Wingstop Inc. Q3 FY2022 Earnings Call

Good morning, ladies and gentlemen and thank you for standing by. Welcome to the Wingstop Inc. Fiscal Third Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. Please note that this conference is being recorded today, Wednesday, October 26, 2022. I would now like to turn the conference over to Ms. Susana Arevalo, Vice President of FP&A and Investor Relations. Please, go ahead ma'am.

Thank you and welcome to the fiscal third quarter 2022 earnings conference call for Wingstop. On the call today are Michael Skipworth, President and Chief Executive Officer; and Alex Kaleida, Senior Vice President and Chief Financial Officer. Our fiscal third quarter 2022 results were published earlier this morning and are available on our Investor Relations website at ir.wingstop.com. Our discussion today includes forward-looking statements. These statements are not guarantees of future performance and are subject to numerous risks and uncertainties that could cause our actual results to differ materially from what we currently expect. Our SEC filings describe various risks that could affect our future operating results and financial condition. We use certain non-GAAP financial measures that we believe can be useful in evaluating our performance. Presentation of such information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are contained in our earnings release. Lastly, for the Q&A session, we ask that you please each keep to one question and a follow-up to allow as many participants as possible to ask a question. With that, I would like to turn the call over to Michael.

Thanks, Susana, and good morning, everyone. Thank you for joining our call. At Wingstop, we have carefully constructed our strategies with a technology-forward and growth-oriented mindset. And that is precisely what has enabled the success of the model in our industry-leading growth. That is what has fueled our culture, how we behave, and the core values that are at the forefront of every decision at Wingstop. Our strategy is built upon a foundation rooted in both living the Wingstop way and investing in people as our competitive advantage. This enables our core growth pillars, so preserving our culture is key. In our last earnings call, we signaled to our second half of the year story. We are pleased with our third quarter results, results that demonstrate the resiliency of the Wingstop brand and the impact of our strategies as we reversed the trend we saw in the second quarter and delivered strong results across the board. This has us well on our way to delivering our 19th consecutive year of same-store sales growth. In the third quarter, domestic same-store sales growth was 6.9%, with the majority of this driven by transaction growth, which translates to 36% growth on a three-year same-store sales basis. System sales increased 17.7% to approximately $700 million. We opened 40 net new restaurants in the quarter and saw unit growth of 13.5%. Company-owned restaurant margins sequentially improved over the prior quarter as we continue to benefit from meaningful deflation in our core commodity, bone and chicken wings. Adjusted EBITDA increased 33% to $28.4 million. I would like to spend a couple of minutes to provide insights on our quarter trends and detail the sales-driving strategies we executed against in the third quarter. At our Investor Day earlier this year, we outlined the strategies we are working towards to continue to sustain same-store sales growth and provide a clear line of sight into increasing AUVs above $2 million. During the third quarter, we made exciting progress against several of these self-driving levers. We expanded our delivery channel, advanced menu innovation with the launch of our chicken sandwich, and we continue to drive brand awareness with an elevated level of national advertising spend. These are not just current quarter drivers for our business but strategies that we believe have staying power. Let me briefly touch on each of these strategies, starting with the chicken sandwich. We launched our chicken sandwich on August 29. Our mission at Wingstop is to serve the world flavor. So we didn't offer only a plain and spicy version, but we gave our guests a variety of 12 chicken sandwiches sauced and tossed in any one of our bold, distinctive flavors. Our sandwiches are offered at a compelling value: $5.49 for the a la carte sandwich and a dip, and $7.99 for the combo, which includes a drink, fries and a dip. We anticipated that our chicken sandwich strategy would bring new guests into the brand and capture additional occasions, but we did not expect to see the incredible demand that we saw in our initial launch. Our initial launch sold out of four weeks of supply in six days, demonstrating the long-term opportunity we believe we have with the chicken sandwich. After rebuilding supply, we relaunched the chicken sandwich in early October with a more measured approach to ensure we won over all these new guests who were bringing into the brand by providing a great guest experience. We started the relaunch without advertising support and have gradually phased in media through the month of October. Only a few weeks into the relaunch and we're pleased with the results, seeing the chicken sandwich mix in the high single-digits range. That is over two times what we saw in our market test and at these mixed levels, chicken sandwiches are proving that they can drive more Wingstop occasions and play a role in building brand awareness. We also see chicken sandwich as a way for us to further drive the boneless mix in our restaurants and can see a path to boneless mix exceeding 50% of our total mix, which will play a key role in advancing our supply chain strategy. With a higher boneless mix, we can see a future with food costs in the low 30% range and this will only further strengthen our industry-leading unit economics. Another self-driving lever that we executed against was the addition of Uber Eats as a delivery provider. In July, we launched Wingstop nationally on the Uber Eats platform, and with little advertising efforts, sales proved to be highly incremental and were in line with our expectations. We're excited about the partnership with both leading delivery service providers Uber Eats and DoorDash to capture incremental occasions. We believe we are in the early stages of building our delivery channel. As we benchmark to more established off-premise businesses where their delivery channel is upwards of 50% of sales mix, we see significant growth in front of us in this channel. The third strategy I want to touch on is expanding brand awareness. We have made great progress in increasing our brand awareness over the last few years. Yet our gap to national peers still remains a significant opportunity for us. At the start of the second quarter, we converted the local 1% advertising fund to our national ad fund, bringing our national ad fund contribution rates to 5%. This 1% increase combined with our growth in system sales has provided a meaningful increase in the amount of ad fund dollars we can invest. Historically, we had concentrated the majority of our local dollars in the July and August timeframe. Q3 represented our first quarter lapping our historical local media investment window with the increased national spend. Not only does this give us the opportunity to drive these dollars more efficiently, but we are also able to invest in more premium placements such as live sports like the NFL, which you've likely seen. This elevated level of investment will continue into Q4. With our continued growth in system sales, we are on track for an additional step-up in 2023 in our advertising investment that provides the firepower to drive brand awareness. We're excited about the strategic levers we are pulling to sustain same-store sales growth. As we exited Q3, the impact of any 2021 pricing has tailed off, and our sales growth was driven entirely by transactions, which is a true signal of the underlying momentum in our business. We also believe it highlights the unique long-term sales-driving levers we have as the brand. We continue to strengthen our competitive advantage with a best-in-class digital platform. While you're starting to see consumers return to their pre-pandemic behaviors, our digital business has sustained above 60%, demonstrating the stickiness of our new guests. We're committed to our aspirational goal of 100% digital transactions, where we enjoy a $5 higher average check. This continued expansion of our digital business allows us to continue to build upon our first-party database that's over $30 million strong. Sales-driving levers such as menu innovation through the chicken sandwich are another opportunity to capture new guests and further expand our digital database. Another important aspect of our growth story is global development, where we have a long-term target of over 7,000 restaurants. We opened 40 net new restaurants during the third quarter, which brings our total to 167 net new restaurants through the first nine months of this year. That's a 13.5% growth rate with both our domestic and international business on track to have record restaurant development for 2022. Our global pipeline has further strengthened, and as we look ahead into 2023, we are positioned for another strong year, with average unit volumes of $1.6 million and an initial investment of approximately $400,000; our brand partners are seeing cash-on-cash returns averaging 70%. These cash-on-cash returns have continued to strengthen this year as we are one of the few brands experiencing significant deflation in 2022. This is driving quite a bit of excitement among our brand partners. As we sit here today, the current price for jumbo Bone and Wings is $1.05 per pound, which represents a year-over-year cogs improvement of over 1,000 basis points. We are also seeing breast meat prices come down from their highs earlier this year and continue to see leading indicators that suggest a favorable commodity backdrop for the balance of this year and into early 2023. Despite the challenging macroeconomic backdrop, Wingstop remains well positioned to deliver another industry-leading year driven by our simple operating model, best-in-class unit economics, levers to sustain same-store sales growth and record unit development. As the industry is navigating 40-year high inflation forcing other brands to take price to manage margins while consumer sentiment is shifting, Wingstop is different. We are in a position where we do not necessarily have to take price. We have a proven playbook where we lean into that indulgent Wingstop occasion, presenting our guests with value that has allowed us to successfully navigate prior economic cycles. Additionally, we have a lot of runway in front of us to bring in new guests and capture new occasions with strategic growth levers such as expanding our delivery provider base, and menu innovation like our chicken sandwich. We believe this highlights the opportunity we have in front of us here at Wingstop and a long-term growth story. We are reiterating our guidance of low single-digit same-store sales growth for 2022, which would mark our 19th consecutive year of same-store sales growth. With the visibility into our pipeline at this point in the year, we are raising the low end of our estimate and now expect net new restaurant openings to be between 225 and 235, putting us in a position to exceed our 10% plus development target. I couldn't be more excited about how the back half of 2022 is playing out for Wingstop. Just a few weeks ago, we held our brand partner convention. At our convention, we outlined the strategies we are executing against to deliver this next phase of growth for Wingstop. I couldn't be more excited with the shared vision and confidence our brand partners have in Wingstop. Our unit economics continue to strengthen against the backdrop of meaningful deflation in our core commodity. We have a clear line of sight to $2 million plus AUVs and strategies that will help us navigate uncertain times ahead. We remain confident in our strategies that will reward our shareholders, franchisees and team members as we continue on our path to become a top 10 global restaurant brand. Before I hand it over to Alex, I want to thank our brand partners, our team members in the restaurant, and the team members at the global support center for all their incredible work and commitment that has put us in a strong position to deliver another industry-leading year for Wingstop.

Thanks, Michael. And good morning. As you just heard from Michael, the third quarter demonstrates the strength of our long-term strategies. We delivered a 17.7% growth in system-wide sales in the third quarter, which now totaled $2.6 billion on a trailing 12-month basis. We grew royalty revenues, franchise fees, and other revenue by $7.5 million in the third quarter, driven primarily by 215 net franchise openings since the prior year comparable period and a 6.9% increase in domestic same-store sales. As we signaled in our last call, we reversed the trend we saw in the second quarter, delivering a third quarter comp that's largely driven by transaction growth. Company-owned restaurant sales totaled $20.2 million in Q3, an increase of $2.3 million, primarily due to a 4.3% increase in same-store sales and nine net new restaurants versus the prior year comparable period as we continue to execute our Manhattan expansion strategy. Our unique position with meaningful deflation is illustrated in our corporate restaurant margins. Cost of sales excluding pre-opening expenses, and as a percentage of company-owned restaurant sales decreased by more than 900 basis points compared to the prior year, mainly driven by a nearly 1,100 basis point decrease in food, beverage and packaging costs and a 150 basis point decrease in labor, which were partially offset by higher rent and other operating expenses in our New York City restaurants. We are pleased to see this sequential improvement in restaurant margins this year, which for the third quarter benefited from a 43% decrease in the cost of bone and chicken wings. Based on everything we know today, we have a favorable commodity outlook, not only for bones and wings, but also for breast meat, which we believe will continue into early 2023. The significant deflation in wing prices and the recent declines in breast meat prices, along with our sales traverse, will further strengthen unit economics. For modeling purposes in company restaurants, we estimate food costs to be 35.5% in the fourth quarter. As a result, we now anticipate company-owned restaurant costs of sales in the fourth quarter to be approximately 75%, which is an improvement of 1,000 basis points versus the fourth quarter in 2021. In the third quarter SG&A increased by $1.7 million versus a comparable period prior year to a total of $16.7 million driven by investments and talent in strategic projects to support the long-term growth of the business. This is partially offset by a year-over-year decrease in stock compensation expense. Adjusted EBITDA, a non-GAAP measure, was $28.4 million during the quarter, an increase of 33% versus the prior year. Adjusting for non-recurring items, we delivered adjusted earnings per diluted share, a non-GAAP measure of $0.45, a 55% increase versus the prior year. Our highly franchised asset-light model continues to deliver strong free cash flows. As of the end of the third quarter, we had $539.7 million in net debt. Our net debt to trailing 12-month adjusted EBITDA was at 5.7x, which is almost half a turn lower than at the end of the second quarter, which underscores our ability to quickly deliver through a combination of adjusted EBITDA growth and strong free cash flow generation. We also are maintaining a strong cash balance that stands at over $170 million. This cash positions us to be opportunistic to support our supply chain strategy as we continue to explore options to take greater control of our supply chain. We remain committed to driving shareholder value and returning capital to shareholders through our regular quarterly dividend. Our Board of Directors has declared a dividend of $0.19 per share of common stock, a demonstration of the strong cash flow generation and strength of our business. This dividend totaling approximately $5.7 million will be paid on December 2, 2022, to stockholders record as of November 11, 2022. Shifting to our outlook for 2022, we're reiterating our guidance for same-store sales of low single-digits, and we're updating our guidance for net new units to a range of 225 to 235 from prior guidance of 220 to 235 for the full year. This translates to unit growth of 13% to 13.5% versus the prior year. We're also lowering SG&A guidance to a range of $68.5 million to $70.5 million from our prior guidance of $70 million to $72 million, including stock-based compensation expense of approximately $6 million. We're increasing our diluted earnings per share guidance of between $1.61 to $1.63 from prior guidance of $1.55 to $1.57. Our updated outlook for 2022 reflects our confidence in the second half of the year story for Wingstop supported by the same strategies we are pursuing to achieve our vision of becoming a top 10 global restaurant brand. With that, I'd like to now turn to Q&A. Operator, please open the line for questions.

Thank you. We will now begin the question-and-answer session. And the first question will come from John Glass with Morgan Stanley. Please go ahead.

Thanks, good morning. I'm wondering on the chicken sandwich a few things first, Michael, if you can just talk about what the contribution actually was to the third quarter recognizing it was there briefly, but it also sold out. So maybe are we over-indexing to that right now? Or as we look at the third quarter and can you talk about the dynamics and how it impacts check, is it the kind of thing that drives traffic? But it's dilutive to check or how is it purchased I guess and how is it influenced not just traffic but check as well please.

Hi, John, good morning. Thanks for the question. What I would say about the chicken sandwich is the reality within the third quarter itself. We had the chicken sandwich available for only six days. Clearly, we saw the potential for chicken sandwich for our brand and really the long-term opportunity that we have there and really a permission for guests from guests for us to play in that space is something we're really excited about. But there's not really anything I would call out materially as it related to the overall quarter for chicken sandwich. But what I would point out is, is it was another demonstration of the opportunity that we have to drive brand awareness and the gap we have to other national brands, which is still significant. And so, as we launched chicken sandwich, we really leaned in with our full advertising muscle. We launched it all the way from inclusive of national TV, to influencers to social, to even PR campaigns around giving away 100,000 free sandwiches. And so we really hit it hard. What we saw was almost a halo effect on our overall business where we saw the entire business, all channels really see growth while we were out driving awareness around the brands and something we're really, really encouraged about. We see that not only as a long-term sales driving lever for us. But we also see it playing a meaningful role for us in our supply chain strategy. You heard in our prepared remarks the mix levels that we're seeing today; we see a path where total boneless mix can exceed 50%. If those levels we see a path to food costs in the low 30% range, and I know you're familiar with our story and unit economics, John, that's really compelling when you think about what that can do for our brand partners' returns. We did see similar to our test market, we did see the chicken sandwich bring in a lot of new guests. With that we thought mix nicely on the lunch daypart. There were some individual occasions with these new guests that we brought in that we were able to capture that did have a little bit lower average check. But again, it wasn't a significant number that I would call out on the quarter itself.

Thank you for all that. And Michael, just to follow-up on what you just mentioned on this path to getting food costs down to the low 30s, which I think is pretty remarkable just given how profound that would impact unit economics. What is the key driver to that? The chicken sandwich. Is that part of the boneless strategy? Is there something else? like you're just talking about boneless wings? And is there a timeframe you think about when that can occur? Is it in the next couple of years? Is that a very long-term strategy? How do you think about how that can materialize?

Yes, absolutely. I think it's all of that, John, it includes the sandwich, boneless wings, or tenders in, we have regions, we have restaurants today that have boneless mix in excess of 50% and do enjoy food costs today in the low 30s. It is happening, but for the broader system, we do see this as an opportunity, and again, a long-term driver for our brand, not just a current quarter hit but a long-term driver to continue to drive chicken sandwich mix. From there, a lot of these new guests that we're bringing in are also users of tenders that we see opportunity there. We see over time as we continue to bring in these new guests, convert them to Wingstop users the opportunity for that mix to continue to drive.

Hi, good morning, a couple of questions. First on the Q4 comps outlook, your full-year range of low single-digits kind of leaves a pretty wide range of outcomes possible in the fourth quarter. So I was hoping that you could comment maybe more specifically on what your expectation is for the quarter in broad terms especially now that it doesn't seem like you're running much pricing across the system?

Yes, David. Good morning. Thanks for the question. We're pretty excited about the work the team has executed against both here at the GC and our brand partners around reversing the trend that we saw in Q2. As we progressed through Q3, we saw the comp sequentially improve throughout the quarter. It was really as we began to execute against these sales drivers that we called out in our prepared remarks, and also leveraged the benefit of this elevated ad spend that we have year-over-year, not to mention a balanced message around value, which we think is really important in this environment. We did talk about as we exited Q3, we saw the impact of 2021 pricing tail off, and basically our entire comp being fueled by transaction growth, which is something we're really excited about. We believe is a true demonstration of the underlying strength and momentum in our brand. We talked about with chicken sandwich mix through the first few weeks of October, seeing that in the high single-digit range. What we've seen in the comp, David, through the first few weeks of October is continued strength in that transaction growth, and where we kind of expect October to finish up is around the 6% comp. That said, we are confident in our ability to deliver on our target of low single-digit same-store sales growth, particularly something we're proud about, especially when you consider the challenging macro environment that we're in, and doing that in a way that's really fueled by transaction growth.

Great, that's very helpful. And then one quick clarification on the high single-digit mix for the chicken sandwich, how much of an incremental sales is that for your business? I assume maybe some of that’s not incremental. But how would you characterize the lift that you're seeing at that level of sales mix?

Yes, well in a little bit earlier in that we've seen the chicken sandwich sales be highly incremental. We're really seeing a combination of two things here: one is bringing in a lot of new guests, which we're really excited about, but then we have a lot of existing Wingstop users who are adding chicken sandwiches onto their existing wing occasion. We've seen it be highly incremental, and something we're really excited about, particularly when we think about the long-term potential for the brand. And we've talked about this in the past, where we've often with our wing-focused offering, had to navigate that veto vote. Offering a chicken sandwich, which is a pretty universal occasion for just about anyone, is really good to have an opportunity to address some of those issues we've seen in the past, and again provides us a lot of confidence, not just for this quarter, but that this is something we're going to be able to build on as we progress through the balance of 2022 and into 2023.

Great, thank you. Two questions. The first one just following-up on the comp trends. Sounds like you mentioned trends improved sequentially through the third quarter, and you've given us some insight into October. Just wondering whether you see any signs of a slowing macro. I know you guys talk about 30% plus of your sales and maybe lower income. And recognizing that clearly down from where it was five plus years ago, which is a net positive, but just trying to get a sense for what you would be looking for and your comp in the traffic or in the mix or anything like that. I know you said you have 30 million plus database users. So whether that's your toolbox to assess trends by customer. Just trying to get a sense if you're seeing any sort of a macro slowdown at all within that very strong comp? And then I had one follow-up.

Yes, Jeff. I think we're in a pretty unique spot at Wingstop where if we look at certain geographies, certain income levels, we can see less growth. We really have two elements that strengthen our brand that I think really strengthen our positioning. And one is that proven value playbook. If you think about how consumers engage with our brand, it's really our frequency is about 3x a quarter, it's an indulgent occasion. When consumers start to feel pressure, or they want to pull back, they most immediately look at higher frequency occasions such as QSR, 4x to 5x a week visits and will pull back there. As long as we're presenting them with value, we've been able to retain those and build in occasions. In addition, I think what we demonstrated in the third quarter is the opportunity we have around bringing in new guests, whether that's closing the gap on brand awareness, capturing these chicken sandwich occasions, or even the addition of an additional delivery service provider such as Uber Eats. This allows us to access a consumer base that we weren't previously offering Wingstop to. We have these two elements working in concert and all supported by a significant increase in our ad fund dollars that we're able to invest this year, giving us confidence in our outlook for 2022 despite any pullback from the broader consumer or any recession concerns. Yes, Jeff, I appreciate the question. We’re excited about having delivered for the first three quarters record unit development for the brand, not just in our domestic business, but also in our international business, which we've seen a record pace of development for both areas that we're really excited about. We did comment in our prepared remarks that on the tails of that record pace of development, we actually sit here today with a stronger pipeline than we did this time a year ago, which I think really speaks to brand partners' sentiment, their excitement around reinvesting and continuing to grow with Wingstop. This is an exclamation point on the fact that we've not only been able to benefit from call it low to mid-30% increase in sales over the last three years. We sit today with meaningful deflation in our business. Right now, our unit economics are about as strong as they've ever been. As we indicated, the leading indicators we watch around poultry seem to suggest through the balance of this year and into early 2023, we should have a favorable commodity backdrop, which is really encouraging. The last element I would add around Wingstop development is there's not a lot of leverage on the businesses for our brand partners. A lot of them use existing cash flow to reinvest and drive their growth. Leverage rates aren't a common conversation we have with our brand partners. So knowing that the rising-rate environment we're in right now doesn't give us a lot of concern around our ability to continue to deliver on our long-term algorithm of double-digit development growth.

Great, thanks for the question. I wanted to follow-up on the development conversation and the unit growth conversation that you just touched on a bit. How the third-quarter unit growth numbers sort of tracked versus your internal estimates? They came in a little bit below where we had been expecting, but at the same time, you maintained and even raised your full-year outlook on unit growth. I want to get a sense of maybe how the third quarter played out and what gives you confidence for the level of opens that you'll need to see in the fourth quarter. What's the path toward accelerating unit growth from here? What are the conversations you're having with franchise partners, maybe larger and more sophisticated partners to take this brand on a more accelerated unit growth path? Thank you.

Yes, thanks for the question, Jared. I would say everything really from our perspective is right on track. We provided an updated, raised outlook last earnings call, and as we progress through the year, we've tightened that estimate only by raising the low end as we have good visibility on what development looks like for the balance of the year. So from our perspective, everything's on track, and we're really excited about our outlook in the reality that we're going to deliver a record development year for the brand, which really is strong when you particularly think about the broader macro and operating environment. This development translates into a 13% to 13.5% unit growth. I think that's pretty strong. As it relates to accelerating growth, I think it's happening, and you are seeing brand partners reinvest. We are seeing their national start to play a bigger part of our development story. I'm just excited about the international story becoming a bigger part of our development. We’re constantly having conversations with large operators who are interested in Wingstop. Many of our existing brand partners are excited to grow. It's an efficient way for us to grow; they know the brand, and we know them.

Great. Just two quick ones for me. The first, I was wondering, just following-up again on the unit development pieces that's happened. We've heard from a handful of other operators, some issues around opening new stores, whether it's securing the proper equipment or getting permitting, and you guys don't seem to be hitting any of those roadblocks. I'm curious how you and your franchisees have been able to navigate around these issues?

Hey Jon, I appreciate the question. A lot of other brands, if you think about their asset, could involve a scrape and build-out on the pad, it could involve a much more involved a build. Ours is in line, it's a sale that we're building out. It's extremely efficient. I think that's what allows us to enjoy a really low initial investment, on average $400,000 and deliver those great returns on that efficient box. We've been extremely proactive in engaging with equipment suppliers, just ensuring that the equipment is there to support our pipeline, whether that's us leaning in securing bank suppliers as an example. We've taken a really proactive approach to help mitigate any supply chain issues, but I think the two elements I mentioned are helping us to have another record development year despite the challenging macro backdrop.

Great, thank you. You and a lot of your peers have seen some reduced frequency from that lower-income consumer. But have you seen check management or any other indication of changing behavior from the balance of your consumer segments?

Hey, Jeff, appreciate the question. We've clearly indicated in our comments that we've seen the contribution of 2021 pricing trail off, particularly as we exited the third quarter. Our business is remixing a little bit; we're seeing some nice organic growth in our dynamic business. If you recall, it did carry a lower average check associated with it. These new chicken sandwich occasions that we're bringing in do have a slightly lower average check associated with them. So we're seeing a bit of a remixing of the business as some of those elements come into play. No, Jeff, we're actually pretty encouraged with what we see out there from a staffing perspective; it's gotten much easier than it was a year-ago. We're not seeing that constraint restaurant volume. As you look at opening 167 net new restaurants through the first nine months, it's not restricting our ability to expand our footprint either. This highlights the efficient labor model we deploy; you can run a Wingstop at our average unit volume of 1.6 million with as few as three to four team members, and the overall roster is clearly much smaller than what a lot of other brands have to operate within their assets. This helps us navigate, and we feel less of an impact from staffing issues.

Sorry about that. Yes. I'm actually just wondering on the sequential improvement, I guess, if you went through the 3Q, and obviously, September higher than what October is running. Just trying to kind of match all of that up with what happened with only the week of chicken sandwich and everything surrounding that, I guess.

Sorry, Andy. I think we had a couple of levers we were pulling prior to the chicken sandwich launch in the six days. We saw a really strong surge in demand in those six days, which resulted in us selling out of four weeks of inventory. But we saw a pretty consistent trend as we progressed where the contribution of check trailed off sequentially in the transaction contribution built. We were running at a strong number, when you include six days of chicken sandwich in September, but obviously would point to the fact that it's fueled by transaction growth. As we navigate this environment, as we continue executing against these growth lever strategies, we feel confident and excited about our ability to deliver that 19th consecutive year of same-store sales growth. We took a very measured approach. We mentioned in our prepared remarks that we went into the chicken sandwich on a more measured approach. We did not initially support it with advertising, allowing us to phase in media through the month of October. I think this strategy is aligned with what we've approached historically and gives us confidence in our growth.

Thank you. The pleasant surprise in the comparable sales and third quarter results seems to be that it was more widespread than just the chicken sandwich. Could you possibly provide an estimate of the comparable sales without including the chicken sandwich? That would be very helpful.

Yes, Nick. I appreciate the question. It's a little difficult to solve. We're really bullish and excited about the quarter growth levers we pulled, but a great example to give you context on how to try to pull those apart is with our elevated ad spend. We were able to promote chicken sandwich on a new delivery platform. It’s really hard to tease apart what drove the topmost. What we can say is we saw a meaningful benefit in all channels. We saw transaction growth across the board, and something that we're really excited about. We believe this is pretty unique in this environment and gives us confidence to come out and reiterate our low single-digit target for this year and deliver on 19 consecutive years of same-store sales growth.

Thank you. You sort of touched on this a couple of questions ago, but your comments on the digital component of your business. I think you've mentioned an acceleration in digital sales mix. Was that delivery component of that ramp-up as well, especially given the addition of Uber Eats?

Hey Jim, I think that the point we were calling out around digital is that we did see it grow quarter-on-quarter. If you think about that, in light of two things: our mixing business where we're seeing organic growth, and then in addition to that, as you're starting to see consumers drift back towards maybe pre-pandemic dining behaviors, we're seeing a lot of other digital channels retract. Our digital sales mix has continued to build and sustain from these elevated levels. Yes, Jim, we indicated in our Investor Day that we see a path for upwards of 50% mix in delivery. We're working towards that and Michael touched on the opportunity to partner with both delivery service providers. This gives us great potential to build awareness in their marketplaces and attract new guests. We see a large runway ahead of us for the delivery business.

Great, thank you. I just wanted to ask about bone and wing costs, given the deflation there. How we should think about the continued use of strategic discounting to drive further traffic going forward for the core boning, and I guess we could frame it up relative to boneless as well. Any comments on discounting and promotional levers?

Yes, we want to be careful with the terminology we use here. As a brand, we know Wingstop is used as an indulgent occasion. When we lean into value, we don't really discount as a brand. When we lean into value, we're retaining those indulgent occasions. Presenting the consumer with value can be a price point. We promote things like the Boneless Meal Deal, which we did earlier this year. It really reversed the trend we saw in the second quarter. That Boneless Meal Deal was at a decent food cost for our P&L, but it wasn't a discount. We don't discount but we are intentional about how we present the consumer with value, particularly in an environment where the consumer may be more discerning with their dining out decisions. Our a la carte chicken sandwich, offered at 12 different flavors at $5.49 price point, presents that value while bringing in new guests. These long-term sustaining sales drivers are activated and give us confidence in navigating macro challenges. Yes, we're excited about China. It's an opportunity for which we're excited. We have active dialogue with potential prospects to partner with in that region. I wouldn't say anything's materially changed on our position. Given the recent Party Congress meeting, we're evaluating implications and how that plays out. But nothing has changed materially; it's an exciting opportunity. We recently sold the rights to South Korea, expecting our first restaurant to open there in early 2023, which we're excited about. We continue expanding in the Southeast Asia region and have success in Europe, particularly the U.K., where we're pacing for record development.

Hi, thanks. You sort of touched on this a couple of questions ago, but your comments on the digital component of your business. I think you've mentioned an acceleration in digital sales mix. Was that delivery component of that ramp-up as well, especially given the addition of Uber Eats?

Yes, Jim, the point we were calling out around digital is that we saw it grow quarter-on-quarter. When you think toward digital channels, we also see our marketing and advertising efforts supporting those sales. I think we're in a favorable position with Uber Eats contributing to our growth in that segment and giving us a wide audience.

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