our business. And today that's roughly less than 30%. So we're clearly making progress there. That said, we have a unique position as a brand with these -- our core. And that is, it's not a high-frequency occasion. The average frequency is once a month or three times a quarter and they engage with our brand is almost an indulgent occasion. And so we've talked about the unique position that puts Wingstop whether it's in a recessionary environment or just the consumers feeling overall pressure from inflation in their pocket book is that, they'll have a tendency to pull back more on high-frequency QSR occasions. And then, it's almost as though they get towards the end of the month, and feel like they should reward themselves. And so as long as we're driving top-of-mind awareness and presenting them with value, we've demonstrated an ability to retain those indulgent occasions. And I think that's exactly what we've seen throughout the first quarter and -- is our ability to retain those indulgent occasions with our core.

Great. Thank you. And I mean related to that, is there anything you can quantify just in terms of the increase in frequency more recently too? And you sort of alluded to this and certainly I think elsewhere in the industry we are seeing some of the higher-frequency QSRs holding on or even building frequency at this point, but it kind of depends on the brand. What have you seen with that more recently?

Hey, Brian this is Alex. I can jump in here. As we mentioned, we've attracted this new guest that comes in that's into Wingstop at a lower frequency than our core average yet we've been able to sustain that average overall of about three times a quarter. So I think that demonstrates the continued focus to build frequency with our core as well as move our new guests along the frequency curve.

And then, I'll just add to that Brian. We mentioned our comp in Q1 of 20.1% was entirely driven by transaction growth. And I think that just further supports the point Alex is making about bringing in a lot of new users and new occasions into the brand, while retaining those indulgent occasions with their core.

Thank you.

Thank you. And the next question comes from Joshua Long with Stephens Inc.

Great. Thank you for taking my question. My first question was more of a clarification on some of the build-out costs that you mentioned. I understand that the pipeline is very strong. that's very exciting. Curious, if you could talk about some of the construction cost inflation or just maybe permitting things that may have been kind of pushing and pulling on the development pipeline? I understand that your -- your stores and your format is advantaged versus many others of your peers, but just curious what kind of pressures in your feeling in the current environment? And then I have one follow-up.

Thanks for the question, Josh. This is Alex. I think what you've seen is we've been able to sustain that initial investment of about $450,000 for brand partners and while building our AUVs to now approaching $1.7 million. So that yield is a payback of less than two years. So while we're not certainly immune to inflation, we've been doing things very strategically behind the scenes to stage inventory buy forward equipment in order to mitigate some of the smaller headwinds they see on some of their purchases. But I think with the growth in the expansion of our margins with what you're seeing in the pipeline, and the level of commitments that we've continued to build on, and that low upfront investment that's got our brand partner base energized to continue to grow and open more Wingstops.

Great. That's very helpful. And maybe shifting gears when we think about the goals you set forward in terms of becoming a top 10 global restaurant brand scaling to more than 3000 stores internationally can you talk about some of the near-term opportunities with that? Michael you mentioned kind of using the UK as a kind of jumping off point for how you can think about going into new markets. And I believe, you've also made some key hires here recently on the human capital side to help propel that. But could you kind of frame up how we should be thinking about some of the near-term opportunities internationally as you start to work towards that 3,000 unit target?

Yes, absolutely. And I think you've heard us refer to our international business in a position that's supercharged for growth. We have a significant amount of demand in our business development pipeline for new territories. We mentioned a few that we've recently opened that are starting to build the pipeline there and we'll continue to expand. We noted in our prepared remarks that we just secured a partner for Puerto Rico, just to speak to the overall business development pipeline and demand there. But really excited about what's in front of us. Obviously, you mentioned it, bringing in Raj is a big hire and someone we're really excited about in him leading our international business and that growth strategy. But, we talked about the overall unit outlook and target for this year of roughly 240 net. Within that number is another record year for international and something we're really excited about and I think speaks to the momentum. But as we bring new territories online, the way those development agreements are written is they start out with a little bit of a slower pace. But then as they get up to the pace of what we see in the UK today, which is opening roughly mid-teens units a year, more territories get to that pace is when it becomes a more meaningful contribution to the overall unit growth story. But we're pretty excited about what we see today, the demand for the brand outside of the US and obviously Raj joining our team.

Great. Thank you.

Thank you. And the next question comes from Jeff Farmer with Gordon Haskett.

Great. Good morning and thank you. I'm curious where did the 20% Q1 same-store sales performance stand or come in relative to what you guys were thinking in terms of internal expectations heading into the quarter?

Jeff, I think in full transparency, it exceeded our expectations. We knew, we exited 2022 with some great momentum. We were, call it, low-double-digits and kind of expected. We could continue to execute at that level. But then obviously, as I mentioned earlier, saw that momentum continue to build as we progress through the quarter. And so we're encouraged by the -- how the team rallied together and how effective the strategies have been and we're going to continue to put our foot on the gas.

Okay. That's helpful. And then, just one follow-up really a clarification on the Q1 same-store sales components. You said largely all traffic but can you -- you might have said this or given this detail already but -- so, virtually no menu pricing, no mix impact at all in the Q1 same-store sales number?

Yes. I think the right way to think about it, Jeff is -- and we mentioned this I think last quarter, but we expect to get back towards our more historical approach to pricing, which is 1 to 2 points of price in two windows throughout the year at a very strategic level. And we enacted that pricing in Q1. That said, we had been experiencing a little bit of ticket impact from success with the chicken sandwich, which does tend to mix a little bit more towards that lunch daypart and have a little bit of a lower overall average check, which is a good thing and we like. But I would say those two components largely washed within the quarter resulting in substantially all of the comp growth being driven by transaction growth.

Understood. Thank you.

Thank you. And the next question comes from Nick Setyan with Wedbush Securities.

Thank you. You guys talked about 75% cost of sales for 2023 even with the food basket being in the low 30s. Assuming labor is flattish to slightly lower what's driving that uptick in other OpEx? Is it just a delivery mix?

In Q1 alone really what you're seeing is the 1% ad fund contribution that changed year-over-year.

And I think as we progress through the year as we mentioned there is some seasonality associated with the Urner Barry that's contemplated in our food cost outlook and embedded in our approximately 75%. And we see some small seasonality within some of the OpEx components that come into play. But I think we're really excited about what that means with that type of outlook and how our brand partners feel about that type of margin profile.

Got it. So, it's not necessarily just -- it's more of a signpost than a hard line to the 25% level margin. Is that fair?

Yes, that's right.

Would you guys be willing to break out the international part of system-wide sales in Q1?

That's not really anything we've done yet as it still continues to build. But obviously as we progress and it becomes more of the growth story that's something we'll break out. But the comp --- I'll say this the comp for our international business was really strong in the first quarter somewhat similar to what we saw in the overall domestic business.

Okay. Thank you very much.

Thank you. And the next question comes from Andrew Strelzik with BMO.

Hi, thanks for taking my question. This is Daniel on for Andrew Strelzik. I was hoping you can provide some details on the domestic franchise base? How many units does your average franchisee operate? And what is your philosophy around partnering with larger well-capitalized partners? And also regarding your new unit pipeline what would be the split between new and existing franchisees?

Daniel yes we've seen that gradually the account per brand partner tick up. And I think it's something we've talked about over the years as we've had single operators take the opportunity to exit and having the willingness to grow around the trade area. So, that number is around seven and a half restaurants per gram partner. But the unique part of Wingstop is the growth we're seeing 90% plus of our development is from existing brand partners reinvesting that cash they're generating from their business. So, we are -- we do see some new brand partners that come into the system but we're very selective about who those are and strategically where they fit within our geography.

That’s very helpful. Thank you.

Thank you. And the next question comes from Andy Barish with Jefferies.

Hey guys. Thanks for the question. Just wondering you mentioned a couple of times that kind of momentum built. So -- and exceeded your expectations. Just wondering historically, the brand didn't focus as much on sports or be driven by sports, but just kind of putting those comments together with March Madness and the Bundle deal you did, with new flavors as well. I mean was March kind of outsized and is this a bit of a shift just to make sure you're getting your fair share around major sporting events now?

Hi, Andy, this is Michael. Good morning. I think we've clearly talked about, as we looked at our media placement and media strategy for television, we felt the most eyeballs were going to be in live sports. And so that is where our TV buy has been focused. We really leaned into that last year, back half of last year and that continues to be our strategy this year. So, I wouldn't say, a huge change year-over-year. But I'll say the thing, we're also doing is making sure that we're being really smart about, how we -- as we scale, the brand to become a national brand a household name that we continue to lean into, culturally relevant moments that we can resonate with the guests there as well And so I think your what you saw in Q1, wasn't anything I would point out around a pivot in our media strategy or advertising, but just continuing to execute against these unique growth initiatives that we have in place, that are bringing a lot of new guests into the brand and retaining those indulgent occasions with our core.

Got you. I mean, could we assume March was the strongest month of the quarter, or is that not correct?

That is correct. It was.

Okay. Appreciate the color.

My pleasure.

Thank you. And the next question comes from Michael Tamas with Oppenheimer & Company.

Hi. Thanks. You mentioned a couple of times, some of the strategies that you're executing on the driver business, and obviously, you put some of those pretty powerful strategies in place in the back half of 2022. So, can you talk about maybe what some of the incremental drivers are, as you roll against those tougher comparisons in the later part of the 2023? Thanks.

Yes, Michael, I appreciate the question. And I think that's kind of a reaction, we often hear is, how are you going to lap these levers that you pull? And I think it's really important to understand, that these are not single-year, onetime drivers for our business, but we've demonstrated over the years and I don't think 2022 and 2023 will be any different, in our ability to be really intentional about how we pull these levers, when we pull them and take the launch of Uber Eats as an example. We've seen some really strong growth in that channel. But even as we sit here today, you're talking low single-digit of eaters on Uber Eats, have engaged with our brands. So just a significant amount of opportunity for us to continue to lean in there and partner with Uber Eats as well as DoorDash, in ways that we can continue to expand the delivery channel, which we mentioned this last quarter, we are encouraged with where our mix level is today, but see an opportunity for that to almost double. And then you take chicken sandwich, mixing mid-single digits something we're excited about. Those are highly incremental occasions, that we're winning there. But there's 2.8 billion chicken sandwich servings a year in the US. So we think, there's a huge opportunity and we're just scratching the surface. And so we really think about these strategies that we're executing against the levers that we pulled specifically in the back half of 2022 as being multiyear drivers for our business. And I think kind of that statement is supported by the fact that 2022 was our 19th consecutive year of same-store sales growth. And based on our outlook for this year we think we're well on our way to our 20th

Makes sense. And then I think last quarter there was an implication that EBITDA in 2023 would be somewhere around $122 million. Do you have any update on that or thoughts about where that might shake out? Thanks.

Yes. I think we did signal to a growth rate last quarter, but obviously if you take Q1 results, which were well above even our own expectations, but clearly consensus expectations. And you take our updated outlook where we've raised same-store sales guidance it would clearly imply a higher number.

Thank you.

Thank you. And the next question comes from Peter Saleh with BTIG.

Great. Thanks for taking the question. And congrats on a great start to the year. I just want to come back to the conversation around delivery. I don't know if I missed it but can you just tell us what the mix was on delivery in the first quarter? And if you could just provide a little bit more color on what type of guest is using you guys for delivery through your -- the two third-party platforms? Are they lower income higher income younger older? And are you seeing growth in unique users through these third-party platforms?

Hi, Peter, I appreciate the question. What we're encouraged about and what we're excited about is we saw growth as we mentioned within the delivery channel as an overall mix perspective within Q1. But that's on top of seeing growth across all channels. And so it just I think really speaks to the opportunity that we have there. And that growth was in all platforms whether it was DoorDash or Uber Eats we saw growth across the board and we were encouraged by that. And obviously, we don't have a ton of visibility into the users on their platforms. But I think we view those since we saw growth in every other channel in our business as being highly incremental. And again, as I mentioned before just we see a ton of opportunity within that delivery channel to continue to drive growth long-term.

Great. And then just lastly I think I know what the answer to this is, but I will ask it anyway is there any thought or change in your real estate strategy given how important delivery has become over the past couple of years? Are you guys looking at different types of sites or kind of sticking with the same strategy going forward?

Yes Peter it's a good question. And I think even if we reflect back to 2020 where we saw meaningful growth in our business and I think I referenced in the prepared remarks how our AUV over the last three years alone has grown about $400,000. And I really think what's behind that is Wingstop was built for this. You sit here today and 94% of our sales are off-premise. So whether that's carryout or delivery our model was built for this. And so as it relates to our overall strategy around real estate, I wouldn't say that there's anything that's changed significantly there. We clearly understand where we play well. We've master planned every key market in the US and have a clear line of sight to expanding our footprint today, which globally we just crossed 2,000, but in the US see a line of path to a line of sight to a path of over 4,000 units in the US and know pretty much exactly where those will be. So no real change to call out.

Thank you.

Thank you. And the next question comes from Jim Sanderson with Northcoast Research.

Hi. Thanks for the question. Just wanted to get a little bit more detail on what drove traffic growth in the first quarter. Wondering if you can comment on any noticeable improvement in daypart mix based on traffic or late night? And then I had a follow-up question about the full court promotion.

Good morning, Jim. Yes, it's been interesting very consistent across all channels, all days league nothing to call attention to. We're seeing this new guests come in. We're seeing the frequency continue to build across our business with new and core. So fundamentally digital – non-digital channels are growing. I think the one that we've pointed to before to call your attention to is how chicken sandwich mix shows up. It does index a little higher with -- at the lunch occasion as well as maybe a little more of an individual eater. But I think this -- what Michael mentioned earlier there's this a bit of a halo effect on the rest of the business as we've attracted this new guests into our business.

All right. And just a quick question about the full court promotion. I think that was at a bit of a higher price point. Any commentary on how the consumer reacted? Did you see it mix as strongly despite the higher price point for the promotion?

Yes. I think a bundle like that we saw an opportunity where we knew guests were going to be gathering a group occasions to watch college basketball and so it mixed well. We were encouraged with the results that we saw. But the other thing I would call out is just it really speaks to the unique position we have with our menu and how we can use piece count and protein mix to create value for consumers. Even if that was at a higher price point it did include meaningful value we think for guests if you look at it on a per person basis. And so something we're pretty intentional about and we were encouraged with what we saw from that promotion.

All right. Thank you.