Wingstop Inc. Q1 FY2025 Earnings Call

Thank you, and welcome to the fiscal first quarter 2025 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.

Thank you, Kristen, and good morning, everyone. The start to 2025 has been one that has been underscored by uncertainty. Despite increased uncertainty across the consumer landscape, our Q1 results showcase the resiliency of the Wingstop brand and the staying power of our long-term strategies. I want to start by thanking our team members, brand partners, and supplier partners for their tremendous efforts that position us to deliver these strong results while continuing to serve our guests the high-quality indulgent flavor they've come to appreciate with Wingstop. It is moments like this that demonstrate the excitement and enthusiasm for Wingstop's potential. My comments today will be divided into two parts. First, discussing the current macro environment. And then I want to provide a couple of progress updates on our strategy and the long-term opportunity for Wingstop, which I believe is and will continue to be the best story in the restaurant industry. As you have seen in the consumer data and have heard from several other companies that have reported, 2025 has proven to present a dramatically different macro operating environment than we experienced in the last couple of years. Consumer sentiment has dropped to its second-lowest level since 1952, even surpassing pandemic levels. While I believe it is impossible to know with certainty, this current macro environment feels similar to consumer pullbacks we have seen before. Indicators we see in our business show pockets where the consumer has an elevated level of concern as they face the macroeconomic uncertainty. That being said, we don't believe what we are seeing is broad-based, but rather concentrated among certain geographies, which suggests to us more of a near-term issue. During our 21 consecutive years of same-store sales growth, we have navigated similar periods of temporary consumer pullback in years such as 2017, 2020, and 2022. We experienced the consumer navigating a more challenging macro and elevated anxiety levels that created unpredictability with consumer spending. In a macro environment like today or even in those prior examples, we believe the consumer can show a near-term reaction to reserve cash and reprioritize spending. That being said, we've navigated these situations effectively in our past, and as evidenced by the strength of our model, delivering industry-leading returns for our brand partners. In our first quarter, we are lapping two consecutive years of over 20% same-store sales growth. I'm proud to report that we were able to deliver same-store growth inclusive of transaction growth on these incredibly difficult laps. Our comp of 0.5% includes impacts from the California fires, more severe winter weather events in the Southeast, and the macro backdrop we're now operating in. However, we have not slowed our pace of development, which is on an accelerated pace this year. We opened a record 126 units in the first quarter. Digital sales increased to 72%, adjusted EBITDA increased 18.4% to $59.5 million. These strong results are a demonstration of the success and staying power of our strategies. Despite the headwinds confronting us and many others, we remain focused on executing our long-term strategy and the incredible opportunity that is in front of us, scaling AUVs to $3 million and expanding our footprint to over 10,000 restaurants globally. We will continue to execute our proven strategies which consist of scale and brand awareness, driving menu innovation, expanding our delivery channels, leveraging data-driven marketing and enhancing our digital transformation. It is clear to us the impact our strategies are having on our business. The underlying fundamentals of our business remain strong. Our guest scores and survey data showcase that brand love is at an all-time high, guests are telling us they want to engage with a trusted brand like Wingstop and one that can reliably deliver quality and value. We're measuring record levels on brand health metrics while the broader restaurant benchmarks show declines. Operating KPIs at the restaurant level continue to improve. In the month of March, we had our largest single month of guest acquisition on record. We believe the strengthening of our underlying fundamentals positions us to emerge from this macro environment in an even stronger position with the consumer. I mentioned the record-breaking 126 new restaurants we opened in Q1, something that has exceeded our expectations. Restaurant development is a key enabler for building brand awareness. Coupling that with an ad fund that is growing by double-digit percentage this year, we're continuing to have the fuel to invest in meaningful ways to bring awareness to that indulgent Wingstop occasion. Our partnership with the NBA is proving to be valuable as we see top-tier presence with any game and on broadcast messaging. In fact, Wingstop was the most seen brand during NBA games this season, enabling our strategy to drive brand awareness. Our creative features our new crispy chicken tenders that were relaunched this past quarter in which guests can get them soft and tossed in any one of our 12 bold distinctive flavors. Similar to the chicken sandwich, tenders represent a meaningful opportunity and an additive demand space for us to access our fair share. We created excitement around our launch. We opened a pop-up bar in Brooklyn, the first of its kind. That was a bar entirely dedicated to chicken tenders. We called it bartender. The response was impressive with thousands of RSVPs in the first hours and lines wrapped around two city blocks. Although it is still early, initial observations suggest that the new tender guests exhibit similar characteristics and behaviors to those seen with the launch of our Chicken sandwich, where the guests visited the first time as an individual occasion rather than a group. Expect to hear more from us in 2025 to showcase what we believe is the best tender out there. We've grown to more than 2,600 restaurants and have eclipsed $2 million AUVs with essentially the same simple menu and model from our first restaurant that opened in 1994 in Garland, Texas. Not much has changed in our kitchens to get us to this point, still operating with paper kitchen tickets and limited back-of-house technology integration. As a brand, we challenge ourselves to finally leverage technology to drive more consistency and further enhance the quality that we deliver within our indulgent Wingstop occasion. That journey started two years ago. We started with serving tens of thousands of consumers, both Wingstop guests and non-Wingstop guests, going deep to understand all restaurant occasions and for each of those occasions, clearly defining what's important to those guests. We also assess where we best fit in the demand space and how we win more of their consideration set. The punch line is that there is not a fundamental shift needed in our menu or strategies to deliver $3 million AUVs. But yet, we have an opportunity around speed of service and consistency. Today, as we size up our core demand space, we are only winning 1% share. However, benchmarking other large, more mature QSRs, they are winning 20% of their respective demand space. We also clearly understand what consumers expect within the occasion we are targeting. They expect high-quality food, value through a group occasion, and an indulgent experience. Wingstop nailed it on all three. In our last earnings call, we announced our new kitchen operating platform, which we're referring to internally as the Wingstop Smart Kitchen. We believe our new kitchen operating platform can further enhance the value proposition for both new and existing guests. Our standard quote time is roughly 20 minutes at its best today. And we encounter variability in demand during our busiest hours. We can see quote times reach 4-5 minutes or higher and managing guest expectations through an accurate quote time is a manual process today, and we know that this can lead to an inconsistent guest experience. But when we get it right, there is nothing that compares to that first bite experience we can deliver. Consider this, our AUVs are $2.1 million, and yet we're only gaining 1% of our fair share. There is a significant amount of unmet demand that Wingstop is best positioned to win. Our investments in our proprietary technology opportunity to build brand awareness and expand delivery are key strategies in that journey to capturing more of our fair share. Just one more visit per guest per quarter translates to a significant step towards our $3 million target. And this is where Wingstop Smart Kitchen enters into the equation. Over the past two years, while same-store sales grew 40% stacked, we were focused on executing against our long-term strategies and investing to make sure we were well-positioned for our next phase of growth. The Wingstop Smart Kitchen is the interplay of software and hardware. This is a technology solution we co-developed with the start-up that has built for Wingstop, customized for our menu, our guests, and our team members. Through the deployment of this new kitchen operating platform, we have seen consistent order times that are half of our standard quote time, and we believe unlock new dayparts and increased order consistency. The solution set includes three elements: an AI-driven demand forecasting technology, a gamified highly visual kitchen display system, and a customer-facing status tracking order ready screen. This platform has a demand forecast that is integrated into the kitchen operating system, providing role clarity and efficiency for team members, improving accuracy and in turn, helping to deliver a 10-minute average ticket time. Not only is this over a 50% reduction in ticket times, it's also delivering a consistent guest experience and improving product quality. We have made great progress in our rollout. At the end of Q1, we had deployed the Wingstop Smart Kitchen in over 200 restaurants. We are pleased with the early results we've seen, including improvements in overall satisfaction and cutting quote times in half. Sales for these restaurants versus control restaurants are outperforming. We are targeting to have the rollout complete by year-end. This is truly a game changer for our guests. It's a game changer for our team members, and it's a transformation in our restaurants that we believe will be a catalyst on our path to $3 million AUVs. Over the years, we have demonstrated our ability to innovate and maintain discipline around investments that we believe drive the business for the long term. In 2023, we made investments into our database to enrich and build robust guest profiles. This led to our Wing IDE platform, unlocking first-party data capture at scale and laid the foundation for personalized experiences across channels. In 2024, MyWingstop was the next step to enable this personalization through a seamless and best-in-class digital ordering experience. Wing IDE is allowing us to execute hyper-personalization strategies designed to create loyalty-like behaviors with our guests. Since we launched MyWingstop, we've been mining for insights and learning which strategies are proving to be most effective. But we aren't stopping there. With our aspirational goal of digitizing every transaction, we are focused on elevating the end-to-end guest experience, and that next natural evolution for us will be a loyalty program. With a database that has scaled to over 50 million users, as well as our new Wingstop Smart Kitchen innovation, we believe the timing is now right for us. We have an opportunity to drive frequency and retention by rewarding repeat behavior and tap into that emotional connection our guests have with our brand. Supercharged by Wing IDE, our loyalty program will drive a one-to-one experience and unique access to the brand. We believe our loyalty program will be distinctive in the industry because we're not taking the typical transactional approach within our design. The level of insights we have with our guests today plays a big role in informing the executional elements of a loyalty program. We are excited to share more about our loyalty program in the coming quarters and intend to pilot the program in the fourth quarter of this year and plan for a system-wide launch in 2026. It's investments such as the ones we've made in our digital technology platform that allow us to maintain our industry-leading unlevered cash-on-cash returns of 70% our brand partners enjoy. Essential to a successful franchise system is the unit economics, and we believe we have the best in the industry. Our supply chain strategy continues to provide a level of predictability into food costs that we have not seen in the past. Coupling food cost predictability with our average unit volumes of more than $2.1 million our brand partners are seeing cash flows at record levels. And in turn, they are investing behind their infrastructure and operations to scale their businesses alongside this growth. The biggest testament to the strength of our unit economics, especially in this current macro environment, is our brand partners' demand for growth. Average new restaurant volumes are on pace to exceed $1.8 million in the latest vintage, which compares to $1.2 million just three years ago. We opened a record 126 net new restaurants in Q1 and updated our guidance to 16% to 17% unit growth in 2025. This implies net new units of between 410 to 435 globally. As we mentioned last quarter, our global development agreement pipeline had over 2,000 restaurant commitments at the start of the year. This demand for growth continues to build and extends beyond our domestic business. The demand is just as strong in our international business, which also delivered strong Q1 results. We opened a new market in a marquee flagship location in Kuwait, which in its first week open, broke the record for highest global weekly sales. Not only are we opening more restaurants, we're opening stronger than ever, and there's incredible levels of pent-up demand across the globe. Take our Puerto Rico market, for example. We opened our first restaurant in that market one year ago and already have nine restaurants open with sales pacing ahead of the U.S. average. Next on the horizon is the launch of our Australia market, with the first restaurant opening in Q2. We have a proven operator who is set on opening over 100 restaurants in Australia with the potential for many more on our journey to opening over 10,000 restaurants across the globe. We now anticipate opening as many as five new markets in 2025. Within the context of this more challenging macro operating environment, I firmly believe that 2025 will be another proof point for the resiliency of our model and will continue to deliver industry-leading returns for our brand partners and shareholders. We will remain disciplined in the investments that fuel this growth over the long term and are confident in our strategies we are executing to scale Wingstop into a top 10 global restaurant brand.

Thank you, Michael. Wingstop has undergone quite a transformation in the last couple of years that's positioned us for our next phase of growth. AUVs have scaled by over $500,000 from $1.6 million to over $2.1 million in just two years. We've opened nearly 700 restaurants since Q1 of 2023. To frame the impact from development and showcase our asset-light model, adjusted EBITDA is now more than $220 million on a trailing twelve-month basis. And we entered the first quarter in a position of strength with the consumer, while they are faced with an increased level of uncertainty. This uncertainty, however, does not change our strategies and where we believe our opportunities to invest and, as Michael mentioned, maximize returns for our brand partners and shareholders. In the first quarter, system-wide sales increased 15.7% reaching $1.3 billion, the highest system sales recorded in a single quarter in our brand's history. Our brand partners' confidence in our strategies and our best-in-class unit economics is evident in both our pipeline and our unit growth. We opened over 400 net new restaurants in the last twelve months. This growth creates a flywheel for us providing additional fuel for our advertising fund to invest behind our opportunity to chip away at a double-digit gap in brand awareness. In the first quarter, total revenue increased 17.4% to $171 million versus the prior year. Royalty revenues, franchise fees, and other revenues increased by $11.7 million in Q1, driven primarily by 409 net franchise openings since the prior year comparable period and a 0.5% increase in domestic same-store sales. Company-owned restaurant sales increased $1.5 million in Q1 due to same-store sales growth of 1.4%, primarily driven by transactions and one net new restaurant versus the prior period. In the first quarter, SG&A increased $6.3 million versus the prior year comparable period to a total of $31.4 million. This increase was driven by investments to support the long-term growth of the business through headcount-related expenses, plus $1.8 million of non-recurring system implementation expenses, as well as transaction costs related to the sale and reinvestment of our interest in Lemon Pepper Holdings, our brand partner in the UK. The recent transaction by our brand partner, Lemon Pepper Holdings, was a great example of the value creation Wingstop's model can provide; another proof point of the brand's portability and industry-leading returns outside of the U.S. About three years ago, we invested a modest $4 million into Lemon Pepper Holdings and took a minority equity position in the business. As a result of the closing of the sale of their business, we recognized a gain of $92.5 million which was recorded in the first quarter. Confident in the long-term opportunity within our UK business, we reinvested approximately $75 million of the proceeds, initiating a minority equity position into the newly formed acquisition entity. We believe our international business continues to be supercharged for growth and we see this as an example to maximize shareholder returns and plan to seek out similar investments around the globe as we open new markets. Adjusted EBITDA, a non-GAAP measure, was $59.5 million during the quarter, an increase of 18.4% versus the prior year. This marked our largest first quarter on record and represents an increase of more than $25 million when compared to the first quarter in 2023. Reported EPS for the first quarter was $3.24 per diluted share, a more than 200% increase versus the prior year. Note the quarter included a few non-recurring items. The net gain from the LPH transaction previously mentioned, along with associated transaction costs and taxes, our system implementation costs, and the loss on the sale of an office building. After adjusting for non-recurring items, we delivered adjusted earnings per diluted share, a non-GAAP measure, of $0.99, a 1% increase versus the prior year. This includes a $0.19 EPS impact from the additional interest expense associated with our $500 million securitization transaction completed at the end of 2024. We remain committed to enhancing shareholder returns. On our last call, we announced our $500 million share repurchase authorization program. And to further demonstrate our commitment to shareholders, we entered into an accelerated share repurchase agreement to repurchase $250 million of our common stock that concluded prior to quarter-end. Throughout the first quarter, the company repurchased and retired 830,012 shares of its common stock at an average price of $257.4 per share, which included open market repurchases. At the end of the quarter, $191.3 million remained available under our existing share repurchase programs. Additionally, on April 29, our Board of Directors approved a dividend of $0.27 per share of common stock, a demonstration of the strength of our model. This dividend, totaling approximately $7.5 million, will be paid on June 6, 2025 to stockholders of record as of May 16, 2025. Now moving on to our outlook for 2025. Our outlook is dependent on the macroeconomic conditions and with the heightened level of uncertainty, we are basing this on the information we have today. We are providing the following updates: domestic same-store sales growth of approximately 1% for fiscal year 2025, previously low to mid-single digits same-store sales growth. For modeling purposes, our outlook reflects the trend at the start of the second quarter that is tracking to same-store sales decline by approximately mid-single digits versus the prior year, which is primarily due to the strength of our laps in the prior two years. The second quarter is lapping a two-year comp of 45.5%, almost entirely driven by transaction growth. This compares to the first quarter lap of 41% on a two-year basis. As the lap for comps ease in the second half, we anticipate returning to growth through the third quarter. Demonstrating the strength of our model and visibility into our pipeline at this point, our net new global unit growth rate is increasing to 16% to 17%, previously 14% to 15%. Net interest expense is now anticipated to be approximately $40 million, previously $46 million. This reduction is due to the interest income associated with our reinvestment in our UK brand partner. Additionally, we are reiterating the following guidance. SG&A is estimated to be approximately $140 million which includes non-recurring system implementation costs of $4.5 million that will be an add back to adjusted EBITDA and approximately $26 million of stock-based compensation. As a result of these assumptions and for modeling purposes, this translates to an estimated adjusted EBITDA growth rate of 15% versus 2024 and is consistent with what we communicated in our last earnings call. 2025 will be another testament to the resiliency of the Wingstop model, particularly given the current macro environment and the level of uncertainty. Our strategies are working, and we're continuing to invest behind our strategy that will position us for sustained growth over the long term. We're delivering predictable food costs for our brand partners. With this predictability along with unlevered cash-on-cash returns of over 70%, our brand partners are accelerating their development and opening more Wingstops at a record level. It's positioned us well on our path to becoming a top 10 global restaurant brand. I want to thank our global support team members, restaurant team members, brand partners, and supplier partners. We believe we have the best team in the industry that will allow us to navigate the evolving economic backdrop and will remain focused on executing our proven strategies.

We will now begin the question-and-answer session. Our first question today is from Jeffrey Bernstein with Barclays. Please go ahead.

Great. Thank you very much. My question is related to the comp outlook for 2025. You're now forecasting 1%, so really no range at all after the low-single digit to mid-single digit just a couple of months ago, which was more like a 5%, 6% type range. So you would think the line of sight is more limited today with the newfound macro headwinds. I'm just curious if you'd be willing to share color on just to give some insight into the sequential trends to the first quarter, your expectations were down 5% in the second quarter? Any kind of color you can provide, especially as again it seems like a fairly narrow full-year target. So any color you could provide on the second quarter and your assumption for the back half of the year would be great. And then I had one follow-up.

Hey, Jeff. Good morning and thank you for the question. As we went into this year, we obviously expected the first half to be tougher than the second half, and it's really simply a function of the numbers we're growing up against, not just on a one-year basis, but on a two-year basis. And I think as you heard from a lot of other brands who have reported, we saw in the first quarter an impact associated with the fires in California and then obviously the unseasonal winter weather. But as we exited Q1, we did see, obviously, everyone saw a broader pullback in consumer confidence as they're navigating the uncertainty in the macro. But as we referenced on our last call, what we really saw in our business wasn't something that was broad-based necessarily. We actually saw this more in specific pockets and it was pockets that really kind of over-indexed to that Hispanic consumer lower middle income and where we saw a meaningful pullback in our business, which as we look back over some prior instances in our 21 years of same-store sales growth, this looks and feels similar to some of those pullbacks that we've seen in certain pockets. But again, it's not something that we're seeing broad-based in our business. And as we look at the underlying health of our brand and compare this current environment to what we've seen before, it does feel like a near-term pullback. And so as we thought about our guidance and the current trend from Q1 into Q2 and in the balance of the year, it is primarily a function of the numbers we're going up against. And we remain extremely confident in the strategies that we're executing and the underlying health of the business.

Understood. And if you're able to nail this at the end of this year with a 1% comp, you'll be viewed quite favorably in terms of your visibility. My follow-up question is just on the franchisees. Presumably, most are very happy with the sales growth over the past two years and as you mentioned, the 70% cash-on-cash returns they're generating. But with that said, you'd think the current environment would be quite challenging. So I'm wondering if you could talk a little bit about the recent conversations you've had with franchisees, what are they most focused on? The fact that you're able to raise your unit growth guidance this year in an environment like that is quite impressive. So just curious to hear what's on franchisees mind as they think about accelerating growth? Thank you.

Yeah. Thank you, Jeff, for that question. It's a great one. In full transparency, there's not a lot of conversations with our brand partners that are centered around same-store sales growth. They look at their business a little bit differently. As Alex mentioned in his prepared remarks, over two years, our AUVs have grown $500,000 and at that same time, we've advanced our supply chain strategy to create predictability and food cost. And that's actually translated to their returns just strengthening. And so the conversations we're having with our brand partners, really centered around unit growth. And I think you saw that show up in a big way in Q1, a record quarter for us, something we're really proud of. And as we look at our pipeline today and demand for growth from our brand partners who are taking their capital and investing it in Wingstop, it gives us a lot of confidence to sit here and see what is shaping up to be a record year from a development perspective. And so those conversations are really centered around access to more territory, more unit growth. And it really gives us confidence in that long-term opportunity we see in front of us to take a brand that's at over 2,600 units today and scale it to over 10,000 globally.

And Jeff, this is Alex. Just to add one point, we had about 50 different brand partners open a restaurant in the first quarter, and we opened a restaurant in 11 different markets across 33 states. So I think that's a good testament to this strategy we're working at the market level to execute our playbook on development.

The next question is from David Tarantino with Baird. Please go ahead.

Hi, good morning. My question is about the Smart Kitchen and what you're seeing there. I was hoping maybe you could give us a bit more insight on the comps impact or the sales impact when you roll it out? Is it relatively immediate that you see the benefits and or does it take time to play out given consumers may not notice it right away? Any color you could offer there including if you're willing to talk about maybe the magnitude of what you're seeing in terms of the sales lift? Thanks.

Good morning, David. This is Alex. Yeah, we had about to start the year about half of our company-owned restaurants operating with the Wingstop Smart Kitchen. And you're right, there is a little bit of a lag because we're not advertising, we're not actively telling consumers about the change. But what we're measuring as the restaurants get more time and demonstrate that consistency and speed and that high-quality indulgent experience we can deliver, we are seeing a positive divergence in sales trends versus control restaurants for the ones that have been operating with the Smart Kitchen. I'll give you another example as well. We just completed the rollout this past quarter of our Dallas Fort Worth market and we initiated a small test within our delivery marketplaces. Same creative, same promotion relative to markets outside of the Dallas Fort Worth area. And we saw a 5% increase early on in conversion in the Dallas restaurants relative to those markets outside of Dallas. So we're really encouraged early on by what we're seeing. We're measuring a consistent, we're seeing increased guest satisfaction scores because we're delivering that consistent and that faster service time for our guests.

Great. And I guess a follow-up is, is this factored into your second-half outlook as you roll this out or I guess there's going to be questions about how you accelerate from what you're running now into the back half? And I know you mentioned the comparisons, but is this one of the reasons to believe that outlook is achievable?

Yeah, David. I think as we thought about the outlook for this year, it really contemplated the strategies that we're executing against around continuing to expand brand awareness. And I think you saw the strength of our unit growth really show up in a big way in Q1 where comps grew by 0.5%. But based on the unit development number we delivered, system sales grew by 16%, giving us continued dollars into our ad fund to drive brand awareness. And you continue to work down to things like tenders and menu innovation, the opportunity we have there that we think is going to perform in that consumer behavior very similar to what we saw with chicken sandwich. It gives us a lot of excitement there. We can talk about our LTO calendar and what's coming there from a flavor perspective that we're excited about driving indulgent occasions. And then obviously digital, continuing to acquire new digital guests, continue to target our marketing to those guests with the right message to the right mediums and then obviously personalization. And so we feel confident that our strategies we're executing are proven and something that will allow us to deliver on that comp number that we shared. And it's really just kind of a function primarily of the easing of the compares that we see returning to the positive growth in the back half of the year. That said, to your initial question, that guidance does not contemplate a benefit associated with the Wingstop Smart Kitchen and we're excited about what that means for our business, not only just near term, but long term. We see it as a true game changer. Our brand partners are excited and we mentioned on the call that we are over 200 restaurants at the end of Q1, but the rollout is pacing nicely. And by the end of this week, we're going to be at roughly 400 restaurants that have the Smart Kitchen solution.

The next question is from Danilo Gargiulo with Bernstein. Please go ahead.

Great. First of all, I'd like to ask something about the international expansion. So can you talk a little bit more about the new five markets of entry? And how far along are you on the launch and expanding Wingstop in China? And specifically, like how much of the 10,000-unit growth potential depends on expansion in China?

Danilo, good morning and thank you for the question. You've heard us over the years, recent years, talk about our international business being supercharged for growth. And we're really excited about the momentum that we have in the business there. The business continues to perform well from a same-store sales perspective. It is performing stronger than our U.S. business, which we're excited to see. We referenced a record opening in Kuwait this last quarter that we're really excited about. And then if you look at just from a unit development perspective, we had a record for our international business on a net new units perspective for Q1 out of any quarter, and we're excited about that. I think it speaks to the strength of that business, the strength of our strategy. We have opened a couple of new markets in the GCC that are performing great. We referenced Australia as another market that's coming online later this quarter. And then we do have additional markets that we haven't announced yet that are close, that we anticipate opening this year as well. In China, it remains a big opportunity for us, and it's obviously something we're navigating in a very thoughtful and intentional way, particularly when you consider this current macro or this current geopolitical environment. But we still remain confident in the long-term that that's a meaningful opportunity for us and for Wingstop. And we've done a lot of work around understanding that consumer, understanding the brand positioning and understanding the partner landscape there. But it's nothing that I would say is being prioritized right now in light of the current geopolitical environment. But I think another opportunity that we're equally excited about is India, a market that we think can be a pretty meaningful opportunity for Wingstop, and is a big part of that overall 10,000 global unit opportunity.

Great. Thank you. And then the tenders, I mean the relaunch of tenders seems to be an opportunity to supercharge your launch daypart, even more kind of handheld similar to the chicken sandwich. So can you share the early learnings from the relaunch? How are you planning to integrate into menu expansion and target new consumer occasions? And then if you can also comment on the strategic positioning to differentiate it in light of potentially competing launches like McDonald's and others?

Yeah. We're really excited about tenders, and we're we think it's a meaningful opportunity for us. We referenced the launch of our new Crispy Tenders in Q1 and we're extremely excited about the early results we're seeing. We referenced that in March, we saw a record level of new guest acquisition, which I think just speaks to the opportunity we have in front of us. And as we look at these new guests that are coming into our brand via tenders, they look and behave a lot like those chicken sandwich guests that we brought in. And what we saw where those chicken sandwich guests typically came in as an individual eater occasion, but then came back and learned to navigate the rest of the menu more of a group occasion and Wingstop became more of their overall consideration set. We see the same opportunity with tenders. And that's what gives us a lot of confidence in the opportunity we have there is what we're seeing in the early data and how the consumer is engaging with us. And we think just like sandwich, we can differentiate really well in the marketplace because most places give you one tender and one dip. And at Wingstop, you can get it soft and tossed in our 12 bold and unique flavors, as well as our iconic ranch or blue cheese. And so we think we have a real opportunity to win our fair share of tender occasions. And we feel like we're just scratching the surface there. As far as daypart mix, we've actually seen our tender sales since the relaunch be pretty balanced across dayparts, which we're encouraged by. And so we think there's balanced growth and continued opportunities for us to win more occasions, but then also focus on the data that we're obtaining on these new guests and driving them for that repeat visit and then continuing to work them up the frequency curve, similar to what we did with our sandwich.

The next question is from Brian Harbour with Morgan Stanley. Please go ahead.

Thank you, good morning everyone. If I remember correctly, back in 2020, the way you're viewing this year seems similar to how we looked at 2022. During that time, there were concerns about a potential recession in the first half of the year. You also mentioned that certain customer groups had reduced their spending. Is that accurate? Additionally, I was under the impression that there may have been some changes in your customer base since then. How does that compare to a few years ago, either positively or negatively?

Yes, Brian. You articulated that well. It seems that what we are observing in the current business environment resembles what we experienced in 2022. The data we are tracking indicates a similar pattern, where consumers in certain areas showed a temporary pullback, followed by a return to normalization after some time. Our customer base has evolved slightly; we have welcomed many new guests, particularly heavy QSR customers, who differ from our traditional clientele. These new guests tend to have higher incomes and are less ethnically diverse, and they prefer to interact with brands through digital means and off-premise delivery. This has resulted in a diversification of our customer base. However, we believe this is not a widespread issue but more localized. There are segments of our business that continue to perform strongly in this current climate. Overall, it feels like this is a short-term pullback in specific areas, and we are confident in our ability to navigate through it. The main distinction compared to 2022 is the strength of the benchmarks we are facing.

Yeah, makes sense. How is delivery faring within is it growing faster, is it growing slower right now? Like what are you seeing in delivery trends? And I guess you cite that as something you want to continue to grow. How are you going to be doing that actively this year?

We have observed steady growth in the delivery channel, which continues to perform well and highlights the significant opportunity we have there. We are still in the early stages, especially when considering the number of users on platforms like Uber Eats and DoorDash that have interacted with our brand, indicating a lot of potential. As mentioned earlier regarding the Wingstop Smart Kitchen, we are seeing positive early signs in the DFW area. Specifically, when our delivery times decrease below a certain level, we notice that we become a preferred option. Notably, the same advertisement performs better in markets where delivery is quicker, leading to higher conversion rates. This underscores the considerable opportunity we have within the delivery sector.

The next question is from Andrew Charles with TD Cowen. Please go ahead.

Great. Thank you so much. I understand the message is that the softness you're seeing in the consumer is really in pockets. But given the success of the development strategy based on the strength of your franchisee cash flows, I'm wondering if you're seeing a more pronounced impact of sales transfer on mature stores as franchisees have increased desire to take advantage of the brand's robust cash-on-cash returns. So maybe just said differently, can you speak to how much sales transfer you're observing within reported same-store sales versus what you may have observed a year or two ago? And then I have a follow-up.

Good morning, Andrew, and thank you for your question. I would like to highlight that we have mentioned the percentage of restaurants in our portfolio that are currently achieving over $3 million in average unit volume, which is slightly above 10%. Over the years, we have noted that our brand partners sometimes intentionally relieve pressure from exceptionally high-volume restaurants. This strategy helps them optimize their overall returns on investment while also enhancing the guest experience and improving team operations. This practice continues to take place. In this environment, it’s natural to closely examine the factors influencing business trends. Regarding the impact of new restaurant openings on our overall business and comparable sales, I would say there hasn't been a significant change compared to what we've historically observed. It primarily relates to specific groups, particularly among Hispanic consumers with lower middle income, where we are currently seeing a short-term decline in restaurant purchases.

Okay. That's very helpful. Thanks. My other question was just around CRM and now the loyalty program coming online. It was about five months ago that you were able to start doing the CRM efforts to about 50 million email database users. So I'm curious what the learning was to make this into a formal loyalty program rather than just continue with the CRM efforts that you have in place.

Good morning, Andrew. This is Alex. It's a combination of factors. We will keep focusing on our hyper-personalization strategies. We're aiming to capture a larger share of demand, moving from 1% to 20%. This illustrates a key strategy in our business. The hyper-personalization tactics with Wing IDE form the basis for developing a loyalty program. We're approaching this differently than other brands because of the extensive insight we possess. A significant example is that our largest new guest acquisition cohort has been Gen Z and Millennial consumers, who tend to favor brands that offer experiential elements in their interactions. We view a loyalty program as a way to facilitate that connection. This initiative aligns with our strategies over the past few years as we've scaled our business and see an opportunity to reach $3 million in average unit volumes.

The next question is from Chris O'Cull with Stifel. Please go ahead.

Yeah, thanks. Michael, you mentioned Hispanic consumers have pulled back and that you've seen this in the past. I guess what is the playbook to address this challenge? I mean, did you weather the storm? Or were there some proactive actions that you executed to improve results in those markets that over-indexed with that segment?

That's a great question, Chris. It highlights the visibility we have into our business and the strength of our database, which has over 50 million users. This allows us to be very targeted and specific in how we approach the current business and the trends we're observing in these markets. Our strategy is not one-size-fits-all; we are implementing specific tactics that address the areas where we are seeing weakness. Ultimately, it comes down to keeping in mind the indulgent Wingstop experience, which is not a frequent occasion. Over the past 21 years, we've shown consistent growth in same-store sales and the ability to maintain those indulgent occasions. For us, it's about delivering the right message through the right channels. Additionally, where possible, we will provide value to customers who are more sensitive to the current economic climate. All of these efforts are connected to reinforcing that indulgent Wingstop experience.

Great. And I had a follow-up on the rollout of the kitchen system. Just given the lower frequency of the brand, how do you envision helping guests realize that times have improved? I mean, I understand quote times on 3P platforms should be lower, but is there anything you can do to help raise awareness that guests may be getting their orders twice as fast as they used to?

Yes, Chris, it's a great question. And I would really think of it in two buckets. You have to remember, we are still one of the largest brands that nobody's ever heard of. We have a 20-point gap in brand awareness. There's a lot of people who do not engage with our brand yet. And so for them, this will be the only experience they know. And so we will naturally and organically just become more of their consideration set because we're delivering on both speed and the consistent experience time in and time out. As it relates to existing guests, again, Alex talked about this a little bit earlier, as we line out our strategy over the next few years, we thought about loyalty as being a great way for us to just drive consideration with the consumer around certain occasions in certain ways to become their consideration set. We're not going to go out there and tell people we're faster now and more consistent, but we're going to find ways to drive Wingstop to the top of their consideration set for certain occasions that we believe we have the right to win, and then it's about delivering on those expectations.

Next question is from Andy Barish with Jefferies. Please go ahead.

Good morning, everyone. I have a question and a quick follow-up. I didn't realize you increased the ad fund at the start of the year by another 50 basis points. Could you provide an update on what the focus of that was? Is it related to NBA activities? Are you achieving the expected returns there? Also, are you focusing more on individual occasions, considering some of the things you've mentioned earlier about the economy and uncertainty?

Last year, when we launched the MyWingstop platform, we increased the overall advertising fund by 30 basis points to cover the operating expenses for the platform. This year, we raised it further to the 50 basis points you mentioned, totaling a 5.5% ad fund, which entirely funds the operating expenses associated with MyWingstop. With our double-digit growth in system-wide sales, our ad fund continues to grow. We are very excited about what we're achieving with our NBA partnership. Even though we don't run as many ads as other brands, we were the most recognized brand in the NBA this season, which indicates that our advertising is effective. We're looking forward to capitalizing on key moments through this partnership. Additionally, we are building on our learning from last year's collaboration with WWE and are now exploring opportunities with the UFC. The audiences for both are similar to our core guests, who currently have low awareness of Wingstop. We are optimistic about our strategy and the positive results it is yielding, which is reflected in our brand health metrics, giving us confidence for this year.

Yeah. And just a quick follow-up for Alex. I don't want to get too much into semantics, but you said kind of return to same-store sales growth through the 3Q. So I'm going to, I guess, ask it just does that mean you expect the 3Q to be positive on a same-store sales basis?

Yeah, Andy, we're not going to guide to the quarter, but I think about the second half as something on a three-year basis based on what we guided to, that would imply a three-year in the second half within the high 30% range.

The next question is from Sara Senatore with Bank of America. Please go ahead.

Sorry, thank you. Yes. Just on the first question and then I do have yet another question on the same-store sales stack that you're talking about. You mentioned that you had positive transaction growth, which I guess implies negative ticket. If you could just talk about what might be driving that mix? Is it just fewer group orders, which would be perhaps positive because it's growth in sandwiches and tenders or less attach or anything on value? Have you done more kind of sharper price points around some of the value offers?

Hi, Sara. Michael had mentioned a bit. I think what this points to what you saw in the quarter relates to this individual eater occasion that we're tracking with tenders on their initial purchase. So that ticket is obviously a smaller average ticket size than what we see from a traditional group occasion that we typically anchored to. And we saw a little bit of this dynamic with chicken sandwich when we first launched that. So that's really what it points to in the first quarter regarding the ticket.

Right. So not value or tech management?

No.

The next question comes from Christine Cho with Goldman Sachs. Please go ahead.

Thank you so much. A quick follow-up on the tender mix. I recall previously, it was around low single digit. But are you seeing any meaningful uptick here post the recipe upgrade as well as the March Madness campaign? And how do you size the opportunity relative to Chicken Sandwich, for instance?

Yes, Christine, we are very encouraged by the early outcomes of our tenders relaunch. We've observed a significant increase in the sales mix, similar to what we experienced with the sandwich launch. Tenders are now selling even better than sandwiches, and that excites us. We recognize there’s a substantial opportunity for us to capture our share of tender occasions. Additionally, this is a fantastic entry point for our brand for consumers who may not be familiar with Wingstop or may not know how to engage with us outside of special occasions. This aligns with what we observed during the chicken sandwich launch, and we are seeing a record number of new guests acquired in March. All initial signs are very promising, and we are eager about the potential we have with tenders.

This concludes our question-and-answer session. I would like to turn the conference back over to Michael Skipworth for any closing remarks.

We just want to thank everybody for their time this morning. And as we take a step back and look at our business, the underlying health of our business, the fact we see record development momentum, we see accelerating brand strength, we're expanding digital engagement and menu innovation combined with our new Wingstop Smart Kitchen operating platform that unlocks new occasions, it's hard to not see a path to $3 million AUVs and over 10,000 restaurants globally. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.