Wingstop Inc. Q2 FY2023 Earnings Call

Thank you, and welcome to the Fiscal Second Quarter 2023 Earnings Conference Call for Wingstop. Our 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.

Good morning, and thank you for joining our call. Our second quarter results showcase the underlying strength of the Wingstop brand and the staying power of our strategy. Our results would not have been possible without the incredible work by our team members in the global support center, the restaurant team members, our supplier partners, and our brand partners who work tirelessly each day to serve the world flavor. We delivered another industry-leading quarter, led by 16.8% domestic same-store sales growth. Consistent with the underlying strength in our brand that we saw in the first quarter, substantially all of our comp in Q2 was driven by transaction growth. Within our sales growth, we saw further expansion in our digital channels, achieving a record 65.2% digital sales mix for the quarter. We opened 50 net new units during the quarter. This pace of development and same-store sales growth translated to system-wide sales growth of 27.8% in the quarter. Adjusted EBITDA totaled $34.4 million, an increase of 47% versus the prior year, highlighting the strength of our asset-light model. Our unit economics are near our historical highs, and we have an energized base of brand partners. We are extremely excited by the strength we are seeing in our development pipeline positioning us for a record year across development metrics, whether it be our development agreement sales, site approvals, and new restaurant openings. We are also making great progress increasing brand health metrics. We hit record highs across brand awareness, purchase consideration and intent as well as media-related perception metrics that include positive buzz, word-of-mouth, and likelihood to recommend. And we are also seeing positive trends in value scores with guests in an environment where many brands are measuring decline. While we are encouraged by the progress we are making, we continue to see sustainable growth in front of us when we benchmark Wingstop's brand awareness against other national brands. The roughly 30% growth we've seen in system-wide sales during the first half of the year gives us the firepower in our national ad fund to continue chipping away at this opportunity. In our 19 consecutive years of same-store sales growth, we have a proven playbook and a multiyear strategy that we are working in, we continue to execute against. We believe our sales strategies provide us with clear line of sight to growing AUVs north of $2 million. Our strategy remains consistent and clear. Building brand awareness, menu innovation, expanding our delivery channel, digital transformation, and data-driven marketing. One of the strategies we've talked about over the years is to broaden the top of the funnel by targeting heavy QSR users, a group that represents over 60% of all QSR visits and has either not heard of or not tried Wingstop. We're excited by the progress we continue to make against this meaningful opportunity and are bringing a lot of new guests that are experiencing Wingstop for the first time. These new guests that are coming into Wingstop tend to be Gen Z or millennials, multicultural, tech-forward, party size of two or more, and willing to spend a little more for quality or indulgent. The profile of the heavy QSR user. While we are encouraged by the progress we are making and the tremendous momentum we have in the brand, there remains a significant awareness opportunity helping fuel continued sales growth. The progress we are seeing in expanding brand awareness will be further bolstered by the launch of our new creative campaign, our first in more than three years, coinciding with the start of football season. This new creative, combined with our growing ads, will allow us to continue closing our gap in brand awareness with breakthrough creative along with Wingstop showing up in more premium placements focused on live sports. To help us continue to execute our proven strategy, I couldn't be more excited about the addition of our new Chief Growth Officer, Anne Fisher. Her experience will position us to advance our best-in-class technology platform and allow us to further unlock our growing first-party digital database as we work towards our aspirational goal of digitizing every transaction. Another sales driver on our path to $2 million plus AUV is the expansion of our delivery channel where we see the potential to nearly double our channel mix. In July of last year, we launched a second delivery provider for the entire domestic system. The addition of Uber Eats has allowed us to access a new guest that's proven to be highly incremental. We see the two delivery marketplaces as another avenue to build awareness. Benchmark suggests delivery sales mix can be north of 50%. Today, we sit at approximately 30% delivery mix in the system. And reflecting on our first year of expanding to an additional delivery provider, we continue to see a substantial opportunity ahead. We have lapped the launch of Uber Eats in July of last year, and we are encouraged by the results we are seeing. We have commented over the last few quarters that we continue to see growth with both DoorDash and Uber Eats delivery channels, and we see continued growth in front of us within these channels. In addition to delivery, our Chicken Sandwich innovation continues to be a sales lever. Oh, and by the way, I'm sure many of you by now have tried at least one of our twelve chicken sandwiches, but yet we are only scratching the surface on the opportunity. With more than 2.8 billion chicken sandwich servings annually in the U.S., we are looking to capture our fair share of the category. This strategy is broader than just winning our fair share. It is also about broadening how consumers view Wingstop. It presents us with the opportunity to capture more occasions beyond that indulgent wing occasion, which we believe can ultimately impact frequency and presents a huge opportunity for us over the long term. Wingstop Chicken Sandwiches provide another access point for the brand among new consumers and introduces our differentiating flavors and quality our core fans have enjoyed over the years. Another benefit we have seen as we bring in new guests into the brand through the Chicken Sandwich is a halo effect on our core wing business as guests learn to navigate the rest of the menu, something we believe just further strengthens our unique position. Chicken Sandwich has also helped advance our supply chain strategy. The combination of increasing our utilization of breast meat and our size and scale has positioned us to make meaningful progress towards our goal of minimizing volatility we see in food costs. As we sit here today, the majority of our chicken we purchased is not directly tied to the week-to-week volatility that is seen in the spot market. This is a fundamental shift in our model and is helping us mitigate the volatility we have historically seen in food cost. As we continue to win more chicken sandwich occasions, we see a path to a 50% plus boneless mix, which we believe could result in a structural change to our long-term food cost target, potentially yielding COGS in the low 30% range and further enhancing our best-in-class unit economics. These multiyear sales drivers that we are executing against have combined to drive significant transaction growth and gives us confidence in achieving our targeted AUV in excess of $2 million. Our supply chain strategy and growth in AUVs have strengthened unit economics. The average investment to open a Wingstop is still a relatively modest $450,000 and with system AUVs of $1.7 million, brand partners aren't seeing a payback in less than two years. Our brand partners recognize the staying power of our strategies and the strength of our unit economics, which is supported by the fact that over 90% of new restaurant openings come from existing brand partners reinvesting back into the brand. A strong statement supporting our best-in-class returns and translates into significant demand for growth. Brand partners are motivated and excited to grow their Wingstop footprint as we continue to see our pipeline strengthen not only for new site approvals but also for new development agreements, giving us confidence in our path to achieve our long-term goal of 7,000 plus global restaurants. You've heard me say that we believe our international business is well positioned for growth. During the first half, we saw an acceleration in international same-store sales growth and the investments we have been making and the team are paying off. We signed two new markets during the quarter, Netherlands and Puerto Rico, which fit perfectly within the regional expansion strategy we have discussed over the years. We're growing our footprint in our newest markets, Canada and Korea while AUVs are accelerating. The business development pipeline remains strong, and I'm excited about the momentum that it's building in our international business. As we sit here today, the consumer is proving to be more resilient than what many of us might have expected to start the year. Whether it is continued inflation, rising interest rates, or even the restart of student loan payments later this year, we acknowledge the macro backdrop continues to have a fair amount of uncertainty. However, despite the uncertainty ahead, we believe we are well positioned to deliver another industry-leading year. In the second quarter, we opened our 2,000th global restaurant. Our system sales have surged past $3 billion on a trailing 12-month basis through June, which is nearly double when comparing to just three years ago during the same time period. This is a direct reflection that our multiyear strategies are working and showcases the underlying momentum in the brand. It's also what gives us confidence to raise our full year 2023 outlook on domestic same-store sales growth from high single digits to a 10% to 12% range with our sights clearly set on delivering an industry-leading 20th consecutive year of same-store sales growth. In addition, with the visibility that we have in our construction pipeline, we are updating our development outlook from approximately 240 net new units to between 240 and 250 net new units, which would translate to a record number of net new units opened in a year for Wingstop. Before I hand it over to Alex, I wanted to share some exciting news on the ESG front. A key focus area in our ESG efforts is giving back to the communities in which we serve. Our Wingstop charities mission is to amplify the flavor of our communities through service while focused on environment, education, sports, food, and entrepreneurship. In December of 2022, we launched Round Up, a program in which our guests have the ability to round up their digital checks to the nearest dollar to donate to Wingstop Charity. This provides an opportunity to partner with more organizations in need of support. I'm excited to announce that in the third quarter, Wingstop Charities is partnering with No Kid Hungry, where 100% of the Roundup contributions made between August 1 and September 30, will go to support this terrific organization. No Kid Hungry is an organization that is changing the way that schools and communities ensure our youth have the food they need to learn, grow, and succeed. Their mission is to end child hunger and to help ensure every single child in America has the food they need to grow up healthy and strong. I'm thrilled with our efforts and the opportunities to have an even greater impact in the communities we serve. That the foundation of our strategies is people and our culture, which we refer to as the Wingstop way. We believe these are competitive advantages for us. And as we look ahead to the second half of 2023, I'm excited by how the Wingstop team is positioned to deliver another industry-leading year.

Thank you, Michael. The second quarter continued to demonstrate the strength of our long-term strategies. We delivered 27.8% growth in system-wide sales in the second quarter which, as you heard Michael mention, now exceed $3 billion. Total revenue increased to $107.2 million from $83.8 million in the prior year fiscal second quarter. Royalty revenues, franchise fees, and other revenues increased by $11.9 million in Q2, driven primarily by 182 franchise restaurant openings since the prior year comparable period and a 16.8% increase in domestic same-store sales, which was driven almost entirely by transaction growth. Company-owned restaurant sales totaled $22.6 million in Q2, an increase of $3.8 million, primarily due to a 5.7% increase in company-owned same-store sales driven by transaction growth and six net new restaurants versus the prior year comparable period. Cost of sales as a percentage of company-owned restaurant sales improved by more than 580 basis points compared to the prior year, mainly driven by a reduction in food, beverage, and packaging costs which included a nearly 40% decrease in the cost of bone-in wings. Our supply chain strategy is to mitigate volatility in our food costs in a component of our strategy where we've made a lot of progress is around shifting more of our buy from the spot market. Based on the progress we are making against our supply chain strategy and leading indicators for our core commodities, we entered the second half of the year with greater predictability, and we continue to have line of sight to a food cost for 2023 in the low 30% range. And consistent with our outlook last quarter, we anticipate company-owned restaurant cost of sales to be approximately 75%. With the progress we are making on our supply chain strategy, this visibility into food costs extends beyond 2023 and is generating quite a bit of excitement among our brand partners as unit economics have strengthened to near record levels. In the second quarter, SG&A totaled $22.1 million, an increase of $8.2 million versus the prior year comparable period. This quarter lapped a significant stock award forfeiture last year and in the current quarter included investments in headcount and strategic projects to support the long-term growth of the business, as well as an increase in performance-based stock and incentive compensation as a result of our performance. Adjusted EBITDA, a non-GAAP measure, was $34.4 million during the quarter, an increase of 47% versus the prior year. Adjusting for nonrecurring items, we delivered adjusted earnings per diluted share, a non-GAAP measure, of $0.57, a 27% increase versus the prior year. Our highly franchised asset-light model continues to deliver strong free cash flows. As of the end of the second quarter, we had $521 million in net debt. Our net debt to trailing 12-month adjusted EBITDA was at 4x, which is a half turn lower than at the end of the fourth quarter. Underscoring our ability to quickly delever through a combination of adjusted EBITDA growth and strong free cash flow generation. We are maintaining a strong cash balance that stands at approximately $200 million, and we believe puts us in a position of strength as we enter the back half of this year. A component of our return of capital strategy is through our regular quarterly dividend, which is targeted at approximately 40% of free cash flow. Our Board of Directors today approved a 16% increase in our quarterly dividend to $0.22 per share of common stock, resulting in a total dividend value of $6.6 million. This dividend will be paid on September 8, 2023, to stockholders of record as of August 18, 2023. Now moving on to our outlook for 2023. With the strong start to the year, we now anticipate domestic same-store sales growth of 10% to 12% for full year 2023, an increase from high single digits. Based on the visibility we have in our pipeline, we are raising our development outlook to a range of 240 to 250 net new units. And consistent with our prior comments, we also anticipate our pace of openings to be weighted more towards the fourth quarter. SG&A guidance is estimated to be between $91 million and $93 million, including $3.9 million in nonrecurring consulting projects to support our strategic initiatives and an estimated $14 million to $15 million of stock-based compensation expense, which was increased from $12 million to $13 million due to the performance of the business. For modeling purposes, we anticipate SG&A in the second half will be evenly split between the two quarters. Our strategies remain consistent, and we are focused on execution, which is evident with the strong start in the first half of the year. Our multiyear growth strategy is a unique part of the story for Wingstop, have staying power and gives us confidence in delivering upon our increased outlook for 2023. I want to thank our team members, supplier partners, and brand partners for all their hard work and dedication to deliver a best-in-class experience for our guests. With that, I'd like to now turn to Q&A. Operator, please open the line for questions.

Today's first question comes from David Tarantino with Baird.

Congratulations on the strong results. My question is about the comp trend you are experiencing. It remains very strong in absolute terms in Q2, but it did dip slightly compared to Q1. I'm interested in how you perceive this shift from Q1 to Q2 and whether you regard it as a fundamental slowdown or not, especially considering the challenges and comparisons stemming from COVID. How do you see the business trend from Q1 to Q2?

I think as we think about the comp that we delivered in Q2, it's something we're obviously extremely proud about, particularly when considering the underlying momentum and strength of the brand to deliver a comp of 16.8%, which has been substantially driven by transaction growth, speaks a lot to the effectiveness of our strategies that we're executing against and just the overall health of the brand. I think you heard us in our prepared remarks talk about brand health metrics we're setting record levels for the brand and seeing really strong improvement. And then when you look at some of the metrics around value as an example, where we're showing and measuring really great progress and improvements in value scores when the industry is measuring declines. So I think it really differentiates our position. But as we think about the quarter, I think obviously we talked about this in prior quarters, we saw a bit of a perfect storm hit our business in April of last year. But then we moved quickly and deployed or leaned into our proven playbook, our value playbook, and was able to reverse that trend pretty quickly. So the compares did get a little bit more challenging as we moved through the quarter and not nearly as easy as what we lapped in April. But I think overall, we feel really good about where we stand and the trends that we're seeing in the business. I think if we take a step back, I can remember just about a year ago, we were celebrating achieving $1.5 million AUVs for the brand. And at that point in time, we shared a broader strategy that showed what we believe is the growth levers we can execute against to scale AUVs north of $2 million. And fast forward to today, we're already up over $1.7 million. And so as we think about the unit economics and the strength that we're seeing there and how that's feeding into a significant amount of demand with brand partners, we're really encouraged by the underlying momentum we see.

Great. And just a follow-up to that, Michael. I think one thing that's on investors' minds is how you lap this big performance you've seen in the first half of this year. So I guess, what are your thoughts on being able to just maintain kind of positive momentum on top of what you've seen recently as you think about the next four quarters playing out?

Another good question. And I think it's something we're actually really confident in because as we think about these sales levers that we're executing against, whether it's continuing to grow brand awareness, whether it's through menu innovation and capturing new occasions through chicken sandwich, and as we mentioned in our prepared remarks, seeing that halo effect on the rest of our business as these new guests come in through a very familiar and easy entry point of chicken sandwich and are able to navigate the rest of the menu or the expansion of delivery, where we mentioned it's at 30% today, but we still see an opportunity as we benchmark ourselves to other more mature heavy off-premise brands. An opportunity to almost double that channel mix, and obviously, continued digital expansion and then leveraging our first-party data. And so all of these things give us a lot of confidence in our ability to continue to grow AUVs and sustain continued sales growth and deliver on our long-term algorithm. I think what's unique about our story is these aren't LTOs or one-time sales benefits. These are new sales layers that we continue to build upon. I can remember answering the same question a couple of years ago when we saw extensive growth in our business from the pandemic. And we talked about that just simply being a pull forward of growth. We were able to build on top of some and comp on top of some pretty incredible numbers back then, and we don't see I think next year will be any different.

And our next question today comes from Jeffrey Bernstein with Barclays.

First question is just on the unit growth. You raised your opening target modestly for '23. Now it looks like 12% to 13% growth. Just wondering if you could talk about maybe where the incremental growth is coming from, whether by geography or presumably a lot more existing franchisees, any reason to believe that the 2024 year will see any kind of slowdown in growth if we were to see a tougher macro? Or is your line of sight pretty strong that the 10% is the base, but you have demand to exceed that going to '24, where maybe the macro might be a little bit more challenged? And then I had one follow-up.

We're definitely bullish about development for this year in particular. And what we're encouraged by is, it's balanced. It's balanced through fortress markets, non-fortress markets. And again, you did mention it, but it is the majority of our development coming from existing brand partners that are reinvesting in the brand. We mentioned it in our prepared remarks, but there's a significant amount of demand and excitement from our brand partner community to continue to grow. We're seeing our pipeline of sold restaurant commitments for next year continue to build very nicely. In addition to that, we continue to see a really strong steady flow of sites coming in to be approved giving us a lot of confidence in continuing to be able to expand our footprint. I think for us, a lot of that centers around the progress that we've made obviously driving top line, probably equally as important is continuing to advance our supply chain strategy, where we've been able to move more and more of our buyer away from the spot market in how we structure some of the agreements with our supplier partners. And that has enabled us to provide a lot more predictability. Ultimately, our supply chain strategy as stated is to minimize the volatility that we see in food costs. And so we feel really good about how that's coming together, and the progress that we're making. And I think as you heard in Alex's comments in our prepared remarks, reiterating what we told you last quarter around cost of sales margins for our company restaurants, I think it's a good indication.

Understood. And then the follow-up is really on something you didn't necessarily mention in your prepared remarks, but AI, which I know from recent conversations, it sounds like you were testing AI and I think you're 40 or so company-operated units in Dallas. I know that region still gets a fair amount of orders over the phone. So I'm just wondering if you can share any early feedback maybe on benefits of the shift to digital or other potential AI opportunities? Obviously, this is a sector where that is getting a fair amount of discussion. I know you guys tend to be on the forefront from a technology perspective. So any color on the AI test or future opportunities would be great.

Yes. Thank you, Jeff. We're really excited about this AI solution that we've expanded the test on as it relates to intercepting phone orders, which still represent roughly 15% of our sales today. So as we think about our digital sales mix, which we mentioned for Q2, was at a record 65.2%. We see a ton of runway to continue to expand our digital sales mix. When you look at the overall industry and you've seen consumers revert back to prepandemic behaviors, you're seeing digital sales mix for a lot of brands go the other direction. We're continuing to expand, and we think this AI solution is a great catalyst for further expansion, where we enjoy and benefit from a higher average check. But what we've seen in the additional restaurants that we've expanded to is pretty consistent with what we mentioned last quarter, and that is, we think it's capturing more calls that were previously missed, it's offering a better guest experience, and then obviously, if the team members' not on the phone, while guests are at the counter picking up an order and having to manage both of those things at the same time, it provides a better team member experience. We're really excited about the progress we're seeing within the test and the opportunity we have in front of us to lean in and leverage AI.

And our next question today comes from Andrew Charles at TD Cowen.

I have two questions for Alex. First, I want to get your updated thoughts on accelerating cash to shareholders. Last March, you fortified the balance sheet, about $130 million of unrestricted cash as you pursue the supplier strategy you're on pace on this year with less than 4x net debt to EBITDA. So curious, what do you see to accelerate cash returns to shareholders? And how would you think this is more likely to be executed through releasing that excess cash on the balance sheet or through perhaps a dividend recap?

Consistent with our comments we made in the prior quarter, we intended to enter the second half in a position of strength with our balance sheet. So we are set up to be opportunistic with this cash, which could include a return of capital. We are having regular dialogue with our Board on how to best optimize our return of capital strategy. I think you've seen that cadence from us over the years around that every 18-month window. Obviously, we are deploying the cash and move our leverage up a bit, but we're also comfortable at a little higher leverage than where we're at today to your point.

Great. And then my follow-up question is on bone-in wings prices. I think you said bone-in wings are going to continue to be benign in the back half of the year, and then you have line of sight into 2024. So wondering, can you expand more on that? What are the early indicators for 2024 wing costs that helped lead to or helping to lead to record store level cash flows in 2023? I know Michael, last call, you talked about, obviously, beef inflation is going to lead chicken suppliers to increased production, increased supply. Is that settled the thought for 2024?

Yes, Andrew, we are very enthusiastic about this, and so are our brand partners. This year, for the first time, we have been able to clarify that we expect our food costs to remain in the low 30% range. This is due to what Michael referenced during the call regarding our strategy to purchase more outside of the spot market. While we still monitor the market, we have become less dependent on weekly purchases because of the new pricing arrangements we've established with our suppliers. For the first time in years, we are looking ahead to 2024 with confidence, implementing this strategy to reduce fluctuations in our food costs. It's more about our strategic direction than the current market conditions.

And our next question today comes from Joshua Long with Stephens.

When thinking about the unit development pipeline, Michael, I think you mentioned the ongoing strength and the fact that it continues to build globally. Just curious if you could quantify what that pipeline looks like. I think in prior calls, you've been you had built something along the lines of 1,200 units. But just curious if you could add an additional layer of texture on that. And then secondarily, just within the current environment, just what that development backdrop looks like? Obviously, you're able to take up the development range for the year, which is exciting, but curious what the kind of your brand partners and what you all are facing in terms of either permitting or supply chain headwinds in the current environment.

I think we mentioned it on the call, we were trending towards record levels in just about every metric across development, whether that's RDA commitment sales, whether it's sites approved or obviously based on our guide for the balance of the year. 2023 is shaping up to be a record year of new restaurant openings, and that pipeline continues to build. A lot of that has to do with some of my prior comments I made around just the strengthening of the unit economics that our brand partners see, the staying power of these sales drivers that we're executing against. We've mentioned earlier the progress that we're making against our supply chain strategy that's providing more predictability and mitigating the risk around volatility that we see in food cost. We're pretty encouraged by that progress. Our brand partners are really excited about it. Another thing they're really excited about is we talked about last year's vintage of new restaurants that came in at $1.3 million on average. Those restaurants today are comping strong. I think that's something we've demonstrated consistently over the years. Our restaurants come out of the gate strong and then just build from there, another unique element to our growth story. As we look at the restaurants that we opened this year, they're actually coming out of the gates and trending at above $1.3 million, which again further fuels the excitement that we see from our brand partners, and I think ultimately, it fuels that development we talked about.

That's very helpful. As a follow-up, when we think about the momentum behind Chicken Sandwich and the opportunity to bring new guests into the brand through that funnel that you mentioned, a lot of work there and still more work to be done for sure. But can you talk about what you've seen thus far in terms of how you engage with guests when they enter the system, how they start to explore the menu and what kind of what that Wingstop journey is for them? It seems like there's an opportunity to support some of that boneless mix that you talked about and then perhaps even kind of your core heritage bone-in specialty as well. But just curious what you've learned with them and how they've communicated with you all as they've gotten into the system.

Yes, it's a great question and it's something that we're pretty excited about. I think it feeds into the overall confidence that we have is that these new guests that are coming in are very familiar and understand how to engage with brands with a chicken sandwich, where maybe historically, they've only thought of wings as a special occasion, whether it be Super Bowl or some other group gathering. As they come in, we are seeing them navigate the rest of the menu. I think that is what's translating to a pretty unique situation where this comp growth that we're talking about and the transaction growth that we're seeing is pretty consistent across daypart. It's pretty consistent across channel, and we're pretty excited about just seeing this overall what we call halo effect to the rest of the menu. One of the data points I'll share with you that really highlights the progress that we're making is as we exited Q2, our boneless mix was the highest it's ever been at 43%. We talk about not only can this new guests come in through the chicken sandwich and provide an overall benefit to the menu. We see that as continuing to build confidence around driving boneless mix long term north of 50%, which could structurally change kind of our overall food target which typically is mid-30s. We could actually see that move down to something in the low 30% range, which is pretty exciting when you think about combining that with the AUV growth that we're delivering, which really strengthens those unit economics and feeds that long-term growth story, which is really exciting when you think we just eclipsed 2,000 restaurants and have an opportunity in front of us to scale this brand to north of 7,000.

And our next question today comes from Jon Tower at Citi.

Great. I was actually maybe just following up to that last point on the traffic growth. Is there any way you could break down the traffic growth that you're seeing between new customers versus, say, building frequency from existing customers based on the data that you have today?

I mean I'm sure we could get to that. What we're seeing, though, and I think is what's really encouraging is these new customers that are coming in are moving up the frequency curve, and that's exactly what we want to see. We talked about chicken sandwich, where it is a little bit more of a different occasion than our typical wing occasion, and it does over-index towards lunch. I did mention that comp was pretty consistent anyway you cut it, but it was stronger over that lunch day part, which I think we'd like to see and see a lot of opportunity there to continue to grow. We talk about our chicken sandwich mix. It's still mixing in that mid-single-digit range. But the fact that we're seeing growth in all areas of the business, we think a better way to look at it and how we measure it is actually in quantity of sandwiches sold per restaurant per week, and we sold more sandwiches in Q2 than Q1, which is encouraging as we think about the back half of the year.

Got it. And just I know it's something that you kind of not wanted to pursue in the past, but the idea of our rewards program, our loyalty program. Curious to get your updated thinking here. Obviously, you've got a high digital mix of customers and clearly driving quite a bit of traffic these days. But thinking about this business over the longer term, when you look across the rest of the landscape, it appears that loyalty has worked relatively well for quite a few brands, particularly within the limited service space. So curious to get your updated thoughts there, if anything has changed?

Yes. Another unique aspect of Wingstop is that we have built a database of 35 million users without implementing a loyalty program, which is remarkable when considering the opportunity ahead of us. We are making strides with our approximately $50 million investment in our proprietary technology stack. We believe this investment will enable us to effectively utilize our first-party data to personalize the customer experience and engage with guests in a more targeted manner. This will further drive our digital expansion. As we advance, we recognize that this could be a potential lever for us as we aim to digitize every transaction. We could offer guests early access or even a secret menu, providing a customized experience for those who are part of our program at Wingstop.

And our next question today comes from Andy Barish with Jefferies.

Just a quick point regarding the guidance of 10% to 12% on same-store sales. The calculations suggest low to mid-single digits for the second half of the year. Can you provide some insight into how things are currently looking as you move past Uber and into the chicken sandwich phase, particularly in relation to your guidance range?

Andy, yes, absolutely. I think a good way to think about it, and we've shared this, I think, in prior quarters is when we launched Uber Eats, we saw, call it, roughly a mid-single-digit sales mix through that platform. We've talked over the quarters about continued growth in Q2, kind of our exit rate if you will, that channel mix through the Uber Eats platform was roughly double where it was when we launched. That gives us a lot of confidence in our ability to lap that; and really what we alluded to in our prepared remarks. I think chicken sandwich is really no different in that we are selling more sandwiches, and we continue to see this overall halo effect to the rest of our business. You couple that with our growing ad fund and increased media, this new creative that we have coming around football season. We enter here in the back half of the year with confidence. Obviously, like most other brands, there's still that overall uncertainty that's in the macro backdrop that everybody has to navigate and measure.

Got it. And then just quickly on the consulting fees or fees that are running through the G&A this year. Can you give us a little color on where that is? I imagine some of it is looking at China again, but anything else that you'd care to call out?

Yes, Andy. I think over the years, we've been a brand or we've demonstrated that when we see an opportunity to put our foot on the gas and drive growth, that's exactly what we do. As we think this work and kind of the consulting fees here are really centered around strengthening our category of one position and just further bolstering our strategy for us to execute on this next phase of growth.

And our next question today comes from Jeff Farmer with Gordon Haskett.

Just a big picture follow-up to a handful of earlier questions. So really just looking back at your traffic growth drivers over the better part of the last year, a lot of things in play. But if you think about the move to always advertising, the Chicken Sandwich launch, delivery growth, what can you share with us in terms of what has proven to be the most impactful driver over the last year? In terms of thinking about drivers moving forward, which you continue to see being a driver as we get into the back half of '23 and to '24.

I believe we received a similar question last quarter. When considering the increased advertising investments in our media spending, especially with the chicken sandwich campaign as part of our messaging, it becomes a bit difficult to separate the impacts. What we've observed, which we mentioned last quarter and has continued this quarter, is that the overall strength of our brand is a result of all these elements working together. We indicated this last quarter as well, but we have exceeded our initial expectations, and we continue to see strong overall performance.

Okay. And then just one quick follow-up. As it relates to the 10% to 12% full year seeing for sales guidance, again, I might have missed it, but what level of menu pricing is contemplated in that guidance?

We basically are reverting back to our historical approach in pricing, and that is 1 to 2 points of price through two windows. We did execute a window in the first half of the year, and we will execute another pricing window in the back half of the year.

And our next question today comes from Brian Harbour with Morgan Stanley.

Have you seen any indication that customers who came in for the Chicken Sandwich or through Uber are increasing their visit frequency over time? Are they visiting more often than some of your existing customers, or is it the opposite? The main point is that you've done a great job attracting new customers; have you observed that these customers are becoming very loyal?

I think the short answer is yes. We have seen these guests come in. And as I mentioned before, we're seeing them move up the frequency curve after that initial trial or initial visit. For the quarter, we actually did see a nice uptick in frequency. We mentioned it in our prepared remarks, beyond just frequency. If you look at all brand-level metrics, we saw really strong improvement, record levels for the brand, across the board. When you think about this overall macro backdrop to be sitting here, driving transaction growth like we are and have value scores improving really gives us a lot of confidence in our ability to navigate the back half. If there is a significant shift to consumer sentiment, we have a proven playbook. We know that we can lean into value, retain those indulgent occasions. We feel really good about where we stand today. Yes, Brian, we're truly excited about the momentum in our international business and the demand in our pipeline. For example, our U.K. business just had another record week of sales. Our original restaurant in London, which opened about five years ago, achieved over $100,000 in sales last week. This illustrates the momentum I mentioned, and we're applying the same strategy in Canada and Korea, with growth in average unit volumes as we expand our presence there. We also signed two new markets this quarter, and our pipeline for new territories is strong. We're optimistic about the performance of our international business, the execution of our strategy, and its potential as a growth driver in the future.

And our next question today comes from Brian Moon with Piper Sandler.

I have a question regarding the delivery sales channel, following up on some of the comments from the prepared remarks. Now that you are well-established on both large platforms, what do you believe will be the main factor driving growth from a 30% sales mix to a 50% sales mix in the coming years? Do you think that more consumers will gradually shift to aggregators, allowing you to benefit from your offerings, or are you actively developing strategies or marketing efforts to promote this growth?

Brian, this is Alex. I can jump in here. I think we've talked a bit that we essentially turned on Uber Eats last year with the launch. We haven't invested in the platform. That is an opportunity for us to deploy our advertising dollars to build more awareness. Even though we've seen our mix double since the launch week as we've lapped that, that's a big opportunity for us to build awareness in those two platforms, both DoorDash and Uber Eats marketplaces continue to grow as we expand our awareness. We build frequency, as Michael referenced. So it is an opportunity for us to invest in those platforms that can lead us on that path towards those benchmarks of 50% plus.

And our next question today comes from Chris Carril with RBC Capital Markets.

I guess just following up on the chicken sandwich and the potential long-term benefits you're seeing from it. How, if at all, does the momentum you're seeing with the sandwich influence how you're thinking about restaurant formats or real estate strategy longer term?

I believe that when it comes to the chicken sandwich, we should look back at Wingstop's 30 years of history. Our menu innovation has mainly focused on flavors. A couple of decades ago, we introduced boneless wings and soon after, tenders. Last year, we rolled out the chicken sandwich. A crucial aspect of all these additions has been maintaining the simplicity of our operations. We collaborated closely with our brand partners to ensure that the launch of the Chicken Sandwich did not disrupt the simplicity and efficiency of our service model. I don't think it will alter the overall format or layout of our offerings. Currently, about 94% or 95% of our sales come from off-premise transactions. We will keep focusing on that, as our efficient model and high off-premise sales have contributed to strong unit economics. Looking ahead, we still see significant potential with the chicken sandwich, which can help increase customer frequency and attract new guests to our brand, making us quite optimistic about it.

Okay. Great. And then I know you touched on this in your prepared remarks. But could you expand maybe a bit more on brand awareness? If you could maybe provide any quantitative measures around this relative to peers. Obviously, new store growth and system sales growth is going to help fuel advertising. But is there anything else you would highlight as part of your strategy to drive awareness higher?

Yes. We made considerable progress on awareness, but it still remains a significant gap to where our numbers are relative to what we measure as those top 10 QSR brands. Our advertising dollars; we just surpassed $100 million for the first time last year. The system sales growth gives us opportunities to add more weeks on air, have an always-on message throughout the year, and increase the density of our advertising during the weeks we're on. In comparison to those larger, more mature brands, we have a large runway ahead to make Wingstop more mainstream.

And our next question today comes from Gregory Francfort with Guggenheim.

I just wanted to maybe follow up on I think there was two questions ago. Can you talk how you're thinking about deploying advertising dollars into either DoorDash or Uber Eats or your native platforms, and how you're balancing those priorities?

Yes, that's a great question and presents a significant opportunity for us. Looking at our current delivery sales mix, which is about 30%, we have not heavily invested our advertising dollars in those platforms. Much of the advertising and promotions you see are funded by our partners because we provide a strong average order value, benefiting their drivers and overall business. They have shown a willingness to invest in Wingstop, which we value. As we aim to almost double our delivery channel mix, we believe that increasing brand awareness on those platforms will lead to capturing more customer occasions. This is one of the multi-year sales drivers we've mentioned that enables us to raise our outlook for the year. We're also witnessing growth in average unit volumes, which is enhancing our unit economics.

And our next question today comes from Michael Tamas with Oppenheimer & Company.

You were way ahead of the industry in terms of taking less menu pricing and even leaning into value more, which I think was a big advantage and likely widened your relative pricing at the competitors. Now it seems like value is becoming a little more widespread across the industry and menu pricing also coming down. Do any of these change in dynamics cause you to think about your sales strategies differently as it relates to value or promotions?

I think we're definitely in a unique position. If you look at Q2, as an example, I think the QSR industry on average had about 10 points of price on the menu, and we were sitting in a very unique position. I think that speaks to the comments we made about improvements in our value scores. What we're hearing from consumers in our research is they are becoming a little bit more discerning with their dollars, and what they're looking for is quality and indulgence, and I think that plays perfectly within Wingstop and how our brand is positioned. We will have a balanced message for those that are value-sensitive, but then obviously, we still have the opportunity to capture so many new occasions. As consumers are looking for quality and indulgence, I think Wingstop's well positioned, which just further supports the strategy that we're executing against. Yes. I mean, I think we have made meaningful progress with our supply chain strategy and remain confident in continuing to execute against that. As I mentioned earlier, we exited Q2 at a record level of boneless mix 43%. As we win more chicken sandwich occasions and see that halo effect on the rest of our business, we see the opportunity to continue to drive that mix. Obviously, with that underlying transaction growth, we're using more breast meat in absolute pound perspective. As we continue to use more breast meat, our supplier partners really like that, and it's allowing us to have fundamentally different conversations with them around how we structure our pricing arrangements for wings. As we sit here today, obviously, the Urner Barry is just north of $1 a pound, but it's well under the five-year average to the tune of roughly $0.50 to $0.55 below the five-year average. We view this as the time to look longer term and talk differently and structure the arrangements differently with our supplier partners to ensure more predictability and mitigate the volatility that we see in food costs. We're pretty encouraged about the progress we've made.

Thank you. Ladies and gentlemen, this concludes today's question-and-answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.