Wingstop Inc. Reports Fiscal Fourth Quarter and Full Year 2022 Financial Results

Net income rose 24.1% to $52.9million, or $1.77 per share, compared with $42.7million, or $1.42, in the previous fiscal year. Non-GAAP measures include adjusted EBITDA, adjusted net profit, adjusted earnings per share and cost of sales excluding any pre-opening expenses. The schedule that comes with this release provides reconciliations of adjusted EBITDA and adjusted net income as well as adjusted earnings per share and cost of sales excluding any pre-opening expenses to the closest comparable financial measure. "Wingstop had another record year in 2022, highlighted by 13.2% unit increase and an industry-leading 19th consecutive years of positive same store sales growth. Michael Skipworth, President & Chief Executive Officer, stated that we achieved 8.7% domestic same-store sales growth in the fourth quarter of fiscal 2019. This was primarily due to transaction growth. The fiscal fourth quarter 2022 key operating metrics are different from the fiscal fourth-quarter 2021

Fiscal Quarter Ended

December 31, 2022

End of each period, number of restaurants across the system
1,959

Number of franchise restaurants that are open in the country at the end of the period
1,678

Number of international franchise restaurants that are open at the end of the period
238

197
System-wide sales (in millions)
$ 776

Domestic AUV (in Thousands)
$ 1,606

Growth in domestic same-store sales(1)
8.7 %

Domestic same-store sales growth (1)
2.6 %

Net income (in the thousands)
$ 17,596

Adjusted net income in thousands
$ 18,059

Adjusted EBITDA (in thousand)
$ 34,659

$ 20,198

(1) The same store sales percentages for the fiscal fourth quarter 2022 were not adjusted for the 53rd week.

The fiscal fourth quarter revenue of 2022 was $104.9 million, an increase from $72.0 million in last year's fiscal fourth quarter. The domestic 8.7% growth in same-store sales, 221 new franchise restaurants openings, and $3.0million of additional revenue from week 53 accounted for $14.0 million of the increase in royalty revenue, franchise revenues and other. Advertising fees rose $13.5 million as a result of an increase in national advertising fund contribution rates to 5%, from 4% effective on the first day of fiscal second quarter 2022. This was due to a 28.9% rise in system-wide sales during the fiscal fourth quarter 2022 and $2.7 million in additional advertising fees starting the 53rd Week. The cost of sales rose to $17.0million from $14.4million in the previous year's fiscal fourth quarter. This includes $0.1 million and $0.3 millions in pre-opening costs in the quarter 2022 and 2021. The cost of sales as a percentage of restaurant sales by company-owned restaurants decreased to 75.8%, compared with 84.7% during the previous year. This was due to a 49.3% drop in the price of bone-in chicken wings compared with the previous year. The fiscal fourth quarter sales, general & administration ("SG&A") saw an increase of $0.3 million to $18.3million from $18.0 million. The 53rd week saw an additional $1.0 million and $0.9 million in headcount related expenses were added to support our business's growth. In the fiscal fourth-quarter of 2022, interest expense net increased by approximately $1.6million, or 41.4%, to $5.3 million from $3.8 million in fiscal the previous year. Comparison of the fiscal years 2021 and 2022:

Fiscal Year Ended

December 31, 2022

End of each period, number of restaurants across the system
1,959

Number of franchise restaurants that are open in the country at the end of the period
1,678

Number of international franchise restaurants that are open at the end of the period
238

197
System-wide sales (in millions)
$ 2,739

Domestic AUV (in Thousands)
$ 1,606

Growth in domestic same-store sales(1)
3.4 %

Domestic same-store sales growth(1)
1.0 %

Net income (in the thousands)
$ 52,947

Adjusted net income in thousands
$ 55,351

Adjusted EBITDA (in thousand)
$ 108,808

$ 88,393

(1) The same store sales percentages for the fiscal year 2022 were not adjusted for the 53rd week.

Fiscal year 2022 financial results
Total Revenue for fiscal year 2022 was $357.5 million, an increase of $75.0 million, or 26.6%, compared to $282.5 million in the prior fiscal year. Royalty revenue, franchise fees and other increased $27.9 million primarily due to 221 net franchise restaurant openings since December 25, 2021, same store sales growth of 3.4%, and $3.0 million due to additional revenue in the 53rd week. Advertising fees increased $37.5 million due to a 16.8% increase in system-wide sales during fiscal year 2022, an increase in the national advertising fund contribution rate to 5% from 4% effective the first day of the fiscal second quarter 2022, and $2.7 million of additional advertising fees from the 53rd week. Additionally, during the prior fiscal year, a $6.9 million non-recurring rebate of advertising surplus was returned to franchisees, reducing the revenue recognized in the prior fiscal year. Company-owned restaurant sales increased $9.6 million primarily due to an increase of $7.7 million related to the increase in the number of company-owned restaurants compared to the prior fiscal year, company-owned same store sales growth of 1.0%, which was driven by an increase in average ticket, and approximately $1.5 million of additional sales from the 53rd week.
Cost of sales increased to $63.4 million from $57.4 million in the prior fiscal year and included $0.9 million and $0.5 million in pre-opening expenses in the fiscal years 2022 and 2021, respectively. As a percentage of company-owned restaurant sales, cost of sales (excluding pre-opening expenses) decreased to 78.2% from 81.0% in the prior year comparable period. The decrease was primarily due to a 26.9% decrease in the cost of bone-in chicken wings as compared to the prior fiscal year. This benefit was partially offset by the opening of eight restaurants in the New York City market since the prior year comparable period, which have higher rent and other operating costs.
SG&A expense was $67.1 million in fiscal year 2022, an increase of $4.2 million, or 6.6%, compared to $62.9 million in the prior fiscal year. The increase in SG&A expense was primarily due to an increase of $4.0 million in headcount related expenses to support the growth in our business, an increase of $2.3 million in professional fees to support the Company's strategic initiatives and approximately $1 million related to the 53rd week. These increases were partially offset by a decrease of $5.4 million in stock-based compensation expense primarily related to stock awards forfeited in fiscal year 2022.
Interest expense, net was $21.2 million in fiscal year 2022, an increase of $6.2 million, or 41.7%, compared to $15.0 million in the prior fiscal year. This increase was due to the securitized financing transaction completed in March 2022, which increased our outstanding debt by $250 million, as well as an estimated $0.4 million of additional interest expense related to the 53rd week.
Financial Outlook
The Company is reaffirming its three- to five-year outlook of mid-single digit domestic same store sales growth. Additionally, the Company expects the following for 2023, which is a 52-week fiscal year:
Approximately 240 global net new units;
SG&A of between $82.0 - $84.0 million;
Stock-based compensation expense of between $11.5 - $12.5 million; and
Depreciation and amortization of between $14.0 - $15.0 million.
Restaurant Development
As of December 31, 2022, there were 1,959 Wingstop restaurants system-wide. This included 1,721 restaurants in the United States, of which 1,678 were franchised restaurants and 43 were company-owned, and 238 franchised restaurants were in international markets. During the fiscal fourth quarter 2022, there were 61 net system-wide Wingstop restaurant openings.
Quarterly Dividend
In recognition of the Company's strong cash flow generation and our commitment to returning value to stockholders, on February 21, 2023, our board of directors authorized and declared a quarterly dividend of $0.19 per share of common stock, resulting in a total dividend of approximately $5.7 million. This dividend will be paid on March 31, 2023 to stockholders of record as of March 10, 2023.
The following definitions apply to these terms as used in this release:
Domestic average unit volume ("AUV") consists of the average annual sales of all restaurants that have been open for a trailing 52-week period or longer. This measure is calculated by dividing sales during the applicable period for all restaurants being measured by the number of restaurants being measured. Domestic AUV includes revenue from both company-owned and franchised restaurants. Domestic AUV allows management to assess our domestic company-owned and franchised restaurant economics. Changes in domestic AUV are primarily driven by increases in same store sales and are also influenced by opening new restaurants.
Domestic same store sales reflects the change in year-over-year sales for the same store restaurant base. We define the same store restaurant base to include those restaurants open for at least 52 full weeks. This measure highlights the performance of existing restaurants, while excluding the impact of new restaurant openings and permanent closures. We review same store sales for domestic company-owned restaurants as well as system-wide domestic restaurants. Domestic same store sales growth is driven by increases in transactions and average transaction size. Transaction size increases are driven by price increases or favorable mix shift from either an increase in items purchased or shifts into higher priced items.
System-wide sales represents net sales for all of our company-owned and franchised restaurants, as reported by franchisees. This measure allows management to better assess changes in our royalty revenue, our overall store performance, the health of our brand and the strength of our market position relative to competitors. Our system-wide sales growth is driven by new restaurant openings as well as increases in same store sales.
Adjusted EBITDA is defined as net income before interest expense, net, income tax expense (benefit), and depreciation and amortization (EBITDA), further adjusted for losses on debt extinguishment and financing transactions, transaction costs, costs and fees associated with investments in our strategic initiatives, gains and losses on the disposal of assets, and stock-based compensation expense.
Adjusted net income is defined as net income adjusted for losses on debt extinguishment and refinancing transactions, transaction costs, costs and fees associated with investments in our strategic initiatives, gains and losses on the disposal of assets, and related tax adjustments that management believes are not indicative of the Company's core operating results or business outlook over the long-term.
Adjusted earnings per diluted share is defined as adjusted net income divided by weighted average diluted share count.
We caution investors that amounts presented in accordance with our definitions above may not be comparable to similar measures disclosed by our competitors because not all companies and analysts calculate certain non-GAAP measurements in the same manner.
Conference Call and Webcast
The Company will host a conference call today to discuss the fiscal fourth quarter 2022 financial results at 10:00 AM Eastern Time. The conference call can be joined telephonically by dialing 1-877-259-5243 or 1-412-317-5176 (international) and asking for the Wingstop conference call. A replay will be available two hours after the call and can be accessed by dialing 1-877-344-7529 or 1-412-317-0088 (international) and entering the passcode 1996778. The replay will be available through Wednesday, March 1, 2023.
The conference call will also be webcast live and later archived on the investor relations section of Wingstop's corporate website at ir.wingstop.com under the 'News & Events' section.
About Wingstop
Founded in 1994 and headquartered in Dallas, TX, Wingstop Inc. (NASDAQ: WING) operates and franchises more than 1,950 locations worldwide. The Wing Experts are dedicated to Serving the World Flavor through an unparalleled guest experience and use of a best-in-class technology platform, all while offering classic and boneless wings, tenders, and chicken sandwiches, always cooked to order and hand sauced-and-tossed in fans' choice of 11 bold, distinctive flavors. Wingstop's menu also features signature sides including fresh-cut, seasoned fries and freshly-made ranch and bleu cheese dips.
In fiscal year 2022, Wingstop's system-wide sales increased 16.8% to approximately $2.7 billion, marking the 19th consecutive year of same store sales growth. With a vision of becoming a Top 10 Global Restaurant Brand, our system is comprised of independent franchisees, or brand partners, who account for approximately 98% of Wingstop's total restaurant count of 1,959 as of December 31, 2022.
A key to this business success and consumer fandom stems from The Wingstop Way, which includes a core value system of being Authentic, Entrepreneurial, Service-minded, and Fun. The Wingstop Way extends to the brand's environmental, social and governance platform as Wingstop seeks to provide value to all stakeholders.
Rounding out a strong year in 2022, the Company made Technomic 500's "Fastest Growing Franchise" list, was ranked #16 on Entrepreneur Magazine's "Franchise 500," won Fast Casual's Excellence in Food Safety award, and was named to Fast Company's "The World's Most Innovative Companies" list ranking #4 in the dining category. For more information visit URL or URL and follow URL on Twitter, Instagram, Facebook, and TikTok. Learn more about Wingstop's involvement in its local communities at URL.
Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use non-GAAP financial measures, including those indicated above. By providing non-GAAP financial measures, together with a reconciliation to the most comparable GAAP measure, we believe we are enhancing investors' understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. These measures are not intended to be considered in isolation or as substitutes for, or superior to, financial measures prepared and presented in accordance with GAAP. The non-GAAP measures used in this press release may be different from the measures used by other companies. A reconciliation of each measure to the most directly comparable GAAP measure is available in this news release. In addition, the Current Report on Form 8-K furnished to the Securities and Exchange Commission (the "SEC") concurrent with the issuance of this press release includes a more detailed description of each of these non-GAAP financial measures, together with a discussion of the usefulness and purpose of such measures.
Forward-looking Statements
This news release includes statements of our expectations, intentions, plans and beliefs that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to come within the safe harbor protection provided by those sections. These statements, which involve risks and uncertainties, relate to the discussion of our business strategies and our expectations concerning future operations, margins, profitability, trends, liquidity and capital resources and to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms "may," "will," "should," "expect," "intend," "plan," "position," "outlook," "guidance," "anticipate," "believe," "think," "estimate," "seek," "predict," "could," "project," "potential" or, in each case, their negative or other variations or comparable terminology, although not all forward-looking statements are accompanied by such terms. Examples of forward-looking statements in this news release include, but are not limited to, our 2023 fiscal year outlook for domestic same store sales growth, SG&A expense, stock-based compensation expense, depreciation and amortization, and unit growth. These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to uncertainties, risks, and factors relating to our operations and business environments, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed or implied b