Amid a rare drop in sales, Wingstop pulls some growth levers

Wingstop saw traffic drop in the second quarter as inflation rose. / Photography: Shutterstock

Something unusual happened at Wingstop in the second quarter: its same-store sales, which have been positive on an annual basis for 18 consecutive years, declined.

The chicken wing chain’s domestic comps of 1,858 units fell 3.3% in the period ended June 25, which executives attributed to a “perfect storm” of factors, including difficult comparisons with last year as well as rising gasoline prices and other inflations that have depressed consumer activity.

“We’ve clearly seen a decline in frequency, especially with this low-income consumer,” CEO Michael Skipworth said on a call with analysts Thursday.

And yet, the chain believes it can continue its growth streak this year with a handful of strategic moves designed to drive traffic in the second half.

The chain is expanding its relationship with delivery provider Uber Eats nationwide, for example, which it hopes to attract new customers. Until recently, Wingstop was only listed on DoorDash.

It’s about two weeks into the new partnership, and the results have been “at or above our expectations,” Skipworth said. “It’s without really any advertising support on our presence on Uber’s platform.”

In another milestone, Wingstop will begin serving chicken sandwiches nationwide after testing in four markets yielded encouraging results. The range of 11 sandwich options, deployed in 60 restaurants in Mayrecorded a sales mix of 4% and was “strongly incremental” for sales, Skipworth said.

The chain also has dry powder in its advertising budget to further boost sales.

“We know that each of these levers will lead to transaction growth, Skipworth said, adding that the channel had been “thoughtful” in deciding when to pull them.

With that, he reiterated his expectation of low-single-digit same-store sales growth for the full year.

And even though its sales have plummeted, the chain continues to boast a unique competitive advantage in terms of bottom line: While food costs at nearly every restaurant are rising, Wingstop’s are falling.

Bone-in chicken wing prices in the quarter fell 18.8% year-over-year, the chain said, and it forecast an 800 basis point improvement in food costs from the second semester 2021.

“Wingstop is a year ahead of other brands” on commodity inflation, Skipworth said. “We are experiencing significant deflation in our business as the price of wings has normalized from unusually high levels in 2021.”

Net income for the quarter increased 17.6% to $13.3 million from a year ago. Cost of sales increased slightly from $14.2 million to $14.9 million due to higher labor costs and other expenses associated with the opening of six restaurants At New York.

The chain believes its commodity advantage, combined with a new set of sales engines, has set it up for a strong remainder of the year. Investors seemed to agree: Wingstop shares jumped more than 28% midday Thursday.

“It really puts us in a place that I think really highlights Wingstop’s unique history,” Skipworth said. “We are very excited about the second half of the year.”

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