Wingstop Earnings: Cheaper Wing Costs, Digital Prowess and Delivery Defend Stratospheric Growth

Narrow-moat Wingstop WING reported another quarter of strong results, with second-quarter sales of $107 million and diluted EPS of $0.54, comfortably edging our $99 million and $0.48 estimates, respectively. The chain remains on track to deliver another year of stratospheric growth, with management raising its full-year same-store sales estimate to 10%-12% and full-year net unit growth forecast to 240-250 stores, up from high-single-digits and 240, respectively. Underpinning the firm’s momentum are ongoing success with its chicken sandwich platform and its delivery aggregator partnerships, with global comparable store sales growth of 16.8% driven almost entirely by increases in traffic. We expect to raise our own full-year estimates into the guided range, driving a mid-single-digit percentage increase to our $107 fair value estimate but leaving shares looking meaningfully overpriced.

Looking forward, we’re encouraged by Wingstop’s progress toward its long-term targets of $2 million in average unit volumes, or AUVs, a 50% delivery mix, limiting food cost volatility, and emerging as a top-10 U.S. restaurant brand. While some of those targets are longer-dated than others (we don’t expect the firm to hit $2 million AUV’s until 2028, and estimate just north of 5,000 stores at the end of 2032, for instance), we believe that management continues to pull the right levers, and maintains a handful of long-term investment priorities, such as the eventual launch of a loyalty program, which add an attractive degree of optionality if sales momentum starts to slow. Further, the firm has yet to deploy its substantial marketing kitty toward aggregator marketplaces, which could prove instrumental in its efforts to grow channel sales from 30% of its mix today toward its 50% long-term target. Underpinned by the best unit economics in our coverage, we forecast 18%, 22%, and 24% cumulative annual growth in sales, operating profit, and EPS, respectively, over the next five years for Wingstop.