Michael Mravle - CFO Charles Morrison - President and CEO.

John Glass - Morgan Stanley Reena Krishnan - Jefferies & Co. David Tarantino - Robert W. Baird Jeffrey Bernstein - Barclays Capital Jeff Farmer - Wells Fargo Securities Jake Bartlett - SunTrust Robinson Andrew Charles - Cowen and Company Nick Setyan - Wedbush Matthew Kirschner - Guggenheim Securities.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Wingstop Inc. Fiscal Second Quarter 2016 Earnings Conference. Please note that this conference is being recorded today, August 4, 2016. On the call we have Charlie Morrison, President and Chief Executive Officer; and Mike Mravle, Chief Financial Officer.

I would now like to turn the conference over to Mike. Please go ahead..

Thank you, operator, and good afternoon. By now everyone should have access to our fiscal second quarter 2016 earnings release. If not, it can be found at www.wingstop.com under the Investor Relations section. Before we begin our formal remarks, I need to remind everyone that our discussion today will include forward-looking statements.

These forward-looking statements are not guarantees of future performance and, therefore, one should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.

We refer you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. Lastly, during today's call, we will discuss certain non-GAAP financial measures which we believe can be useful in evaluating our performance.

The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and reconciliations to comparable GAAP measures are available in our earnings release. With that I'd like to turn the call over to Charlie..

Solid unit development; investments in technology to grow online ordering; and migrating to a national advertising platform. Mike will then walk through our second quarter financial results and update our annual guidance for fiscal 2016, before I conclude our remarks and we open the line for questions.

We added 41 net new restaurants during the second quarter, the most we have ever delivered in a single quarter, and surpassed the 900 store milestone, ending the fiscal quarter with 914 restaurants across 39 states and five countries. This represents a unit growth rate of 16.4% over the prior year period.

In addition to the strong growth, we are pleased with the performance of our new units, which are tracking well in relation to our targets. Included in this new restaurant growth is one company operated location that we opened in the Dallas area in June. Our growth plan remains focused on franchise unit development.

But we will opportunistically grow our company store base over time through development or acquisition, where it makes sense for the business. With that in mind, we will be adding one more new company store in Q4, 2016 once again located in the greater Dallas area. Through the first half of the year we have opened 69 net new locations. In the U.S.

we have opened restaurants across 22 different states this year, as we continue to expand our footprint across the country. For the full year we have raised expectations per unit growth to between 130 and 140 net openings, which will bring us to just shy of 1,000 restaurants worldwide by year end.

We are clearly making excellent progress against our long-term target of 2,500 domestic restaurants but still have a lot of opportunity ahead of us. Our revenue growth of 18.2% in the second quarter included domestic same-store sales growth of 3.1%, which included company operated same-store sales growth of 6.8%.

We were pleased with these results given that we lapped two-year comps in the second quarter that were significantly higher than any other quarter this year. Please note that our strong performance in the prior year was partially due to the boxing match between Floyd Mayweather and Manny Pacquiao.

This top line grown has resulted in adjusted EBIDTA and adjusted net income growth of 14.7% and 31.3% respectively. Early in the third quarter we announced that we closed on a $180 million senior secured debt facility and declared and paid a $2.90 per share special cash dividend which represented about 10% of our total market capitalization.

This recapitalization and meaningful return of capital transaction was accomplished without shareholders having to surrender any Wingstop shares and is consistent with our high growth asset-light model which offers franchisee's compelling unit economics and shareholders high operating margins and high cash flow conversion.

As you all know, our long-term growth strategy is predicated on new restaurant development, which itself is fueled by the strong economic model that we offer our franchisees.

With AUVs exceeding $1.1 million a best-in-class sales-to-investment ratio of three times and a targeted new unit unleveraged cash on cash return between 35% and 40% in year two of operation, the drivers of our development pipeline remain very strong.

On a related note, today we announced that we will be expanding our global franchise footprint to Saudi Arabia. This is an exclusive development agreement for 100 new restaurants in the Kingdom of Saudi Arabia over the next ten years with the first sites already planned for the city of Riyadh in 2017.

Our partner, Atheela Al Arabia is a newly created entity funded and led by Fahad Bin-Hithleen and Fahad Al Muqbil, with experience to expand the food service industry across multiple local restaurant brands and developing major real estate, including most of the malls in the country.

While we have not spoken much about our international footprint, we currently have more than 60 Wingstop locations outside the U.S. and have already begun building a presence in the Middle East, first with the United Arab Emirates and now with Saudi Arabia.

What both of these countries have in common is they are vibrant markets with an affinity for American restaurant brands and proven interest in our product.

Having brought on Larry Kruguer as Wingstop's President of International last year we look forward to signing more agreements in more territories over time and in doing so will fulfill our mission of serving the world flavor. Our second quarter long-term strategy is growing revenue in our online channels.

In the second quarter online sales made up 16.9% of total sales, up from 15.8% in the first quarter. Recall that online orders generate a $4 higher average check than our average order and about 60% of our total orders still come in over the phone today.

In the second quarter this year, 27% of our domestic restaurants had online sales mix in excess of 20% of total sales. This is up from 20% in Q1. The progress we have made along with the fact that 75% of our sales is takeout gives us confidence that we can continue to grow our online ordering mix much higher over time.

To that end, we recently partnered with a firm called Conversable to make it easier for social media users to satisfy their Wingstop cravings. Wingstop is a first mover in the advancement of this unique technology. We are now able to take orders from customers via Twitter by tweeting hashtag order or direct messaging Wingstop on Facebook.

Once the conversation is initiated we transition the customer to a private conversation to complete the order after which they are provided with the nearest Wingstop location and pickup time. This capability was just rolled out in June and we are excited by the convenience it offers our social media fans.

This is just the next step in what we believe will be future opportunities to expand on the traditional digital channels for ordering. One of the key enablers of online ordering growth is the rollout of our new POS system that integrates online orders straight to the kitchen.

As of the end of the second quarter we have reached 73% implementation with our new point of sales system and should be about 90% implemented by year end. On the last earnings call we announced that our franchisees voted almost unanimously to transition from a local co-op advertising approach to a national advertising platform.

The total franchisee spend on marketing will not change by the allocation of that spend will shift. Historically we have spent about 1% at the national level and 3% at the local level. Starting in 2017 that allocation will flip, with 3% of sales spent through the national fund and 1% remaining in the local markets.

This transition will allow us to leverage our scale to more efficiently purchase media for those markets that currently participate in co-ops, which is about 60% of the domestic system, while providing media for the first time for those markets that aren't in a co-op today.

This means more media weight for every market across the country, including significant benefits in smaller and newer markets where we currently don't leverage TV and radio.

Since our first quarter earnings call we have been conducting a comprehensive media agency search in partnership with our franchise advisory council to select the right agency partner for Wingstop.

We are close to a final decision and we'll have more to share on this soon as we prepare for the launch of the company's first integrated national TV and digital campaign beginning in early 2017. In summary, we're executing on our key strategic initiatives and seeing the results of our hard work.

The momentum in our business is strong and we are excited by what the future holds for this one of a kind brand. With that I would like to turn the call over to Mike.

Thanks, Charlie. I'm now going to review our quarterly results for the 13-week period ended June 25, 2016, and then update our annual guidance. Total revenues increased 18.2% to $22.7 million for the second quarter 2016, from $19.2 million in the second quarter last year.

As a 98% franchise system the majority of our revenues consists of royalties and franchise fees, which together increased 25.5% to $14.3 million for the second quarter compared to $11.4 million in last year's second quarter.

Also contributing to this increase was $0.9 million of contributions received for our franchisee convention held in April of this year. This convention is held every 18 months so there was no convention in this same period last year.

As Charlie mentioned we opened 41 net new restaurants during the second quarter, the most we have ever opened in a quarter. Included in our new restaurant openings this quarter is one company operated location in Dallas.

We ended the second quarter with 914 system wide restaurants which represents a unit growth rate of 16.4% compared to the year-ago period. In addition to restaurant development, revenue growth was also driven by domestic same-store sales growth of 3.1% in the second quarter.

Our company-owned restaurant revenue increased to $8.4 million from $7.8 million in the prior yeah, driven mostly by 6.8% growth in same-store sales along with contributions from one additional company operated restaurant that opened in June. Cost of sales increased 12.1% to $6.2 million from $5.5 million in the prior fiscal year second quarter.

As a percentage of company-owned restaurant sales cost of sales increased 300 basis points to 73.5% from 70.5%.

The increase was primarily driven by an increase in food costs, which was caused by a 7.8% increase in bone-in chicken wings, pre-opening store inefficiencies related to our recent store opening and an increase in labor costs as we make investments in roster sizes and staffing to support continued top-line growth at our company-owned restaurants.

These higher costs were partially offset by contributions made by certain of our suppliers to our franchisee convention which were included in cost of sales. Selling, general and administrative expenses decreased 19.6% to $8.6 million as compared to $10.7 million in the prior year comparable period.

This year second quarter included $0.3 million of transaction costs related to the refinancing we completed subsequent to the end of the second quarter, whereas last year's SG&A included several nonrecurring costs including a one-time fee of $3.3 million paid in consideration for the termination of our management agreement with Work Capital and $0.7 million of transaction expenses associated with our IPO and $0.1 million of management fees paid to Work Capital.

The decrease in nonrecurring costs was partially offset by $1.1 million in expenses associated with our franchisee convention and increases related to head count additions and other recurring costs associated with being a public company.

Adjusted EBIDTA a non-GAAP measure increased 14.7% to $8.3 million from $7.2 million in the second quarter of last year. Please review the reconciliation table provided in our earnings release between adjusted EBIDTA and net income. It's most directly comparable GAAP measure. For the quarter income tax expense was $2.4 million.

Our effective tax rate was 37.5%, which is consistent with our expectation of an effective tax rate of between 37% and 38% in 2016. Net income increased to $4.1 million or $0.14 per diluted share compared to net income of $600,000 or $0.02 per diluted share in the same quarter last year.

Weighted shares outstanding were approximately $29 million for the second quarter 2016 and approximately $27 million for the prior year period. Adjusted net income a non-GAAP measure increased 31.3% to $4.2 million or $0.15 per pro forma diluted share compared to $3.2 million or $0.11 per pro forma diluted share last year.

Please review the reconciliation table provided in our earnings release between adjusted net income and net income and pro forma diluted shares to diluted shares, their most directly comparable GAAP measures.

In terms of our liquidity and balance sheet as of June 25, 2016, we had cash and cash equivalent of approximately $10 million and $85.5 million in long-term debt. On June 30, 2016, we announced that we had closed on a new $180 million senior secured debt facility which we used to refinance our indebtedness under the March 2015 debt facility.

The new five-year debt facility bears an initial interest rate of LIBOR plus 275 basis points and consists of a $70 million senior secured term loan with a 5% mandatory amortization ending $110 million senior secured revolving credit facility.

We utilized the proceeds from the new senior secured debt facility in combination with available cash on our balance sheet to fund payment of a $2.90 per share special cash dividend that was paid on July 15, 2016.

Upon payment of the dividend a total of $165 million was drawn on the new debt facility including $95 million drawn on the revolving facility.

Our net debt-to-adjusted EBIDTA ratio is therefore now approximately 5.1 times on a trailing 12-month basis inclusive of our second quarter results, which we believe is an appropriate amount of leverage given the nature of our franchise business model. This ratio also places us comfortably within our historical debt ratio range.

Turning to our annual guidance for 2016, we have made updates to several key metrics, which I would now like to walk you through. We are raising our range for total revenue by $1 million to between $90 million and $91 million. This new range represents approximately 16% growth over 2015.

We are raising our development forecasts to between 130 and 140 net new system wide restaurant openings, representing approximately 16% annual unit growth, consistent with our long-term guidance of low single digit domestic same store sales.

SG&A expenses are now projected between $34 million and $35 million, which is up $1 million from the previous range, and inclusive of approximately $1.1 million of stock-based compensation, $1.1 million of expenses associated with our franchisee convention, $0.8 million of expenses associated with a 53rd week, $0.8 million of incremental ongoing public company costs, $0.5 million of transaction costs related to the March 2016 secondary stock offering, and $1.3 million of transaction costs related to the June 2016 debt for financing.

Adjusted EBIDTA is now anticipated between $33.5 million and $34 million, representing approximately 17% growth over 2015. Total interest expense is now projected between $4.5 million and $4.7 million as a result of the issuance of additional debt which negatively impacts earnings per share by $0.04 compared to our prior guidance.

Pro forma adjusted fully diluted EPS is now expected between $0.53 and $0.55 per share which has been adjusted to reflect the issuance of additional debt. And, finally, fully diluted share count should be approximately 29 million shares, which is unchanged from prior guidance.

Before I turn the call back to Charlie, I would like to provide two additional comments for modeling purposes.

First in the fiscal third quarter 2016, we incurred a non-cash write-off of approximately $0.2 million in debt issuance costs related to the retirement of the March 2015 debt facility, which will be recorded in other expense net and approximately $1.1 million of transaction related one time charges recorded in SG&A for a total of approximately $1.3 million.

These charges combined with the $0.3 million recorded in SG&A in the fiscal second quarter result in total one-time charges of approximately $1.5 million associated with a debt for financing and special dividend payment. Second, fiscal year 2016 includes a 53rd week and all of the guidance just provided includes the 53rd week impact.

For context the impact of the 53rd week is estimated to contribute approximately $1.4 million of revenue and $0.3 million of adjusted EBIDTA. And now I will turn the call back to Charlie for closing remarks before we begin Q&A..

Thank you, Mike. We often talk about our mission to serve the world flavor and the importance of delivering for all of our stakeholders, including our investors, our franchisees, our guests, and of course our own team members.

It is therefore particularly gratifying that Wingstop has been recognized as a certified great place to work by the great place to work institute. This certification is a result of the feedback provided by our team members around culture, recognition, rewards, pride, benefits, communication, and leadership.

Additionally, the recognition highlights our journey in building a great workplace, increasing brand recognition, attracting top talent, cultivating culture and ultimately having our business thrive. Thanks again for joining us this afternoon. We appreciate your interest in Wingstop and we'd be happy to answer any questions that you may have.

Operator, please open the line for questions..

Certainly. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of John Glass with Morgan Stanley. Please go ahead about your questions..

Thanks very much. Maybe, Charlie, maybe just start by speaking a little bit about the top line environment. Comps were strong but at the same time there's been a lot of industry discounting, there's been an elevated amount of chatter about Texas and some of the oil markets.

Can you kind of give context around how your comps progressed, how you feel about them and maybe geographic color would be helpful..

Sure. And good evening, John. I would say first and foremost we're very proud of the result. A 3.1% comp, obviously exceeded what consensus was. And I think it demonstrates even given some of the rollover impact we noted in the second quarter the continued strength of the performance in our business.

I wouldn't call any special attention to anything that would otherwise be geographic that we have already discussed in the past. I think the business continues to deliver good, positive comp performance and we pretty much saw everything that we would have expected to have happen in the quarter that we noted in our previous earnings call..

Okay. That's helpful. And then two other questions.

One is on what's the rationale behind opening company stores, particularly in your home market? What's the advantage of doing that? What's the rationale for doing it? And kind of how do you think about that beyond the current year?.

Yeah, so there are a couple of trade areas and opportunities that are available to us from time to time that we want to make sure we take advantage of the opportunity to enjoy the great returns that our model consistently delivers for our franchisees.

And so to the extent that there's a trade area that is in a market where we already have operational support we would, as we've said before many times, opportunistically develop those markets.

And so the restaurant we opened in Q2 is indicative of that, as well as the one that Mike had - and I had mentioned in our comments for the back half of the year..

Okay, and just one more. Mike, on the SG&A guidance, I think you raised it by it looks like a $1 million, the range prior to the range now. And you listed out I think some new things in there that added up to more than a $1 million, transaction costs and things like that.

So are you - how do you think about base G&A? Has that gone down so you've been able to maintain the million increase even though you added more than a million to it?.

Yeah, I think - yeah, John, how you doing? So the additional one-time cost that was called out was related to the recap, and so that should be the only new piece of information in there. And that is about $1.5 million. So relative to the prior range we didn't raise it the whole way or we would be at the lower end of the range on an adjusted basis..

Got it. Okay. Thank you..

Our next question comes from the line of Andy Barish with Jefferies. Please go ahead with your questions..

Hey, good afternoon, guys. This is actually Reena Krishnan sitting in for Andy. Just wanted to see if you guys could give us some color on how franchisees are handling wage inflation, especially in terms of pricing..

Hi, Ashlie [ph], we've commented on this a number of times but I'll reiterate what has consistently been the approach by our franchisees. There are two ways to think about it. Number one is our operating model is very efficient.

It does not require us to have a lot of people in the restaurant to execute the operation and yet still achieve the kind of volumes that we do. And in many cases we have a very tenured staff. So that affords us the opportunity not to have to bear the entire brunt of a wage increase if that happened in a selective market.

However, where it does happen and where it has happened over time, notably in California, our franchisees have proactively addressed this through some price increases, many of which have been already taken, both, really I guess last year for the most part, to get ahead of this particular issue.

But those are the two things that we've consistently talked about as it relates to Wingstop and allowing us to not feel so much of the brunt perhaps that other concepts would associated with such inflation..

All right, thank you..

Thank you. Our next question comes from the line of David Tarantino with Robert W. Baird & Company. Please go ahead with your questions..

Hi. Good afternoon. First I want to follow up on the first question and, Charlie, I think we've heard a lot about the industry softening in sort of June and July, and was just wondering if you're willing to comment if you've seen that softening in your business or if you've continued to hold up well despite what's happening elsewhere..

Yeah, I don't want to give any specific comment to June or July specifically. What I would reiterate is that we beat the consensus estimate and ultimately felt like we had good momentum in the second quarter. Net of the noted rollover impacts from the prior year and as we look to the balance of the year, obviously those - the rollover impact improved.

So we don't see anything that I would say otherwise was meaningfully different from what we expected in Q2. It's just a carry-on of the momentum that we had in Q1..

Great. That's helpful. And then a question about the international strategy.

Could you talk about why you chose Saudi Arabia? Was it mainly because of the partner you found there? And then I guess secondarily, are there more announcements like this we should expect in the near term or is this going be more of a gradually unfolding strategy outside the U.S.?.

Yeah David. I think the strategy is consistent with what our plans have always been, which is, again, to identify markets that we believe will fit very well with Wingstop and those center around very high consumption of chicken in those markets and then, the general success and acceptance of brands from the U.S.

and western brands in general in those markets. Saudi presented a great opportunity for us because of the partnership, but also because of our desire to continue to expand in the region. We already have a restaurant that opened recently in Dubai, and we would - we would have expected to continue to expand our footprint in the Middle East over time.

And so this deal came about as an opportunity for us. They're a fantastic partner. They're certainly well-established from a real estate perspective as it relates to their mall developments and also from their existing experience within restaurants.

So for us it was an excellent fit for the brand and we believe it will be one that will be very successful in the future..

Great.

And, Mike, just for modeling purposes, are there any kind of upfront costs or fees related to that deal that we should consider for this year or will that hit mostly next year?.

Yeah, no. There's no upfront costs on our side other than minor legal fees that are all included in the guidance. So nothing for you guys to model in. And then we would receive an upfront territory fee but that will get amortized as we open stores..

Perfect. Thank you very much..

You're welcome..

Our next question comes from the line of Jeff Bernstein with Barclay's. Please go ahead with your questions..

Great. Thank you very much. Couple of questions as well. Just first following up on the last one, in terms of your two year and three year comp commentary. I think last quarter you had kind of geared us to the second quarter would be lower than the first.

I'm just wondering now that I look back over the last couple of years it does seem like that second quarter had by far the most difficult two year and three year comparisons.

Is it reasonable to assume that we should assume an uptick in the third and fourth relative to what we saw in the second or is that not a reasonable assumption based on those comparisons?.

Yeah, Jeff good question. I think given the guidance that we provided, we're going to stick with low single digits for the year. You can obviously see the two and three year trends that headed kind of into the second quarter and coming out of that and you have to couple that with the guidance to make your judgments. We don't comment on that..

Okay. Then just on the food cost side of things I was expecting to hear something more on the deflation side of things. I was surprised I think you said your bone in wing inflation was pushing 8%.

What was it in the first quarter and what's your outlook perhaps for the back half of this year?.

Yeah. So there was higher wing inflation in the second quarter than in the first quarter. We started out the year in a deflationary position on wings. And they really spiked kind of into the - towards the end of the first quarter and they stayed I'd call it stubbornly higher than the industry experts had expected all the way into call it June.

At that point in time there was a fairly steep decline in the price of wings and now it's held pretty steady since then and we're tracking right now at levels that are about last year and a bit below but there is a bit of a time lag on when those prices make it into our P&L, so that price drop that took place call it in June wouldn't really start hitting our P&L until almost the current period.

So we did have, like we mentioned on the call, some inflation on wings in the second quarter. If trends hold we should be flattish in the third quarter and then we'll just have to see what happens in the fourth quarter if we experience the normal seasonal uptick or not.

Last year there wasn't much of a seasonal uptick in the fourth quarter so we'll see if that comes to be..

Got it. Just lastly, I think you mentioned something in terms of the number - I think you said 27% of units have online sales north of 20%.

I'm wondering, obviously that's a whole lot of units but how high does it go? What's the best in class doing at this point in time?.

You know, we've talked a number of times about the opportunity to continue to grow our online sales, and we see, certain pizza concepts that can achieve levels north of 50%. If you look at Wingstop, 60% of our orders today still come in over the phone. 75% of our revenue is takeout oriented revenue.

And so we would expect that we can certainly grow beyond the levels that we're at today, and I think that metric you mentioned of 27% of our restaurants have exceeded 20% is indicative of the continued strengthening of the online business for us.

And then I will say that we have experienced performance in the 30s as well in a handful of restaurants and expect that it's certainly possible and doable long-term..

Understood. Thank you..

You're welcome..

Our next questions come from the line of Jeff Farmer with Wells Fargo. Please go ahead with your questions..

Thanks.

Following up on Jeff's last question, in terms of those restaurants that can get north of 30%, is there any particular common theme among those restaurants, either geography or they may be made the transition to mobile app first, had the POS system first, anything like that?.

Yeah, I think if I had to give two comments on that, one, I think it is certainly a little bit of demographics around the restaurant, so folks that are a little heavier millennial and certainly a little higher on the income scale tend to utilize mobile apps and mobile technologies more so than other markets. That's a part of it.

It's not a big piece of it.

I think the big focus there is the integration of the POS aligned with the operators within the four walls of the restaurant really converting their guests to online sales and they put a concerted effort towards it which we're rolling out throughout the chain and I think that is demonstrated by the continued quarter-to-quarter growth that we see, that as we continue to roll out the POS, solidify our infrastructure in the long-term, now we would expect that to continue to grow..

Okay. And then you touched on it but shifting gears to advertising, so what percent of the system is not currently in an advertising co-op? And would you expect those units to see potentially a greater relative same store sales tailwind with the launch of international advertising in early 2017..

Today 40% of the restaurants in the U.S. are not supported by an advertising co-op but even within some of these co-ops not all of the co-ops have the kind of media weight that we would expect to have in a national advertising format. So we believe - we do believe that it can have an impact on the business.

We haven't guided towards any specific number. There is certainly plenty of precedent out there to explore as it relates to how companies are impacted by this.

But certainly in markets where they've only had very localized marketing support to be able to turn on upwards of 22 weeks of media next year gives them a certain leg up compared to where they are today..

And final question, and you basically segued into this, which was just the case study, as you said there's a handful of concepts that have made that jump to national advertising.

Is there anything that you can share in terms of your own analysis of that jump with us?.

Yeah, I wouldn't - I can't share what we've identified or that would, ultimately give you the perspective we have on what it would impact sales by, but I can tell you that it consistently improves performance of those brands.

But, again, I think every brand is different, and so I don't want to speculate at this point as to what we think the impact would be going into 2017..

All right. Thank you..

You're welcome..

Our next question comes from the line of Jake Bartlett with SunTrust. Please proceed with your questions..

Great. Thanks for taking my question. My first question is the Mayweather fight, if you can quantify what the impact was in the quarter. I also wondered what the COPA America soccer tournament would have had an impact on sales in June, given your demographic.

Any color on the kind of inter-quarter impact of those two things?.

Yeah, sure. I think we mentioned in the last call the Mayweather was about a hundred basis points in the quarter, and, we obviously tracked what we could relative to the soccer tournament COPA America and on individual dates we received a benefit but when you aggregate that across a quarter it's not really material item..

Okay.

Then going back to the Olympics, should we expect that to have any impact given the nature of the offering?.

Yeah. So obviously we've looked back in history to try to understand if there's been an impact. Obviously, the unique fact of this time is that it's in the same time zone as the U.S. In the past we haven't seen a significant benefit from it. So we're not anticipating that. But obviously we're hopeful that it helps..

Okay. And then another one, on the COGS inflation that you saw here, I thought one of the reasons why you weren't going to take any pricing in 2016 was because of the lack of COGS on inflation.

So has this changed that? Is the franchise system changing some pricing in 2016 that we hadn't expected before?.

Yeah, I think we've consistently noted that the strength of our model is the simple footprint, the low - generally low labor costs used to operate it, along with the lower real estate cost and occupancy, et cetera, that we can - we can certainly work with the volatility that we would see with wings year in and year out, without having to have any immediate reaction with pricing action for the brand.

So we would not expect that this relatively small, , impact on the wing market would cause franchisees to adjust price specifically because of that..

Okay.

And then, lastly, on the cash returned to shareholders and your levering up balance sheet with the special dividend, can you share anything about your approach going forward, maybe philosophically around when you might want to do this? Again you're obviously going to deleverage this year as you pay down debt as your EBITDA grows and you could also [indiscernible] ongoing dividends.

Anything you'd share on that front?.

Yeah, so obviously we're very, very pleased with the new credit facility that we put in place and from what we've heard from shareholders it's been well-received as well. As you know, we think we offer both the high-growth model but also in an asset-like manner.

And so we're able to not only generate a high level of free cash flow which helps us utilize that to drive great shareholder returns but also to leverage the balance sheet to do the same as well. So that has been part of how we've managed the business in the past and I would tell you that's how we plan to manage it into the future.

I think in terms of utilizing free cash flow, Charlie mentioned earlier, that we will opportunistically build a couple of company stores who are there if there are opportunities in the trade areas where we operate we might even potentially acquire restaurants, but all under the context of keeping a very highly franchised model with the lion's share of our growth coming from the franchise out of the business.

In addition to that, we are committed to returning capital to shareholders over time. We're focused on driving shareholder returns.

But in terms of any types of announcements, we don't have anything that's imminent for now and so I would expect that we just got through that last transaction, which we've been focused on, and we wouldn't do anything or make any announcements on future plans until 2017..

Okay. Thank you very much. Appreciate it..

Thank you..

Our next questions come from the line of Andrew Charles with Cowan and company. Please proceed about your questions..

Great. Thank you about I wanted to ask about the genesis of the $20 summer bundle.

Should we think of it as your way of countering the intensified environment? Also how is the reception of the offering relative to either your test markets or your own internal expectations?.

The - yeah the genesis of it simply was an opportunity to balance out some of the impact perhaps of food costs by offering a boneless bundle, and our - certain of our franchisees in some markets had been testing an offer like this previously.

We think it creates a great value but at the same time from the check perspective it's a $20 deal and so with our high check average this particular promotion worked quite well.

Primary benefit is that it helps drive our boneless wing sales mix higher and that certainly for us has a benefit to food costs if we find that we're in times where the bone-in wing product is inflationary rather than deflationary, as Mike had mentioned before. So hopefully that gives some perspective on the choice to do that..

Sure.

And how was reception to it? Did it meet your expectations?.

Yeah. The impact actually it was well received. It mixed just over 10% of all sales for the brand during the time that we've had that promotion in place. So it definitely has had a nice impact on the business and very favorable to our franchisees..

That's great.

With the reallocation to marketing digital dollars you did earlier this year to help gain efficiencies in your spend how is the growth in digital sales so far in 2016? It seems like it's been pretty steady, roughly about a point or so in digital sales mix per quarter? Has that surprised you? Were you expecting to get a bigger lift in the digital sales mix? Or I should say growth in your digital sales mix?.

No, I don't think we were expecting much different than what we've already achieved. I think that decision had two elements to it. One was a specific drive to generate digital orders by being in more places and having click-through opportunities.

The secondary piece to that, as we had mentioned before, was the introduction of digital video advertising, which doesn't have a specific direct click-through benefit but certainly helps in increasing brand awareness, especially amongst our core audience, the millennials who tend to live in the space in which that digital video is consumed.

So in both cases we're very happy and very pleased with the performance. As we've noted before, we would expect a ratable increase in our online sales as we continue to invest and put in place the underlying infrastructure in the restaurants through our point of sales system.

And then as we enter into 2017 have a more concerted effort and that effort being supported by our national advertising campaigns to drive more people digitally into our business through digital channels..

And just my last question I was just looking for an update on international.

Any regions you recall being particularly strong during the quarter?.

Well, I think the business certainly continues to grow. We continue to add new restaurants. We continue to see each market around the world become much more - much stronger as they continue to grow and expand awareness and build the brand.

I think Larry and his team are doing a fantastic job of really zeroing in on the model that we want for long-term international growth.

And with that model comes opportunities like we announced here to expand our footprint into markets like Saudi Arabia and we would fully expect down the road that we'd continue to expand in other markets that fit the criteria for our expansion plans, which, again, comes around high chicken consumption and then certainly an acceptance of U.S.

brands and particularly western brands in general. So we're excited about the opportunity. We're going to continue to work very hard and very diligently and very carefully to build this as part of our really long-term growth strategy for the brand..

Thanks, Charlie..

You're welcome..

[Operator instructions] Our next question comes from the line of Nick Setyan with Wedbush Securities. Please proceed with your questions..

Good afternoon. Thank you. Just a quick question on labor. I think the comment in the press release is that labor was also up.

Did that actually deliver in the quarter? And how should we think about that kind of going forward into the second half on the company-owned side?.

Yeah. And a good question. The investments we made I think first and foremost, to answer your initial question, it did have a delever impact, but most notably this is not specific to any sort of wage issue or inflation issue, but most notably around a roster expansion that we've consciously made in our company stores to prepare them for the growth.

If you recall, our company-owned stores, same-store sales grew by 6.8% in the quarter. That's on top of very, very strong growth over the years, and so we felt it necessary as we continue to take care of our guests to expand the roster.

And so as - in doing so, that creates opportunities to train our people, but those training costs come with hours invested in the P&L. We don't think - we only see this really as a near term investment. We don't see this as a long-term issue. So we expect to see labor moderate in the back half of the year for the company store footprint..

Got it.

And then the comment on the pre-opening, would you be able to quantify that, especially as we are going to see another opening in Q4?.

Yeah, Mike?.

Yeah. So the pre-opening expense impacted the margins by about 70 basis points..

Got it..

Company store margin..

And then clearly international is becoming a more meaningful, so, maybe talk about the supply chain issues that you guys see with international with the various markets, how you know, what kind of investment, we should think about in SG&A over the next - in the near term and in the medium term..

Sure. And your question certainly calls attention to the fact that we're being very diligent and careful about our pace of international expansion for a lot of reasons. That is one of the big ones. As you may know, certainly supply chain is a big piece to the puzzle of establishing a long-term successful international strategy.

And Larry and his team have been working very hard with a number of global suppliers that are built and prepared to help us expand our business overseas and they're addressing very important issues for us that we need to be prepared for, for instance, GMO-free products, as well as halal certified products in certain markets around the world as we expand.

And then separately, ensuring that we had a sustainable and growing supply chain for chicken to get into the markets that we expand into. And then notably the ability to produce a lot of these products overseas, closer to the markets in which we operate to reduce just costs overall.

So he and his team have been working with a few, as I mentioned, key suppliers of these products and services across the world. And before too long, we'll have established what I believe will be a very appropriately sized and robust supply chain for us to continue to grow with.

But one thing I will certainly commit to is that we will not grow too fast in advance of making sure that we've got the infrastructure in place to do so properly..

Thank you..

Our nest question comes from the line of Matthew Kirschner with Guggenheim Securities. Please proceed with your questions..

Hi, I am not asking you guys to tip your hand here, but just within the context of the Mayweather fight adding about 100 basis points of a benefit.

Do you see anything or do you have any plans in place for the launch of the Olympics next week?.

Nothing specific, no. I think certainly the Olympics could be helpful to us but we are not anticipating it to be significant in any way. They - if you look at past years the Olympics have been in various time zones around the world and this year they are in our general U.S.

time zone, so that may create some opportunity but we don't expect it to be meaningful..

Ok, and just longer term looking out 2016 you've commented that you guys set yourselves up for almost 1,000 stores by 2017, as well as the national advertising rolling out.

Do you envision what the next steps are as Wingstop continues to grow?.

Can you clarify that, what you mean by next steps beyond that? Do you mean beyond that timeframe or….

Yes, looking out to 2017, you've recapitalized, you have the national advertising platform coming on board.

Do you see any significant strategic shifts?.

No, those items, notably the national ad fund are going to be key enablers to our continued progress towards our US development target of 2500 restaurants overall, that can only help us along the way by exposing the brand in markets where people may not know us as well.

Separate and apart from that I think our strategy for the long term is very clear yet very simple. It's continuing to leverage the great unit economic model that we have in place delivering 10% plus unit growth along with low single digit sales growth that delivers great returns for our shareholders, ultimately.

So, we are very proud of the fact that we have a very simple model and I think the growth to 1,000 restaurants only creates leverage opportunities and scale opportunities for us in the future..

Great. Thanks for the time.

Thank you. This concludes question-and-answer session. I will turn the floor back to management for closing remarks..

Thank you all for your time today. We certainly appreciate your continued interest in Wingstop and look forward to speaking with you in the future..

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation..