Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Wingstop Inc. Fiscal Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded today, Wednesday, February 22, 2023.

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 2022 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 now turn the call over to Michael..

Canada and Korea. I've had the opportunity to visit both markets for their openings, and I could not be more excited for the potential for Wingstop in both of these markets. Our Canadian market is already pacing ahead of their development schedule. We opened our Korean market in mid-January and are pleased with the pipeline of sites.

Both markets showcased the opportunity for Wingstop brand globally, following our successful playbook from the U.K. market, where the restaurant count is now 28 and AUVs above $2 million.

Our new markets speak to the investments we've been making to support our growth, and their early successes will help continue to fuel our business development pipeline. There remains a lot of excitement -- exciting demand for the Wingstop brand outside of the U.S., and I believe our international business is supercharged for growth.

If you consider the growth in transactions driven by our sales levers, the strength of the unit economics and the enthusiasm of our brand partners to continue to grow, Wingstop is well positioned to have another record year. We're exiting 2022 with great momentum.

And this, combined with the strength of our strategy is what gives us confidence in guiding to a mid-single-digit same-store sales growth outlook for 2023 and our ability to navigate any macroeconomic uncertainty ahead.

We also see opportunity to maintain this accelerated pace of unit growth and anticipate opening approximately 240 net new restaurants in 2023, which is well above our 3- to 5-year targeted growth rate. Before I hand the call to Alex, I'd like to share some exciting news around our ESG efforts, what we refer to as Flavor for Good.

A key focus area in our Flavor for Good platform is giving back to the communities in which we serve. Our Wingstop Charities' mission is to engage the youth in our communities in pursuit of their passions.

Our charities' core programs consist of community grants, team member assistance and a scholarship program supporting team members who are the first generation in their families to attend college. This past December, we launched the capability in our website and app for a guest to round up their check to donate to Wingstop Charities.

I'm thrilled to share, in just a couple of months since launch, we are pacing towards contributions that in only 1 year could more than triple the grants we have provided to date, a remarkable opportunity to give -- to have a bigger impact in the communities we serve.

I'd like to close by thanking the team members in the restaurants and our Global Support Center as well as our brand partners for all their incredible work and commitment to position us to deliver these results. I couldn't be more excited about the opportunity ahead for Wingstop in 2023 and beyond. With that, I'll turn the call over to Alex..

Thank you, Michael. 2022 results are a great demonstration of the strength of our long-term strategies and how Wingstop is uniquely positioned. We hit our 19th consecutive year of same-store sales growth, opened more than 200 net new restaurants for the first time, and we generated more than $100 million in adjusted EBITDA during the year.

Before I dive into the financials, a brief reminder that 2022 results include an extra operating week or a 53rd week, which for the fourth quarter represents a 14-week period versus a 13-week period in the prior year. As a result, year-over-year comparisons are not strictly apples-to-apples unless identified.

Our growth in system-wide sales during the fourth quarter was 28.9% versus the prior year. When excluding the $57 million impact from the 53rd week, full year 2022 system-wide sales totaled nearly $2.7 billion, which is a growth rate of 14.4%.

Royalty revenues, franchise fees and other revenue increased by $14 million in the fourth quarter, driven primarily by 221 net franchise openings since the prior year comparable period, the 8.7% increase in domestic same-store sales and an estimated $3 million of additional revenue associated with the 53rd week.

Our fourth quarter comp was entirely driven by transaction growth, speaking to the strength of our second half.

Company-owned restaurant sales increased by $5.3 million in Q4 due to a 2.6% increase in same-store sales primarily driven by transaction growth, 7 net new restaurants versus the prior year comparable period and $1.5 million of additional sales from the 53rd week.

Cost of sales, excluding preopening expenses and as a percentage of company-owned restaurant sales decreased by 900 basis points in Q4 compared to the prior year, primarily driven by food costs and a 49% decrease in the cost of bone-in chicken wings.

We were one of the few brands to experience significant deflation in our core commodity, and our unit economics are exiting 2022 from a position of strength. The near-term commodity outlook is favorable not only for bone-in wings but also for breast meat.

Based on what we know today and for modeling purposes, we anticipate full year 2023 cost of sales to be approximately 75%, implying an improvement of more than 300 basis points versus 2022.

SG&A increased by $300,000 versus the comparable period prior year to a total of $18.3 million, driven by investments in talent and an approximately $1 million impact from the 53rd week. This was partially offset by a year-over-year decrease in stock compensation expense.

Adjusted EBITDA, a non-GAAP measure, was $34.7 million in the quarter, an increase of nearly 72% versus the prior year. This includes the estimated impact of the 53rd week, which totaled $2.6 million. And when excluding the impact, adjusted EBITDA increased by 59% in the fourth quarter.

We delivered adjusted earnings per diluted share, a non-GAAP measure, of $0.60, a 150% increase versus the prior year. When excluding an estimated $0.03 impact from the 53rd week, adjusted earnings per diluted share increased by 138%. Our highly franchised asset-light model continues to deliver strong free cash flows.

As of the end of the fourth quarter, we had $526.8 million in net debt. Our net debt to trailing 12-month adjusted EBITDA was at 4.8x, which is a full 1.5x lower than at the end of the first quarter.

The timing for our last debt transaction, underscoring our ability to quickly delever through a combination of adjusted EBITDA growth and strong free cash flow generation. We remain committed to driving shareholder value and returning capital to shareholders through our regular quarterly dividend.

Today, our Board of Directors has declared a dividend of $0.19 per share of common stock, a demonstration of the strength of our model. This dividend totaling approximately $5.7 million will be paid on March 31, 2023, to stockholders of record as of March 10, 2023. Now turning to our outlook for 2023.

As you heard from us today, we remain confident in our strategy and our outlook of mid-single-digit same-store sales growth for 2023. We also anticipate maintaining an increased pace of development with approximately 240 net new units. This translates to a unit growth of more than 12% versus the prior year.

For modeling purposes, we anticipate opening 3 new company-owned restaurants with openings likely to occur in the fourth quarter of 2023. SG&A guidance is estimated to be between $82 million and $84 million, including an estimated $11.5 million to $12.5 million of stock-based compensation expense.

This outlook translates to approximately 15% growth in adjusted EBITDA versus 2022 when excluding the impact of the 53rd week. I'd like to thank the incredible team members and brand partners throughout the Wingstop system that have helped us deliver another record year.

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 comes from David Tarantino from Baird..

Congratulations on such strong results. My question's related to the comps outlook. And I was wondering, first, if you could maybe describe how you expect the year to play out and how you've started 2023.

And then secondly, one of the questions I hear a lot from investors is whether you've pulled all the key or major levers that you had in the portfolio to drive comps in the second half of 2022.

And how are you planning to cycle that when you get to the second half of this year? So, any color, I guess, on your confidence in cycling such strong performance in the second half of the year would be great..

Thanks. Yes, I'm actually happy that you asked that question because I know that's 1 that we hear a lot. And I think it's really important, and we tried to get that message across in our prepared remarks. But if you think about where Wingstop is positioned, it's in a really unique spot.

You've often heard us refer to ourselves as being in a category of one. But when you think about the growth levers that we did pull and are executing against, they all ladder up to that strategy that we believe will continue to scale our AUVs from $1.6 million today to north of $2 million.

And part of that is still yet a big opportunity we have in closing the gap to other national brands around brand awareness. We had a 40% increase in 2022 in our ad fund dollars we could invest and we're making progress. But there remains a significant opportunity there.

And as you think about the growth in system sales just from '22 to '23 alone, gives us a lot more ammo in our Interact fund to continue to advance that gap and scale brand awareness. We talked about innovation. Chicken sandwich, I think, is a great example of the multiyear sales driver that we believe we have for our brand.

There are 160 million chicken sandwich consumers out there in the U.S. today, and a small fraction of those chicken sandwich consumers are engaging with Wingstop.

We're pleased with where our chicken sandwich sales mix is and where it ended in the fourth quarter, where we maintained that high single-digit sales mix, but we know there's a ton of opportunity to continue to win more of those occasions. And we believe that will drive multiple years of growth for the brand.

And then you think about those same consumers who also are likely consumers of tenders, where we see another really exciting lever for us to pull and more occasions for us to win. We talked about delivery, just recently adding Uber. Uber Eats is our second delivery provider nationally.

And as we sit here today, we can benchmark where our delivery business is against other heavy off-premise businesses that behave similar to Wingstop, and their delivery channel mix is north of 50%. So we see a significant growth in that channel.

And we know based on conversations with Uber Eats that we're just scratching the surface with the number of users on their platform and those that are engaging with our brand.

And then from there, we think about digital transformation and continuing to not only get our digital business to further expand, which again, another unique attribute around Wingstop is you're seeing as consumer behavior in the industry starts to revert back to pre-pandemic behaviors, you're starting to see all of the businesses digital business retract and ours is actually expanding.

And we know there's more opportunity there for us to continue to grow that. And that's given us a lot of powerful data that's feeding that marketing engine and helping us drive frequency, win more occasions, bring new guests into the brand.

And so I think it's -- the culmination of all those things and those levers, David, that aren't really a 1-year impact to our business but yet a multiyear impact, that give us line of sight to scaling AUVs of north of $2 million.

And so I think all of that is what gives us confidence to come out in this environment where there is still a fair amount of uncertainty out there, but to come out and guide to a mid-single-digit same-store sales outlook for 2023..

Great.

Any comment on how the year has started?.

Yes. We saw -- obviously, as you think about the comp in Q4, David, we talked about how we saw October, 100% of our comp is being driven by transaction growth. And we've signaled that, that being 6% and obviously posted an 8.7% for the quarter, we saw that comp momentum build throughout Q4.

And so we think it gives us a lot of great momentum as we think about starting 2023..

Our next question comes from Jeffrey Bernstein from Barclays..

Just on the other key revenue driver being unit growth. You mentioned another strong year in '23 with 12% growth. Just wondering if you can talk a little bit about maybe new versus existing markets, U.S. versus international.

And whether there's any franchisee concerned at all in the current environment, whether macro-related or elevated interest rate related? Just trying to get a sense around that unit growth more broadly. And then I have 1 follow-up..

Yes, the unit growth story is something we're really excited about, and I think as you mentioned, is a real key component of the long-term story at Wingstop. And we talked about it in our prepared remarks, but the current sentiment with our brand partner community is really positive.

We're seeing some really great strength, as we talked about, in the fourth quarter from a top line perspective. But probably equally or most -- more importantly is what they're seeing on their P&Ls as the unit economic model is about as strong as it's ever been, and it's creating a lot of excitement to continue to grow.

And that excitement isn't just in the U.S. And so as we target our outlook for 2023 with another strong development year for the brand, we see that mix being pretty similar to what we delivered in 2022 from a domestic versus international perspective.

And similar to what we've executed against in 2022, we're continuing to expand not only outside of the U.S. but into some of the emerging markets in the U.S. as well that we haven't really had a strong presence in. The early results of our development in those markets is really encouraging.

We're seeing some really strong volumes out of the gate, and we're excited about continuing to expand our footprint..

Understood. And then the follow-up maybe for Alex. Just the cash usage, you talked about, I think you said you're at 4.8x. I believe your historical target is 6x to 7x.

So I'm just wondering, as you think about cash, one, whether or not you're willing to let the ratio continue to fall in this current elevated rate environment, or whether there's an update related to your supply chain investment and how else potential cash could be used..

Thanks for the question. Since our IPO, we've returned more than $650 million of capital to shareholders. And our model -- our asset-light model is clearly built to provide best-in-class returns. That being said, we do have that cash on our balance sheet to be opportunistic, to maximize returns in our business and for shareholders.

And that could include, as we've talked before, a focus on our supply chain strategy to mitigate that volatility in our food costs or other capital allocations such as a return of capital. And you've seen that cadence from us over the years on taking our leverage up.

So we'll continue to have that dialogue with our Board and really look to prioritize the best use of capital with that in mind..

Our next question comes from Jon Tower from Citigroup..

Just a quick clarification and then a question. The effective royalty rate in the fourth quarter stepped up pretty nicely relative to what we've been seeing in the past year or so. I'm just curious if you could explain what that is. And then 1 follow-up to that..

Jon, you may remember that several years ago, we had a vendor contract that we renewed and renegotiated and so you probably, in our results, saw a little bit of a pop in other revenue. And we had that in this fourth quarter that impacts the flow-through a little bit.

But a big chunk of that retro rebate, if you will, actually flowed into the ad fund as well. But that's what's the effect on the quarterly number..

So that's not going to be a sustainable level of royalty rate then going forward, just a onetimer?.

Yes, Jon, you can point back to quarter 3 as a good effective rate to think about..

Okay, great. And then I guess thinking about unit growth here with targeted paybacks increasing, particularly if you look at making your way towards $2 million AUVs, it looks like you can get less than 2 years of paybacks on these new stores.

Can you discuss the capital allocation policy of the company and why not pour more capital back into unit growth on the company side? Understanding that there may not be major market opportunities like Manhattan out there, but probably more onesie, twosies across different markets that I'm assuming would be good uses of capital, considering the paybacks..

Yes. I think, Jon, over the years, you've seen us be opportunistic where we can. And I think the fourth quarter was a great example where we saw a couple of restaurants that came up for us to acquire in the Dallas-Fort Worth area. And you'll see us continue to take advantage of those opportunities as they present themselves.

But I don't think you'll see us fundamentally shift our strategy, our approach because quite frankly, we're designed to be a franchisor.

And the required G&A investment, some of the infrastructure needed to, I think, advance our capital allocation towards company restaurants would require more of a fundamental shift and then us continuing to pursue these opportunistic opportunities, which we believe are a great return for shareholders..

Our next question comes from Andrew Charles from Cowen..

I know that the industry, we've been hearing a lot in 2022 is about increased CapEx and cost to build new stores. But you guys have talked pretty consistently about a mid-$400,000 range. And so curious what you guys have been able to do to help just mitigate the industry trend and keep a pretty consistent level of CapEx per store..

Thanks for the question. I think we're not immune to inflation.

And we have seen the build costs tick up a little bit, but I think it speaks a little bit just to the efficiency of our model and the fact that we're building out an in-line space, which requires a little bit less of maybe some of the more inflationary areas you've seen in construction, a lot of that being labor, quite frankly.

And so I think that's helped us a little bit.

But I would say we have been proactive from a supply chain perspective to get in front of a lot of this development from an equipment side and negotiate, if you will, buys for the entire system not only help us negotiate strong price or favorable pricing but also help us address some of the disruptions that other brands have seen from a supply chain perspective..

Okay, that's helpful. And then I wanted to ask as well, we saw earlier this year a bone-in bundle. I think it's the first time we've seen do that in the last couple of years, and obviously, cost of wings certainly is prohibitive on that. But what's your decision to do bone-in wings in a bundle? Usually you guys use value more.

I always thought of kind of the defense in using these bundles is more of a defense. So curious about what drove the decision beyond just your lower cost of wings to do the bone-in bundle..

Yes, Andrew, you could, to some degree, say that was a little bit of a test for us to understand how a bone-in bundle would perform. And you may have been included in this audience, but it was a pretty targeted audience of those who set New Year's resolutions and so it was targeted towards those hitting the gym and wanting to bulk up.

And so it was a pretty contained audience, but nonetheless, performed well and it was pretty short lived but definitely an interesting test for us. But I don't know that I would argue it's going to be a fundamental shift in our long-term approach around presenting consumers with value..

I'll definitely use that more for my New Year's resolution so if you bring it back, I'm looking forward to it..

Good deal. Thanks, Andrew..

Our next question comes from Brian Harbour from Morgan Stanley..

In your kind of same-store sales outlook, do you think franchisees will take any price this year? Because obviously, there's still labor inflation, commodities are favorable but maybe not quite the tailwind they were last year.

Do you have any assumptions around that?.

Yes, Brian, we talked about this a little bit before in that we expect in 2023 to get back to what we refer to as a little bit of our historical approach around a disciplined approach to pricing, which would consist of roughly 2 windows of about 1 to 2 points of price, and that's what we've done historically.

But obviously with 2022, we took a little bit of a different approach, considering the overall impact to the consumer..

Okay, great. And then maybe just on the delivery side. I know it looks like digital mix did tick up from -- a little bit from earlier in the year and maybe some of that seasonality.

But could you maybe comment on how much of that might have been driven by Uber Eats and how you've seen that kind of drive delivery transactions perhaps?.

Yes, Brian, it's been interesting. We are kind of in a little bit of a unique spot in that we've seen similar growth across all channels, so not just delivery but digital takeout and even non-digital takeout. We've seen really strong growth across all channels. And so there's not really any 1 area to point out or call out that contributed to that..

The next question comes from Joshua Long from Stephens..

It sounds like the chicken sandwich and some of the menu innovation that you've been working on is resonating with consumers. Curious what you've learned in terms of usage.

And is it bringing in new guests into the brand? Or maybe what have you seen in terms of frequency and kind of usage and maybe guests have shifted from some of the larger party orders into more individual transactions in the lunch day part?.

Yes, Josh, thanks for the question. We've seen -- and similar to our prior comments, we've seen the chicken sandwich prove to be highly incremental. It continues to mix nicely over the lunch day part, which we'd really like to see. And we're actually seeing it be an add-on to orders versus maybe anything like a trade-down or anything like that.

And I would say it helped us bring in new guests as well as drive frequency.

And so we're excited about what this can mean long term, not only from a sales driver perspective but also from a supply chain perspective because as we've shared before, as we see chicken sandwich continue to grow and become a bigger part of our business, we see a line of sight to where our boneless mix can be north of 50%.

And in that scenario, we could see where we could have an approach to our overall supply chain strategy that allows us to deliver predictable food costs to our brand partners in the low 30%, which we think will be a game changer for a development perspective..

Great.

As a follow-up, as you think about bringing new guests in with some the menu innovation, particularly the chicken sandwich, does that speak to your desire and communicated strategy of bringing in that heavier QSR customer who may not be historically as involved or as close to Wingstop? Are you making progress on that? And I imagine there's kind of a slow build to that, given where you want to go and a lot of opportunity, but any sort of insight you could share in terms of how some of these near-term efforts are helping you kind of bridge the gap there would be helpful..

Yes, it's a great question. And we're seeing a lot of really great traction against that heavy QSR consumer, bringing them into the brand. And what's interesting is if you look at our frequency, it still remains about 1 time a month or 3 times a quarter. So that Wingstop occasion, that indulgent occasion is still a low-frequency occasion.

And that's something, I think, that presents us pretty uniquely in this space and allows us to engage with guests differently. But as we think about chicken sandwiches, those do tend to be a little bit more of a high-frequency occasion. And we see it as an opportunity over time for that to influence frequency.

And so it is something we're working against. But we'll continue to provide updates as we have more, but an exciting opportunity nonetheless for us to continue to sustain not only the acquisition of new guests but also ultimately impact frequency, which you know will help us in our target of achieving AUVs north of $2 million..

The next question comes from Jeff Farmer from Gordon Haskett..

Just curious, a different sort of tack on trying to understand how the restaurant is performing in early 2023.

So can you just remind us how large of an impact you saw from Omicron in early 2022 last year?.

Yes, yes. Jeff, thanks for the question. We actually didn't see a real impact to our business from Omicron back in 2022. If you recall at that time, the majority of our dining rooms were closed in the January time period, February time period. We didn't really see an impact..

And then unrelated, I did hear the guidance for, I think you said total cost of sales at 75% in 2023, down roughly 300 basis points year-over-year.

Is it safe to assume that the lion's share of that benefit is coming on the COGS line or are you going to see it on labor or other operating as well?.

Yes, that's right. Yes, you could expect to see the majority of that in the COGS line. And as Michael mentioned on the -- in the prepared remarks, it will be through the combination of what we're seeing with leading indicators on our commodities as well as our executing our supply chain strategy..

Our next question comes from Andrew Strelzik from BMO..

Just wanted to follow up on the comment you just made there on the cost of sales on the food line, in particular. Obviously, a lot of focus on the bone-in wings always but chicken breast prices being down as much as they are.

How is that playing into your thinking there? Can you frame maybe the impact and the timing to which that really starts to kick in? And then on the kind of broader whole bird strategy that you've talked about in terms of different options, buying a chicken plant, partnerships, various things, can you give us an update on where you stand now, which seem more or less viable at this point?.

Yes. Great question. Last year, chicken breast prices reached their peaks in the midpoint of the year so we'll be lapping a component of that. And that is a component, as Michael mentioned, the combination of where our boneless mix is heading with chicken sandwich launched that allows us to have different conversations with our suppliers.

And that's the -- really the first component of our supply chain strategy around more of a whole bird cost-plus pricing strategy. So as we think about not only the leading indicators, what we're seeing that imply benefits in the first part of the year, it's also about our supply chain and what we're executing.

So if you back into our approximately 75%, that does imply about a low 30% food cost in 2023..

Okay, great. And just any update on maybe conversations on how you're thinking about some of the broader supply chain strategies? You talked about the chicken plants and partnerships and various other ways to try to create some stability there over time..

Yes. We continue to be in active dialogue with potential partners.

And really, I think we've talked about this before, a lot of the conversation and some of the willingness to structure some of our pricing agreements a little bit differently and move further and further away from the spot market or where those conversations are focused, which for us is a win-win because it obviously is a very efficient way for us to execute the outcome, which is what we're trying to solve for, which is to minimize volatility in food costs.

So we're seeing great progress, and I think it has a lot to do with what we're able to signal of targeted food costs for 2023..

Our next question comes from Nick Setyan from Wedbush Securities..

Congrats on the amazing quarter. Just a question on the differential between the AUV growth year-over-year and the comp. It's a couple of quarters now where AUV growth in terms of like the comp base stores has trailed the comp by a substantial amount. Just wondering what's going on there and how we should think about that delta going forward..

Nick, thank you. And we hope that delta continues to exist because what you're seeing is really the strength of the new restaurant openings coming out of the gate at higher AUVs entering the comp base, which obviously impacts that average AUV calculation that comes in a little bit and is still comping really strong after that first year.

So you're seeing that dynamic at play, which we think is a pretty good thing for the business..

So maybe just comment on the sort of year 1 AUVs right now and how that's been trending in the recent past and how we should think about the sort of opening volumes going forward..

Yes. Nick, just a few years ago, we were seeing year 1 volumes on average coming out north of $900,000. And just this recent vintage alone, it's coming out of there -- out of year 1 at about $1.2 million, $1.3 million.

So you can see a marked increase in how the restaurants are coming out of year 1, which can ultimately influence kind of the change in AUV year-over-year versus just pure comp growth..

And then just CapEx for 2023?.

Yes. It will be fairly consistent with what you saw in 2022, in that high 20s mark..

The next question comes from Michael Tamas from Oppenheimer & Co..

You talked about plans to double the size of your delivery business over time.

So can you talk about maybe some of the specific strategies to reach that goal, particularly at a time when we're seeing some delivery headwinds across the industry? Do you think that will cause some of your consumer base to just simply shift into delivery from other methods of getting Wingstop?.

Yes. I think the opportunity there, it's really 1 that's tied to a broader opportunity for Wingstop and that's just awareness. Our awareness on these delivery platforms is still really low. And so we'll continue to build that, whether it's through specific promotions or actually using some of our ad dollars to advertise on those platforms.

But it's not anything different than some of the other strategies we're executing that. And then continue to scale awareness and really speak to a huge opportunity we have here at Wingstop. It's just the acquisition of new guests as we scale awareness.

But we talked about it earlier, our delivery business, I know there's questions from a broader industry perspective that we've actually seen strong growth in our delivery business, and that's something we're excited about..

Okay.

And then you talked about -- can you talk about your new consumer base versus maybe a legacy or more mature consumer base in terms of either the frequency or overall spend? Is there a noticeable difference between the 2? And then why do you think that difference exists and what can you do to sort of like close that gap?.

Yes. I mean, I think we've talked about, over time, we've brought more of those heavy QSR guests into the brand, which are a little bit less ethically diverse, a little bit higher income. And so we've seen our mix of that lower-income consumer shift down to about 30%.

And so there is a little bit of a difference in behavior but I wouldn't say anything material. The frequency is about the same. The average check is not materially different in how they engage with the brand.

I think really what we're seeing is some of these new guests that are introduced to the brand via chicken sandwich, I think, speak to some longer-term opportunities that could shape and be a little bit different than our historical or legacy customer..

Our next question comes from Brian Vaccaro from Raymond James..

On this call, you've laid out a couple of high-level bogeys. On delivery, you noted that peers often see greater than 50% of their sales on delivery. And you also mentioned eventually getting to the boneless mix above 50%.

Could you just level-set us on where each metric, delivery sales and boneless sales mix, currently stands exiting 2022? And then would you also be willing to ballpark the lift you're seeing since adding Uber Eats in the delivery platform?.

Yes. We've seen delivery continue to perform strong. And what's a little bit tricky with the question is you're asking us to comment on mix levels, but we've seen a couple of things happen. One is over the last year, we've reopened our dining rooms. And then two, we're seeing extremely strong growth across all channels.

And so we've seen really strong growth in delivery from an absolute sales dollars perspective. But from a mix perspective, it's still hovering just below 30%. It's something that's strong, which speaks to the comment we made earlier of the opportunity to almost double it. And so we're excited about that.

And in boneless mix, obviously, chicken sandwich contributed to we're seeing that mix reach all-time highs for the brand. Historically, it's been in the low 30s and we're seeing that approach 40% right now and something we're excited about..

All right, great. And then, Alex, just a follow-up. I noticed the D&A guidance, depreciation guide, it implies a pretty big step-up into '23 that seems to exceed the company unit growth that you laid out. It got me thinking about just the level of investment that you're making in your tech and growing infrastructure.

Could you level-set sort of where that was in '22 and how you're thinking about that into '23?.

Yes, thanks. First, about 1/3 of that impact is related to the new restaurants that we opened in the past year, so just the wraparound effect of that.

And then the other -- the balance is related to this tech investment that we talked about a couple of years ago, a $40 million to $50 million investment to really take components of some strategic components and in-source within our tech infrastructure. And so we're working on that, and you're starting to see that show up a bit more in our D&A.

But we're excited about the progress we've made to date and where that's heading for our system to take more control of our -- a key component of our strategy..

Our next question comes from Chris Carril from RBC..

So on the international unit growth, could you speak to some of the learnings from the strong results you saw in the U.K.

as you're thinking about strategy and next stages for growth outside the U.S.?.

Absolutely. The business in the U.K. is something we kind of referred to as a textbook deployment of our strategy, where we focus on a little bit more affluent consumer, heavy off-premise, digitally-savvy consumer and obviously a market where there's a strong delivery business.

And so we've taken that, if you will, criteria and really used that to target which markets we go to and prioritize for growth. And so as you think about our first openings in Toronto or us opening just earlier this year in January in Seoul, South Korea, I think both of those markets really speak to how well they fit that strategy.

And it's showing up in the results early on. We're seeing some really strong volumes out of the gate, which make us feel like there's a similar opportunity in those markets that we've seen and the success we found in the U.K..

Great. And then I guess for the U.S.

business, I mean, how are you thinking about pacing or cadence of the flavor LTOs maybe this year on a normalized basis going forward versus kind of past historical levels?.

Yes, sure. We -- historically, if there was a cadence or pattern, we would target about 2 flavor LTOs a year. We did a little bit more than that in 2022, and we feel like that resonated well with guests. It really -- they like the flavor news, the variety. We think it drives consideration and ultimately purchase.

And so you could see us going very similar to what we saw in 2022 with about 3 -- at least 3 flavor LTOs throughout the year..

Our next question comes from Dennis Geiger from UBS..

I want to ask another 1 on the consumer, but specific to the quarter, if you could speak a little bit more to what you're seeing from your customers across consumer purchase behaviors, whether that's looking at promotional usage, other menu utilization worth calling out? And if there's any sort of observations as it relates to the lower income consumer that you're seeing in the quarter..

Yes, Dennis, thanks for the question. We -- obviously, we see all the research and headlines that everyone else sees. We do a lot of consumer research on our own, and we do hear in -- that it's still tough out there for the consumer.

But as we look at our business, as we look at how consumers are engaging with Wingstop, particularly the lower-income consumer, we're not really seeing it show up. And I think it has a little bit to do with our category of, one, positioning our unique positioning, where it's an indulgent occasion for these guests.

And so what we've seen historically, and I think what we saw in 2022 is these consumers have a tendency, if they are going to pull back on dining out occasions, they typically first target their more high-frequency occasions, so it's 4 to 5 times a week heavy QSR business.

And then they almost find themselves in a situation where they feel like they've saved money throughout the month and they deserve to reward themselves. And if we're presenting them with value and top of mind, we've demonstrated the ability to retain those indulgent occasions.

So while we kind of read everything that everyone else reads, we really haven't seen anything show up in our business yet..

Very helpful, Michael. Just 1 other 1. I just want to ask on staffing, given the strength you're seeing in the traffic growth. I believe last quarter, your staffing levels were fine so maybe that's still the case.

But just curious where staffing is, given that traffic and if by chance that's an opportunity to kind of help meet the demand that's out there..

Yes. No, it's a good question. And I think we -- along with our brand partners, we did a good job of getting in front of this labor environment. And we've really focused on a consistent message about paying the right wage. And I think that was taken to heart and we got in front of a lot of this.

And so I think you saw -- as we commented last quarter, not really seeing a lot of issues from a staffing perspective. And I think if you look at opening 61 net new units in the fourth quarter alone, that really speaks to our ability to staff restaurants without any real issues.

And obviously, part of what helps us do that is just the unique labor profile we have at Wingstop where at a $1.6 million AUV, you can run a Wingstop with as few as 4 team members. And so we just require a smaller roster in a much more efficient labor profile that I think allows us to navigate this environment a little bit differently than others..

The next question comes from Peter Saleh from BTIG..

I wanted to ask about the national media in 2023. I think this will be the first year that you have the full benefit of the 100 basis points of transition plus clearly higher sales and more units.

So can you just talk about where the opportunities are in '23 on the national media side, and what, if anything, you'll be doing differently than you did in '22?.

Yes. No. Peter, great question. We alluded to that a little bit in our prepared remarks, where we talked about the second half of 2022. We were really able to deploy this always-on media approach that we think allowed us to show up in the right places at the right moments with the right message. And it wasn't just on linear TV.

It was streaming to digital, to paid search and in social. And so I think what we're excited about for 2023 is being able to deploy that strategy for the full year and benefit from that. You -- and obviously, consolidating that local 1% into the national ad fund gives us a little bit more ammo.

And where the true, I guess, lap of not having that is isolated to Q1 when that started, I guess, in 2022 at the beginning of the second quarter, contributing that extra 1% to the national ad fund.

But I think you'll see us lean into what we believe was a really effective strategy in 2022 and continue to drive the business, drive brand awareness and go from there..

And then just on -- your volumes have increased pretty substantially over the past several years.

Are there any other tests or any new equipment or processes that you guys are testing to help increase throughput to meet all this accelerated demand?.

Yes. I think I would -- we also get the question asked a little differently around capacity. And we've got a lot of restaurants in the system now that are doing well north of $3 million in that same kitchen. And so we don't think there's a throughput issue. We're far from it. We haven't found it yet.

And so we don't see that as a constraint for us to continue to drive AUV growth and most importantly, just to continue to strengthen the unit economics for our brand partners..

[Operator Instructions]. Our next question comes from Todd Brooks from The Benchmark Company..

one, how strong the returns are for the brand partners right now and how good the economics are; and secondly, the success with the chicken sandwich, how it's mixing and boneless getting to north of 50% of the mix over time.

I guess, Michael, as you're looking at the supply chain strategy given these 2 developments, do you feel like the solution needs to be maybe as aggressive as what you guys were talking about earlier in the year as far as looking at potentially owning chicken assets or maybe partnering more deeply with producers? Or are you in a place now where if food costs can be structured in the low 30s and with the returns where they are, that maybe Wingstop doesn't need to go as far to solve the supply chain issues?.

Yes, Todd, it's a great question. And maybe just to take a step back, we saw an opportunity in early 2022 to take our leverage up in advance of what we saw as a rising rate environment. And we think that allowed us to be well positioned, to be opportunistic if we saw an opportunity to vertically integrate and take more control.

But that was just 1 component of a multifaceted strategy that we're working against.

And as I mentioned earlier, the majority of our efforts and energy right now are on, I guess, you could call it a less capital-intensive part of the strategy, which is really around moving more and more of our buy away from the spot market and creating more predictability and landed food costs for the restaurants.

But I don't think we think this is anything that would say that we are going to move away from our broader strategy. Longer term, that could still be a step that we take and it could be a step that we feel is the right step to continue to deliver these industry-leading unit economics.

But right now, we remain focused on having the impact that we can through just a different way in structuring our agreements. But that doesn't mean we're not going to continue to look for ways to further improve those returns and ultimately scale grow from there. But more to come but nothing immediate.

And I think as Alex mentioned earlier in a response around the cash on the balance sheet is even the supply chain strategy doesn't change the overall fundamental asset-light structure of Wingstop, which is a really unique model where we have high growth in a not very capital-intensive model that allows -- that shells off a lot of cash.

And as Alex mentioned, we delever really quickly, since Q1 of 2022, 1.5 turns of deleverage. And so that -- the profile of our model is one that will continue to deliver strong shareholder returns and provide return of capital opportunities for shareholders. And so that's not going to fundamentally change..

Very helpful. And then Alex, a quick 1 for you. I know the G&A guidance, I know there's some incremental stock compensation in there, but it still looks like a maybe $10 million to $12 million lift year-over-year.

Can you walk through the components of what's responsible for the lift in just dollar spend for G&A?.

Yes, Todd, you mentioned that the -- with the stock compensation, we're lapping some forfeitures from 2022, which were about $7 million. So if you normalize for that, our growth rate is actually slightly below what we saw in 2022.

So as we've mentioned over the years, we're going to continue to invest to support our strategies and the growth we have in front of us..

Our next question comes from Jake Bartlett from Truist Securities..

Mine was on the importance of the bundling strategy in terms of driving traffic. And I'm hoping for any detail on the mix of bundles in '22 versus what you had historically maybe in '21, or I think you started launching those back in '18. So just how the bundle mix has shifted..

Yes, Jake, thank you for the question. We talked in 2022 about the success we had around the Boneless Meal Deal, which we thought was a great way to serve that indulgent occasion, present the guests with value and really drive the business when you saw some pressure on that lower-income consumer.

And we saw that bundle mix at about 5%, 6%, something we're pretty excited about, and that was a record mix level for us. And so as you can think about that as an example, it's not a material impact to the overall growth.

But I would say more than anything, it's something that really helps us retain those indulgent occasions when the consumer is feeling pressure or a desire to pull back..

Great. And then I had a question about pricing of the chicken sandwich. I believe it's in the last few weeks or a couple of weeks, it's increased pretty broadly across the system. And I'm just wondering, one, is that just more of a reflection of the strong demand that franchisees are seeing? Any comment there would be helpful..

Yes, Jake, we saw an opportunity just again to further enhance unit economics and flow-through for our brand partners. And we had the chicken sandwich initially priced at a very compelling value that would drive trial.

And we -- even as we took price throughout the country throughout the system on the sandwich and the combo, we still think -- we benchmarked it and it's still priced competitively. And so we haven't really seen anything that gives us concern around that pricing and just saw an opportunity to improve the economics..

Great. And just real quick. You mentioned 3 openings for company stores in '23. Where do you stand in terms of Manhattan? My impression was that there was going to be 20 openings. I think you have 8 open so far, 3 more coming.

What is the plan in Manhattan, just to remind us on that?.

Yes. I mean, I think we remain committed to the long-term opportunity we see there to build that market out. But I would say probably similar to other brands that have a much bigger presence in the city, it still feels like it's not quite back, still recovering.

And so we're staying close and watching the traffic within and how other businesses are faring as well as when it makes sense to continue to lean in and further expand there. But for right now, we're staying close to kind of the recovery and how consumers are behaving within the city..

This concludes our question-and-answer session, and the conference has now concluded. Thank you for attending today's presentation. You may now disconnect..