Wingstop Earnings: Chicken Chain Still Looks Materially Overvalued Despite Another Blowout Quarter

Narrow-moat Wingstop posted another impressive quarter, with $109 million in sales and $0.59 in adjusted EPS meaningfully outpacing our $99 million and $0.42 forecasts, respectively. The firm's growth was underpinned by strikingly high 20.1% same-store sales growth across its U.S. system, 11.4%-unit growth, with the firm opening 37 net new stores during the quarter, and an uptick in franchisees' national advertising fund contribution rate (driving advertising revenues up 66% annually). Encouragingly, comparable store sales were predominately driven by increases in guest frequency, suggesting that the firm has more or less avoided the headwinds in traffic and items per check that we've seen across the industry over the past year, likely attributable to its decision to hold prices steady in 2022 as bone-in wing costs reduced pressure on the firm's operating expenses despite double-digit food cost increases industrywide. As we digest results, we expect to raise our $98 fair value estimate by a high-single-digit percentage, consistent with raised full-year comparable store sales guidance to "high-single-digit" growth (from mid-single-digit growth) and the operating leverage that begets. Despite the move, shares continue to look materially overvalued, surging 7%-8% during intraday trading.