WING - NASDAQ

Good morning, ladies and gentlemen and thank you for standing by. Welcome to the Wingstop Fiscal Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded today, Wednesday, February 21, 2024. On the call today are Michael Skipworth, President and Chief Executive Officer and Alex Kaleida, Senior Vice President and Chief Financial Officer. I would now like to turn the conference over to Alex. Please go ahead.

Thank you and welcome to the fiscal fourth quarter and full year 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 1 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, everyone, and thank you for joining our call. 2023 marked the strongest year on record for Wingstop. These industry leading results showcase the strength and staying power of the strategies we are executing and they’re a true demonstration of Wingstop’s category of one positioning. We delivered an unprecedented 20th consecutive year of same-store sales growth with a comp of 18% for the full year, primarily driven by transactions. We opened a record 255 net new restaurants, fueling system-wide sales growth of 27% to more than $3.5 billion. Company-owned restaurant margins were 26%, a proof point of the effectiveness of our supply chain strategy and our industry-leading unit economics. This translated into adjusted EBITDA growth of 39% when excluding the benefit of the 53rd week during 2022. 2023 started strong as we delivered a 20% domestic same-store sales comp in the first quarter. That was driven entirely by transaction growth. We saw the strength of our business to build as we progress through the year, while we lapped a couple of key growth levers we executed in 2022, such as the launch of Uber Eats, and the addition of the Wingstop Chicken Sandwich. This momentum was demonstrated with the fourth quarter marking our strongest quarter in the year. Our domestic same-store sales growth in the quarter was 21.2%, driven almost entirely by transaction growth. Based on the visibility into our development pipeline at the beginning of 2023, we knew our openings would be weighted toward the end of the year, and we are pleased with a record 115 net new restaurant openings in the fourth quarter. This is a great demonstration of the strength of our unit economics and the excitement of our brand partners who are expressing a strong desire to open more restaurants. It’s truly an exciting time at Wingstop. Our strategies of sustaining same-store sales growth, maintaining best-in-class returns for our brand partners, and accelerating growth have remained consistent over the years. The foundation of our strategies, are our people and culture, which we believe is our competitive advantage. And I’m truly humbled by what our global support team, brand partners and team members in the restaurants accomplished in 2023. As we look at the opportunity to more than triple the size of our existing Wingstop footprint, that was 2,214 restaurants at the end of 2023, it all starts with the strength of unit economics. Our AUVs are now above $1.8 million, and we believe we have clear line of sight to expanding AUVs well north of $2 million. Our supply chain strategy is creating more – greater predictability with restaurant margins and combined with our AUV growth, our brand partners saw returns strengthened and are now enjoying an unlevered cash-on-cash return of more than 70% and on a low upfront investment that is still less than $500,000 on average and less than 2-year payback. Wingstop’s best-in-class returns have translated to a record development pipeline. We believe the progress we have made against our strategies position us well to continue to deliver on our long-term targets. At our Investor Day in 2022, we outlined our strategies to increase system AUVs to more than $2 million. Those strategies consist of increasing brand awareness, menu innovation, expanding our delivery occasion, data-driven marketing and a digital transformation that further expands our best-in-class digital platform. As we demonstrated in 2023, our proven strategies are designed to have multiyear benefits and give us confidence to further scale AUV. In the last year, we made great progress against these strategies, increasing AUVs by more than $200,000 to $1.8 million, AUV growth that was fueled primarily by transaction growth, double-digit transaction growth, which is against an industry backdrop that has seen a decline in traffic. And another unique part of the Wingstop story is that we are seeing transaction growth across all vintages. In fact, even in our original restaurant, we continue to see healthy transaction growth. Our always-on media strategy is helping us make great progress against our awareness gap, which remains a meaningful opportunity. With system-wide sales growth of nearly 30% during 2023, this gives us the firepower in our national ad fund to invest behind this strategy and continue to expand brand awareness. Our menu innovation with chicken sandwich continues to bring new guests into Wingstop. As these new guests experience our flavors for the first time with a chicken sandwich that is cooked to order, enhanced soft and tossed in 1 of our 11 bold and distinctive flavors, they are learning to navigate the rest of our menu and enjoy that indulgent Wingstop occasion our core guests have come to appreciate over the years. Our new chicken sandwich guests are demonstrating a higher frequency than our traditional guests as well as a skew towards higher boneless mix, which has helped us increase our bonus mix to now 47%. And as a reminder, greater utilization of breast meat helps advance our supply chain strategy and will further strengthen our unit economics. We have many examples today where restaurants operating with boneless mix that exceeds 50% are enjoying food costs in the low 30% range. Our strategies have led to higher new guest acquisition, along with an increase in frequency, and the fourth quarter marked one of our highest guest acquisition periods on record. We also saw an increase in frequency across all income cohorts, including the low income gap. Our digital sales surged passed $2 billion in the last 12 months and we exited 2023 with a digital sales mix at 67%, up from 63% at the end of 2022. Our digital guest database is now over 40 million users strong. And combined with the investments we are making in technology, we have the ability to create a hyper-personalized experience with our guests one that we believe over time will drive conversion, retention rates and frequency. This industry leading transaction growth in our business is supported by record brand health metrics. We know consumers remain selective with their restaurant spend, and they continue to prioritize quality and value. Wingstop has measured improvements in both of these categories as we progress through 2023. We believe improvements in quality and value scores have been supported by a measured and disciplined approach to pricing as well as a relentless focus on operating restaurants with excellence. I want to thank our team members in the restaurants and brand partners for their dedicated focus to serve our guests and provide a best-in-class experience. Our brand partners recognize both to strengthen our unit economics and that Wingstop is operating in a category of one. 95% of the net new restaurant openings in 2023 and were from existing brand partners reinvesting back into Wingstop. This demand for growth was also showcased in the fact that we exited the year with approximately 1,400 restaurant commitments under development agreements, representing nearly 600 new commitments during the year, a record year that positions us to continue to accelerate growth. And this success extends beyond our domestic business. We are now in 10 markets outside of the U.S. Our success in Canada is another proof point for the growth ahead. Average weekly sales already exceed those of established markets and the Canadian consumer is lining up to get their hands on our flavors as we open more restaurants in Toronto. This is an example of the response from consumers across the globe that is incredibly exciting for us. In 2023, our international business generated same-store sales growth consistent with the domestic business, also driven primarily by transaction growth. International markets are executing our proven playbook with guests enjoying our flavor for the first time, and we’re providing greater access to our development pipeline. I continue to believe our international business is supercharged for growth and 2024 is set up to capitalize on this momentum. Alex will provide specific details on our 2024 outlook shortly, but we remain confident in our long-term targets and believe our growth algorithm, combined with our return of capital strategy, will deliver best-in-class shareholder returns. While we have clearly strengthened brand partner returns, a core tenet of our strategies is to also enhance shareholder returns. In 2023, we launched our first share repurchase program set at an authorization level of $250 million. To demonstrate our commitment, we completed an accelerated share repurchase program totaling $125 million in the fourth quarter. This is another example of the strength of our asset-light model and our ability to maximize shareholder returns. I truly believe Wingstop is in a category of one. 2023 established another base layer of sales that is positioning us to advance AUVs well north of $2 million. We will continue to invest in building brand awareness and increasing guest acquisition and frequency. Our supply chain strategy is mitigating volatility in food costs, which maintains brand partner returns on their investments and have them excited to open more Wingstops. And importantly, we continue to invest in our team, and I believe we have the best team in the industry that is motivated to achieve our vision of becoming a top 10 global restaurant brand. I want to thank the entire Wingstop team, all of our team members in the support center and in the restaurants our supplier partners and our brand partners for their dedication to serving the world flavor. With that, I’d like to turn the call over to Alex.

Thank you, Michael. 2023 was a standout year on all accounts for Wingstop, whether it’s our unit growth, AUV expansion, brand health metrics, operations or financial performance. We hit our 20th consecutive year of same-store sales growth with an 18.3% comp for 2023 that was driven primarily by a double-digit increase in transactions. We opened 255 net new units and generated adjusted EBITDA of $146.5 million. Before I dive into quarterly results and our 2024 outlook, I want to remind everyone, fiscal year 2022 included a 53rd week. So the fourth quarter in 2022 includes 14 weeks as compared to 13 weeks in the current year. Therefore, year-over-year results are not strictly comparable unless specifically identified. Please review our earnings release for the impact of the 53rd week in 2022. Our growth in system-wide sales during the fourth quarter was 24.5% versus the prior year. Royalty revenues, franchise fees and other revenue increased by $10.6 million in the fourth quarter due to domestic same-store sales growth of 21.2%, primarily driven by transaction growth and 249 net franchise openings since the prior year comparable period, offset by an estimated $3 million of additional revenue associated with the 53rd week in fiscal year 2022. Company-owned restaurant sales increased by $3.8 million in Q4, due to a 10.8% increase in same-store sales, primarily driven by transaction growth, 6 net new restaurants versus the prior year comparable period and offset by $1.5 million of additional sales from the 53rd week. Cost of sales as a percentage of company-owned restaurant sales decreased by 130 basis points in Q4 compared to the prior year, primarily driven by sales leverage on labor and operating expenses. Our supply chain strategy to mitigate the volatility and bone-in wing cost is yielding the results we anticipated. The progress we have made is carrying into 2024 and for modeling purposes, we anticipate company-owned restaurant food costs to be approximately 35%. Additionally, our boneless mix for the system reached a new high of 47% in Q4, which helps advance, our whole bird strategy. This underscores our progress in our supply chain strategy. And with the predictable food cost, this will further strengthen our best-in-class unit economics. Q4 SG&A increased by $9.7 million versus the comparable prior year period to a total of $28.1 million, driven by an increase of professional fees of $2.9 million associated with the company’s strategic initiatives, an increase in short-term and long-term incentive-based compensation of $2.7 million as a result of the company’s performance and a $1.7 million increase in headcount-related investments. Additionally, Q4 lapped the prior year benefit of $1.3 million in stock forfeitures offset by an approximately $1 million impact from the 53rd week. Adjusted EBITDA, a non-GAAP measure, was $39.1 million in the quarter, an increase of 13% versus the prior year on a reported basis. When excluding the estimated $2.6 million impact associated with the 53rd week in 2022. Adjusted EBITDA growth was 22.6% versus the comparable period prior year. And to put this in context, this growth is on top of the fourth quarter that grew adjusted EBITDA by 58% in 2022. We delivered adjusted earnings per diluted share, a non-GAAP measure, of $0.64, a 6.7% increase versus the prior year and 14% growth versus prior year when excluding the estimated $0.04 impact associated with the 53rd week. Our highly franchised asset-light model continues to generate strong free cash flows that position us to support strategic initiatives, while maximizing shareholder returns. In 2023, we announced our inaugural share repurchase program authorized at $250 million. To demonstrate our commitment, in August, we launched a $125 million accelerated share repurchase program that concluded on December 21. In connection with our ASR program, we repurchased a total of 645,952 shares of common stock at an average price of $193.51. Additionally, our regular dividend program is targeted at 40% of free cash flow. Our Board of Directors authorized our next quarterly dividend of $0.22 per share, which will be paid on March 29 to shareholders of record as of March 8. Our balance sheet is in a position of strength that will continue to enable investments in our strategies to maximize shareholder returns. Now turning to our outlook for 2024. As you heard from us today, we believe our strategies can deliver another industry-leading year. Consistent with our 3 to 5-year targets, we are guiding to a mid-single-digit domestic same-store sales growth, and we anticipate approximately 270 global net new restaurants, which represents a growth rate of 12%. SG&A guidance is estimated to be approximately $108 million, including an estimated $19 million of stock-based compensation expense. By utilizing these inputs, adjusted EBITDA growth will translate to approximately 15% in 2024. I’d like to thank the incredible team members at our support center and in the restaurants, our supplier partners and brand partners that have helped us deliver another record year. We are truly fortunate to have such talent throughout Wingstop and their dedication and commitment gives us the confidence in achieving our vision of becoming a top 10 global restaurant brand. With that, I’d like to now turn to Q&A. Operator, please open the line for questions.

[Operator Instructions] Our first question today comes from David Tarantino with Baird. Please go ahead.

Hi, good morning and congratulations on a great 2023. My question is about the outlook for 2024 and specifically, the same-store sales outlook of mid-single digits. I was wondering, Michael, if you could kind of frame up your thoughts on that range relative to the type of momentum that you’ve been delivering recently? And specifically talk about whether kind of your confidence in being able to drive traffic growth again this year, especially as you think about the tough comparisons exiting the year? Thanks.

Good morning, David, thank you for the question. We’re really excited and very pleased with the results we delivered in 2023. And I think not only is it an incredible year delivering a plus 18% same-store sales growth that was primarily driven by transactions. But that was against an industry backdrop that for the most part, was measuring declines in transactions. And so I think it really solidified the Category 1 positioning for Wingstop. We are excited about the momentum we saw build throughout 2023 as well as into the Q4 itself. And we’re encouraged by the progress we’re making against the strategies that we’re executing. We highlighted it in our prepared remarks that Q4 was our highest acquisition period of new guests and something we’re pretty proud of that really showcases the strength of the strategies that we’re executing against. And so we’re confident in our ability to continue to drive the business and advance our growth strategies towards our goal of exceeding the AUVs of north of $2 million. That said, we know that there is – we’re growing on top of a record year, but yet have confidence in our ability to deliver on our 3 to 5-year outlook. When we compare that on a 2-year basis, we know that’s remarkably strong compared to the industry and something we’re pretty proud of.

Okay, thank you.

Thank you.

The next question is from Jeffrey Bernstein with Barclays. Please go ahead.

Great. Thank you very much. A question on the unit growth side of things, as we look to ‘24. So if you look back to ‘23, you provided initial guidance for 240 global openings. I think deals into 255 which is [indiscernible] short today we provided initial guidance of 270 wondering if you could talk about the pipeline as we try and engage your confidence in these openings which equates to 12% growth. But just your thoughts on where that comes from, I guess, U.S. versus international? And whether we should really care so much whether it comes from U.S. or international if you think about the AUVs and the royalties coming from each? Just trying to gauge whether you’re in difference with that growth comes from and the potential upside there? And then I have one follow-up.

Hey, Jeff, good morning. And thank you for the question. We are really proud of the development number we were able to deliver in 2023, a record year, 255 net. Obviously, when we guided at the beginning of the year, it was based on the visibility we had in the pipeline at that time. But I think it really speaks to the excitement with our brand partner community that want to grow with Wingstop. In that 255 net new restaurants, over 95% of those openings were existing brand partners reinvesting in Wingstop, which really is a testament to the strength of the unit economics, the progress we’ve made in scaling AUVs, combined with the progress against our supply chain strategy translating to truly industry-leading returns for our brand partners, a less than 2-year payback on average. And so I think that really showed up in our development agreements that we cited in our prepared remarks, approximately 1,400 commitments at the end of 2023. That reflects when you count the restaurants that we opened compared to where we started the year. That reflects almost 600 new commitments. So brand partners are signing up for more. So our guide this year, it’s again above our long-term target of 10% plus, something we’re confident in as we sit here today. And as the pipeline takes shape throughout the year, obviously, we will provide any updates that we can. But we’re pretty excited about being able to sit here today with confidence from the level of demand we have from our existing brand partners to grow with us and our initial guide of roughly 270 restaurants in 2024.

And is that mix you’re thinking of for the U.S. and international in ‘24?

Yes. I think you should expect to see a pretty similar mix as what we saw in 2023 as far as how that 270 estimate for 2024 breaks out.

Got it. And my follow-up is just on the balance sheet. I think last quarter, you talked about the return so just trying to get an update on the fourth quarter, but either way well below the 6 to 7x target you’ve historically talked about. And I know in recent quarters, you mentioned the Board wanted to retain flexibility on the balance sheet to navigate uncertainty ahead, which – just wonder whether that’s still the current thinking or whether we should expect a return to some more aggressive leverage levels as we think about 2024? Thank you.

Hey, Jeff, this is Alex. Good morning. Yes, I think you pointed out a position of strength for us with our balance sheet. And we took a position, if you recall, a couple of years ago in our last recapitalization to build cash ahead of this elevated interest rate environment. And that has, in turn, given us the flexibility to invest behind our strategies, which include our first share repurchase authorization of $250 million in 2023. And I think if you trace back to what’s different for us a few years ago, we’re generating cash flow at 2x the rate of where we were, which has given us that fuel to continue to invest without the need to necessarily take up leverage. That being said, we are comfortable at historical leverage levels, and I think it will be predicated upon the opportunity we see to maximize shareholder returns.

Thank you.

The next question is from Andrew Charles with TD Cowen. Please go ahead.

Great. Thanks. Michael, can you walk us through a preview of the My Wingstop Tech Stack launch on April 1. I’m curious, what will guess see change? And really, the question is what is the key with this initiative to help drive ticket and traffic? And then Alex, just as a related follow-up, can you just help us walk through modeling with tech fee to 0.3% of sales that begins at the end of March. What should that benefit from a sales perspective? And where is the cost of the expense that you’ll be netting that out? Thanks.

Hey, Andrew, good morning. we are really excited about My Wingstop. It’s something we’ve been working on for the last few years, a big capital investment for us. And it’s our investment that we’ve made in building our own e-commerce and digital experience that’s customized specifically for Wingstop’s business. And we’ve built that in a very modern architecture or modern technology stack that allows us to focus on investing in the strategic component parts and then where it makes sense, leveraging third parties and other elements of the tech stack. But with My Wingstop, our pilot is going great. We’re on schedule. We’re encouraged by the progress we’ve made. And you’re right, we’re on track to roll this out, begin rolling this out system-wide beginning of April and something we’re really encouraged by is the ability that it’s going to unlock for us as it relates to really leaning into that first-party data that we have and our ability to really create a hyper-personalized customer experience, customer journey, which we think, in turn, will impact conversion over time will impact frequency. And those are things that we’re – and retention. Those are things we’re excited about. Obviously, there will be some elements of it that are consumer-facing and they do see a different and a little bit more of an innovative and relevant customer ordering experience, but a majority of this works behind the scenes, building the infrastructure and technology behind that. But we’re excited about that, and this is just part of our journey we’re on to digitize every transaction. And we exited the fourth quarter at 67% digital mix. That’s continuing to grow and something we’re pretty proud of. In an industry backdrop that most folks are measuring declines in their digital business. And so we’re encouraged by the progress we continue to make there. And then I’ll let Alex jump into the second part of your question.

Yes. And Andrew, to address your question on the technology fee. At the start of the quarter, coinciding with the launch advertising fund contribution rate will move from 5% of sales to 5.3%. And the intent of this fee is to cover ongoing operating expenses associated with the means of our My Wingstop platform. And it will look very – it will be consolidated in our advertising revenue and expense lines, so that’s neutral to our P&L, similar to what you see today. And ultimately, we view to Michael’s point on what the opportunity is, we view My Wingstop as this opportunity to enhance profitability for the restaurants and the unit economics.

Thank you.

Thank you.

The next question is from Joshua Long with Stephens. Please go ahead.

Great. Thanks for taking my question. I was curious if you could talk a little bit about the ad fund. When we think about this always on premium approach to advertising, it clearly seems to be working but then also, as I look at the dollars compared to last several years, those have grown meaningfully. Can you talk a little bit about how this is performing versus your expectations? And where you could – where we might expect to see the brand lean into some of that brand awareness activity that you mentioned being a key driver of same-store sales going forward? And then I also have a follow-up.

Hey, Josh, good morning. Thank you for the question. I think you said it well, we really believe our strategy is working. This is a strategy we deployed a couple of years ago, where we really leaned into live sports. And our hypothesis at the time is that’s where the eyeballs would be. And we think that’s really shown up and demonstrated itself. And obviously, when you combine that with, as you pointed out, meaningful increase in our ad dollars that we’re able to deploy. If you look at just 2023 alone, system-wide sales growth of almost 30% translates to an equal increase in the amount of ad dollars we have to go invest. And we think that, combined with the new creative that we deployed back in late Q3 and is something we’re pretty excited about and the results that we’re seeing there. So I think as far as what to expect from us, I think you can expect us to lean into a strategy that we believe is working. And while we’re seeing incredible results obviously showing up in same-store sales growth in Q4, in particular, over 21% same-store sales growth and the majority of that being transaction-driven, we think it’s working. And even with those results, Josh, we’re on only one or two spots a game as an example. And so there is still a lot of opportunity for us to continue to chip away at what we described as a meaningful opportunity to close the gap to other national brands from a brand awareness perspective. And so the additional firepower into our ad fund with the effectiveness of our strategy is something we’re going to continue to lean into and chip away at that.

Thank you for that. That’s very helpful. And then when we think about just the underlying driver or at least a key underlying driver of the strong results is going to be the – the brand’s focused on people and culture. That’s something that you mentioned in your prepared comments. Could you talk a little bit about some of the investments that are happening in and around the organization to support that? But then also, I imagine also support the brand partners’ continued appetite for unit growth? Thank you.

Yes. You said it well. The foundation of our strategy is our people, our culture, and that’s something that we take very seriously. It starts with how we hire, it’s with how we onboard. And we really lean into and invest in organizational health, making sure that we’re driving clarity throughout the organization. And I think the results we delivered in 2023 are the best testament of the clarity that we’re driving in the organization. We were able to open 115 net new restaurants in the fourth quarter, which represents over one restaurant a day. And obviously, that’s supported with top line growth that we’re able to deliver. And I think the success we’re seeing in the business is really a demonstration of the healthiness of the culture and the team that we have here at Wingstop.

Thank you.

The next question is from Sara Senatore with Bank of America. Please go ahead.

Great. Thank you very much. I just wanted to ask about the food costs, please. So you talked about how you have restaurants where the boneless mix is above 50%, you’re seeing low 30s food costs. But I think you said your system is at 47%. So really close to that, and you’re guiding to kind of mid-30s. So I’m just trying to understand, is this sort of a step change or a continuous kind of function? And if any of this the fact that you’re guiding to that mid-30s and even have to do with sort of the value proposition you’re trying to communicate, just as I think about where commodity costs are going and the absence of a significant price?

Yes. No, I’ll jump in, and Alex can add to this. But our outlook for 2024 on food costs in the mid-30s is really specific to our company-owned restaurants, which are actually below the system average from a boneless perspective. And so I think you could interpret that to mean the system would be at a little bit lower than those mid-30s on average. That said, I think it’s demonstrating a very strong return for brand partners in that mid-30% target range. And as we mentioned in our prepared remarks, an unlevered cash-on-cash return in excess of 70% is pretty incredible and something we’re pretty proud of. But we are continuing to be very focused on what we believe is a proven strategy around how to think about value perceptions, particularly as it relates to pricing in that we’ve demonstrated a very prudent and disciplined approach to pricing, and that’s something we’re going to stay committed to. And we acknowledged it in our prepared remarks, but we’re measuring continued improvements in quality and value in an environment where I think a lot of other brands have taken a lot of price and are measuring declines in value scores. And so we’re going to be very protective of that and it’s something we will focus on as we continue to drive the business forward in 2024.

Okay. And then just a follow-up. I know you don’t sort of give pricing, but as you think about your approach to pricing in the year ahead, again, to your point, I think the industry is still probably a little bit above historical run rates in that kind of low single digits. Should we be thinking about you as more closer to that very low single-digit price increase consistent with closer to historical averages?

Yes. Hi, Sara, this is Alex. Yes, I think I would anticipate that we’re going to go back to our historical cadence that you saw last year of about 1% to 2% menu pricing to be opportunistic and markets. I will say that excludes California, where we will take a little more price, a modestly higher price increase in relation to the FAST Act effective in April. But 1% to 2% is probably a good proxy for us this year.

Thank you.

The next question is from Brian Harbour with Morgan Stanley. Please go ahead.

Yes. Thank you. Good morning. Could you maybe just talk about delivering as you’re still seeing digital mix go higher, was delivery, the driver of that? Or was it mobile ordering. And just have you done more advertising still lately in the delivery channel, what are you seeing there?

Hey, Brian, good morning. I would say from a sales mix perspective, our delivery channel mix was pretty consistent Q4 to Q3 as an example. But I just think that demonstrates another unique element to our story in that this growth that we’re seeing, it’s not just one channel, it’s not just delivery. We’re actually seeing growth across every single channel. That includes dine-in. It includes digital carryout. It includes non-digital carryout as well. And so it’s a really healthy approach to growth that we’re seeing. And so I would guess that – or I would point to the increase in digital while we’re seeing growth in our delivery channel from a mix perspective, it stayed pretty consistent from quarter three to quarter four.

Okay. It sounds good. Just to follow-up that last question, too. In California, would you expect your franchisees to adjust pricing sort of consistent with what some of your peers have been talking about or do you have a sense for the magnitude?

Yes. I would say, Brian, the work we have done is we would – Alex referenced our historical approach to pricing is about 1 point to 2 points of price a year. And when we look at the impact of this minimum wage increase within California, that on average, we are looking at somewhere around 4 points to 5 points of price. So, not much above our prior or kind of our historical cadence, but yet, I think below what you are hearing a lot of others referenced.

Yes. And Brian, one difference for us is the streamlined operating model that we deploy in that lean roster size that’s in our restaurants. We can run a shift at that system average $1.8 million with about 14 members. I think that lessens some of the impact.

Okay. Great. Thank you.

The next question is from Danilo Gargiulo with Bernstein. Please go ahead.

Thank you. I wonder if you can expand a bit on your comment of breaking in a category of one, especially as we are seeing some large national chains entering into the category. So, can you maybe share whether you are seeing any impact so far on the stores that are located close to these national players who are now offering wings?

Yes. No, I appreciate the question. And there is a few components to unpack here, but I would say, just to answer directly your comment about some other national brands promoting wings at this time. What we have seen historically is when other brands promote wings, it’s actually a benefit to our business. In fact, if consumers are aware of Wingstop and someone makes wings top of mind, there is really not a decision tree, they go to Wingstop versus that other brand. And so historically, we have seen that as a tailwind to our business. And so as we think about us operating in the category of one, that’s part of it. I also think building on top of that is the strength of our unit economics, our simple operating model. We mentioned in our prepared remarks, our AUV is now above $1.8 million. We believe we have these multiyear drivers of our business that we are executing against that give us line of sight to increasing AUVs above $2 million. And that’s on an initial investment that even today is on average less than $500,000. And so at those type of unit economics, the brand partners are enjoying some pretty incredible returns. And I think it really shows up in the numbers and that of the 255 net new restaurants that we opened, over 95% of those were existing brand partners reinvesting because they see and they understand the return that they get. They see and understand that we are in a category of one. And so I think that speaks a lot to the results and to our positioning. So, I think – and there is other elements of our brand. We talked about our oldest restaurant in the system that is a company-owned restaurant and it is comping positive after all these years, and its increasing transactions. And if you stack up our vintages by year, it’s a pretty linear chart. Our restaurants start strong. We talked about our average unit volume for our 2022 vintage was $1.3 million. Restaurants come out of the gate strong and then they comp from there. That 2022 vintage is comping very similar to the rest of the system, growing transaction growth. And so that is all centered upon a very efficient model. Alex mentioned, our labor profile, our footprint, on average, 1,700 square feet in line. We are not competing for in cap. 94% of our business is off-premise, allowing us to operate a very efficient box. And so I think the – and then we mentioned the 6% to 7% digital mix, an industry-leading number for us and something we believe we continue to expand. So, I think it’s because of all those things, we believe that we are in a category of one.

Excellent. Thank you, Michael. And if I can follow-up, please, on the very strong unit economics and the $1.8 million on AUV. Can you help us understand the distribution of the AUV across your stores? In other words, if you see a difference in performance between, say, the top quintile of your stores and the bottom quintile of your stores, what’s causing the delta? So, how much more opportunity do you have to kind of uplift kind of the “weaker” stores into your system to enable the $2 million AUV?

Yes. There is really one common denominator in that difference, and that is tenure. The difference between higher-volume restaurants versus those that are maybe below that $2 million threshold is really just how many years of these 20 years of consecutive same-store sales growth, those restaurants have participated in. I think a great market for me to highlight just to kind of showcase that is the Dallas-Fort Worth market, which is sitting at an AUV for the entire market that is above $2 million, and we have over 135 restaurants in that market today. And that market is comping double digits as well. And so I think it really speaks to the fact that the difference is really tenure. And the beautiful thing here is we haven’t even found a ceiling. I referenced that first original Wingstop that is still comping and so we haven’t quite found that selling or maturity within our box either. It’s something we are pretty excited about. And so we have a lot of confidence in these multiyear strategies that we are executing against and our ability to continue to increase the system average from $1.8 million today to above $2 million over time.

Thank you.

The next question is from Jeff Farmer with Gordon Haskett. Please go ahead.

Thank you. A question and a follow-up as well. So, somewhat in line with your earlier 10-year comments, has there been a notable impact on traffic trends in recent quarters from improved staffing, reduced turnover levels, just better metrics as it relates to the labor force?

Yes. I know Alex highlighted the efficiency of our model as it relates to the labor roster that were required and how efficient our box is. You can run a Wingstop with as few as four team members. And so we haven’t really seen a lot of issues around hiring, but what I would say is we have been really focused within the system, our brand partners, their team members in the restaurants on ensuring we operate with excellence. And we have been measuring some record levels for the brand as it relates to guest satisfaction scores. And I think that’s translating to some of those improvements we talked about around quality and value. And I think it all ladders up and support some of those results we are delivering on the top line.

Okay. And then on the follow-up, record number of new guests, I believe in both Q3 and Q4. So, as we sit here looking out to the balance of 2024, what are your thoughts on sort of continuing net guest acquisition momentum?

Yes. We think we are just scratching the surface. A lot of these new guests that are coming in are coming in through the chicken sandwich occasion initially. And we have referenced this number before. There is 2.4 billion chicken sandwich occasions in the U.S. annually. And so we think we are just scratching the surface there. But we are really excited about these new guests that are coming in that we talked about this last quarter, but they look a little bit different than our core or traditional guests. They are a little bit higher income, they are less likely to have children at home, they are demonstrating a higher frequency coming back a little bit quicker after that initial visit. They are learning to navigate the rest of the menu and actually are over-indexing to boneless, again, kind of helping support and drive that boneless mix, they engage with us digitally, and they are demonstrating a little bit higher average check. And so we think not only is there a lot of runway and additional opportunity for us to bring these new guests in and capture more occasions. But the broader impact they are having on our business around driving average check, driving boneless mix are a couple of elements we are really excited about.

Okay. Thank you.

The next question is from Andy Barish with Jefferies. Please go ahead.

Hey guys. Just circling back on some of the international stuff and then a quick follow-up. You still obviously don’t have all the arrows in the quiver that you have been implementing so successfully in the U.S. So, are some of these results, especially comps kind of tracking similar to the incredible numbers in the U.S. a little bit ahead of what you would have thought? Just give us a little bit more background there.

Good morning Andy, this is Alex. Yes, they are tracking. They are executing our playbook in the international markets, and we are seeing the same-store sales that’s consistent with what we are reporting for domestic. And again, in the international markets as well, that is primarily driven by transaction growth.

Okay. And then just quickly following up on the on the food cost guide and understanding that’s the company side. But are you guys kind of where you want to be for supply chain for the time being? I mean I recall a couple of years ago, there were some discussions about owning supply chain or stuff like that. But are you kind of at a size and scale now where you have locked and are kind of comfortable with where you are at least for the near-term?

We are obviously, Andy, very excited about the position we are in today, something that is the first for us, being able to have confidence and visibility into what to expect from a food cost perspective for the next year. But we are definitely not finished. We remain committed to our supply chain strategy, which the progress and the results we are seeing today are one component of that, just simply how we structure our purchase agreements and moving more and more of that buy away from the week-to-week fluctuations in the spot market. But yet, we remain committed to additional components of that strategy, which could include some level of co-investment could include a joint venture or could ultimately include some amount of taking control of an entire complex and vertically integrated. And so I think that all remains at play. And I think it’s all part of the longer term strategy, but yet what gives us confidence in that we are able to minimize the volatility that our brand partners see in food costs and focus on opening more restaurants.

Thank you. Very helpful.

The next question is from Jon Tower with Citigroup. Please go ahead.

Great. Thanks. Just a few for me, the – I am curious if you can give an update on the AI voice ordering test that you guys had in a few markets, especially in your efforts to kind of get the digital sales mix kind of up to 100% aspirational over time?

Yes, Jon. We are happy with what we are seeing in the test. These large language models continue to progress, and we are enhancing that ordering experience. And I think it’s a good example of investments of opportunities in our best-in-class digital platform and something that can help us achieve our aspirational goal of digitizing every transaction. So, we view it as another lever for us on our path to AUVs scaling beyond $2 million.

Okay. How many stores is it in today?

We have about a little over 150 restaurants.

Okay. Great. And just in terms of the Wingstop rollout, can you – I believe it’s a domestic-only launch. Can you talk about maybe the hurdles or the reasons for not moving that into the international markets at this time?

Yes. I think, Jon, there is a practical element in the investment that’s needed to support the investments to do something like we have done here in the U.S. I think our playbook in the U.S. that included a strategic partner like Olo that helped us scale our business to where it is today, a digital business that’s north of $2 million. I think is a good strategy and is the approach we are taking in these international markets initially. And I think over time, as they scale, we can find – we can evaluate whether or not it makes sense to make this kind of investment to scale that this My Wingstop digital business or platform outside of the U.S. But I think the partnership we – I referenced with Olo is one we are replicating in a couple of markets outside of the U.S. using them. And then we continue to see opportunities to leverage a partner like Olo and Alex referenced voice ordering. We are leaning into Olo as a partner there to help with the integration elements around that. And so we will continue to find ways to drive our digital business and as Alex mentioned, continue to expand it to our aspirational goal of over 100 – to 100% fully digitized business.

Great. Thanks. And then just the last one, I know you have spoken in the past about your chicken tender business as being an opportunity to – as a platform where you feel like there is real opportunity. Can you discuss where you think that is in the pipeline, could we see something coming in ‘24?

Yes, Jon, today, chicken tenders is a good example of something with very low awareness on our menu. Even our core guests aren’t even aware at times that chicken tenders is a mini option. It mixes in the low-single digit. And so I think that is a good example of an opportunity for us within our menu innovation to bring something new, leveraging our flavor profiles to the guests and a lot of – we believe a lot of chicken sandwich users are also high tender usage as well. So, it is an opportunity for us to consider as to continue to drive new guests into the brand.

Okay. Thanks for taking the questions.

The next question is from Dennis Geiger with UBS. Please go ahead.

Great. Thanks guys. You have got a bunch of initiatives that are clearly resonating, supporting traffic and you have got some newer initiatives coming this year. So, recognizing a lot of the sales momentum is about all these levers that you have touched on working together. But just curious if you could kind of speak to how you think about some of the most impactful sales drivers for ‘24 or maybe the drivers that you are most excited about for this year, and if that’s at all different from 2023? Thank you.

Yes. I mean I think for us, these drivers we are executing against, whether it’s expanding brand awareness, which we mentioned is still a meaningful opportunity even after the progress we have made in 2023, and the growth in our ad fund to be able to support us continuing to expand awareness delivery. We are at still that roughly 30% channel mix. We know much more mature heavy off-premise brands enjoyed a delivery mix, that’s north of 50%. So, we see meaningful growth in that channel, and we can kind of move along the chicken sandwich occasions through menu innovation. I mentioned that we are just scratching the surface there. We talked about digital marketing and the deleveraging our database that we have, the launch of My Wingstop, the investments we are making in technology there to help us continue to drive our digital business. We think all of those have a lot of runway associated with them. And we are kind of equally excited about all of them because each one of those have a multiyear impact and all support our overall target of exceeding AUVs of north of $2 million from that $1.8 million level today.

Great. Thanks Michael and congrats.

Thank you.