Wingstop is becoming more boneless, and more insulated from wing prices as it expands, analysts say

By Bill Peters

'The brand has a long runway to experiment with new flavors, innovate around its bundled value offerings ... and potentially introduce new product platforms without over complicating the operating model for franchisees,' Stifel analysts say

Like almost everything else, chicken-wing prices have been all over the place over the past three years, following the pandemic's delivery boom, hang-ups in the supply chain, the ebb-and-flow of the sports season and changes in restaurant menus and production.

However, some analysts said chicken-wing chain Wingstop Inc. is increasingly insulated from the shocks to the bone-in wing ecosystem. And they said it has room to expand despite tougher year-over-year financial comparisons later this year, thanks to new menu items, broader delivery coverage and more money for ads.

Those analysts, at Stifel, late Monday upgraded shares of Wingstop (WING) to buy from hold and raised their price target to $200 from $180. Shares of Wingstop were up 2.1% on Tuesday.

"The brand has a long runway to experiment with new flavors, innovate around its bundled value offerings (like the most recent Cajun Meal Deal), and potentially introduce new product platforms without over complicating the operating model for franchisees," they said.

"In addition to menu innovation," they continued, "the delivery channel remains a key source of sales growth, particularly given the company has only recently begun to invest marketing dollars to grow awareness on the Uber Eats platform."

Wingstop partnered with Uber Eats in July 2022 and launched a chicken sandwich last September. But the analysts said Wingstop still had a chance to make gains as it laps those two moves from last year, arguing that the chain has only begun marketing the Uber Eats partnership and had been fattening its national-advertising spending.

The analysts also said that as Wingstop gets bigger, the company has been able to gain greater control over its costs, making business more predictable for its franchisees. Selling more boneless chicken -- which amounted to 43% of its sales in the second quarter, the company's highest ever -- would also help on that front.

"Historically, the system has been subject to wide swings in the cost of bone-in wings, requiring franchisees to absorb significant incremental food costs during periods of high wing inflation offset by significant windfalls when prices were abnormally low," the analysts said.

"Wingstop's increasing scale has allowed it to enter fixed-price arrangements through early next year, providing better cost visibility to franchisees and decoupling the price the company pays for wings from the spot market," they continued. "We believe the company will be able to continue negotiating favorable arrangements as its purchasing volumes continue to climb."

Chicken-sandwich sales were drawing new customers to the rest of Wingstop's menu, the analysts said, adding that those diners tended to gravitate toward other boneless menu items, like tenders and wings.

In August, Wingstop executives said they were increasingly confident that sales of boneless items could eventually make up more than half of sales.

-Bill Peters

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09-26-23 1347ET

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