Wingstop Earnings: Chicken Chain Posts Blowout Quarter but Pricey Shares Give Us Indigestion

Considered in isolation, narrow-moat Wingstop's third quarter earnings were fantastic, with $117 million in revenue and $0.65 in diluted EPS blowing past our $106 million and $0.53 estimates, respectively. The firm generated double-digit traffic growth despite 0.8% industrywide declines (Revenue Management Solutions), suggestive of ongoing traffic gains, and it benefitted from historically low bone-in wing prices en route to stellar 26.4% restaurant margins, in line with our forecast. Nevertheless, we expect to maintain our $114 fair value estimate as we balance stellar stales against materially higher than expected long-term sales, general and administrative (SG&A) expense guidance, with the firm guiding to SG&A expense of 2%-2.5% of global systemwide sales, contrasting with our forecasts calling for more substantial operating leverage (seeing SG&A clock in at 1.7% of systemwide sales in 2032) as growth skews increasingly towards fully franchised international markets. The net result is a 2032 operating margin forecast around 31%, from 34% prior, with the sharp sales outperformance and time value offsetting that impact.