Wingstop Inc. Q2 FY2025 Earnings Call

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Wingstop Inc.'s Fiscal Second Quarter 2025 Earnings Conference Call. Please note that this conference is being recorded today, Wednesday, July 30, 2025. On the call today are Michael Skipworth, President and Chief Executive Officer; Alex Kaleida, Senior Vice President and Chief Financial Officer; and Kristin Thomas, Senior Manager of Investor Relations. I would now like to turn the conference over to Kristen. Please, go ahead.

Thank you, and welcome to the fiscal second 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. The 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. Before we jump into our second quarter results, I want to start today's call by acknowledging the horrific events that took place earlier this month in our home state of Texas, with the devastating floods in the Texas Hill Country. None of us can imagine what those families and communities are going through after such a tragedy. However, we, along with our brand partners are here to support our fellow Texans and are keeping all of those impacted in our thoughts and prayers. Now shifting to our second quarter results, I believe 2025 will be another differentiated year for Wingstop, showcasing the resiliency of our model and the opportunity we have to scale into a top 10 global restaurant brand. Our second quarter was a great example of this. System-wide sales increased 13.9% to $1.3 billion, while same-store sales declined 1.9% for the quarter. To put our Q2 comp into perspective, we lapped 28.7% same-store sales growth in 2024 and a 16.8% comp in 2023, both of which were primarily driven by transactions. I believe this highlights the effectiveness of our multiyear strategies, and our brand partners couldn't be more excited about the future with Wingstop. The demand for opening more Wingstops is the strongest it's ever been. We opened 129 net new restaurants globally in the second quarter, a nearly 20% growth rate. The 129 net new units was the highest number of restaurants opened in a single quarter in our history. I'm incredibly proud of how our team members and brand partners executed in the second quarter and the continued shared confidence they have in Wingstop and our long-term strategies. As we look ahead to the second half of the year, we have the utmost confidence in our proven long-term strategies, which consist of scaling brand awareness, driving menu innovation, expanding our delivery channels, leveraging data-driven marketing, and investing behind our digital transformation. I also want to acknowledge there remains a good deal of uncertainty with consumer behaviors and implications to their spending habits. Through our regular consumer research, we hear concerns about elevated prices, future job prospects, and general anxiety about the future, but we remain focused on what we can control in this environment and executing our strategies. Fundamentals are strong across the board for Wingstop. We're seeing improvements in brand health metrics, restaurant operations, digital guest engagement, and unit economics. We continue to measure strength within our brand health metrics, including quality and satisfaction scores. I also share more about the tremendous progress we're making with speed and consistency from markets that have implemented our game-changing new kitchen operating platform that we are calling the Wingstop Smart Kitchen. We took an opportunity to amplify our brand presence and connect us more deeply with current and future fans by leveraging our NBA partnership. With this partnership, we gained access to in-game brand placement throughout the NBA playoffs as well as becoming the presenting sponsor during the second round of the playoffs. We're just scratching the surface on this partnership with the NBA and look forward to our activations for this upcoming season. Our new Crispy Chicken tenders are quickly becoming a fan favorite. Since the relaunch in the first quarter, we've seen strong guest engagement, particularly with new guests, and we're excited by the unique value they offer. In true Wingstop fashion, guests can order their tenders in any of our 12 bold distinctive flavors, setting us apart in the category. We're seeing encouraging signs, including higher new guest retention, strong satisfaction scores compared to our previous tenders and a healthy mix of daypart occasions. Most notably, our tenders are driving reactivation of last users at a level we haven't seen with any menu innovation in the past 2 years. In fact, the number of new and reactivated guests has tripled since launch compared to the run rate at the end of 2024. While frequency hasn't yet reached the level of our core guests, the early results are promising. We plan to continue leveraging tenders to unlock our fair share of this demand space and its 1.6 billion tender servings. This past quarter, we welcomed many of you to Dallas to showcase our new kitchen operating platform, the Wingstop Smart Kitchen. It didn't take long for those in attendance to see what a game changer it is for our guests and team members. I'm excited to say that today, the Wingstop Smart Kitchen is live in 1,000 restaurants across the U.S., and we are on track for a full system implementation by year-end. Although still early, the results from our initial markets are encouraging. Just 4 weeks into their implementation, we're measuring 40% reductions in average ticket times, with restaurants ramping faster towards our steady-state operating model. Markets with the Wingstop Smart Kitchen are delivering faster speed, consistent guest experience, and sales outperformance, all without additional advertising to the guest. Our restaurants are more consistent with ticket times in the range of 10 minutes, which compares to a prior quote time that was 18 to 20 minutes on our best days. Restaurants with the new Wingstop Smart Kitchen are outperforming. And in our 160-plus restaurants in the Dallas-Fort Worth market, we are seeing meaningfully higher same-store sales growth relative to control restaurants. The Wingstop Smart Kitchen is clearly delivering the game-changing expectations that we established, enabling operational excellence, elevating the guest experience, and fueling growth. The guest is experiencing improved speed of service, consistency, and accuracy, which is reflected in our guest satisfaction scores, and the Wingstop Smart Kitchen restaurants are about 8 points higher than restaurants that do not have our new kitchen operating platform. We are also seeing improvements in all dayparts, including our lunch and late-night dayparts, which we believe is an untapped opportunity for us. Without the benefit from the Wingstop Smart Kitchen, our delivery times can exceed 40 minutes, resulting in us not being in the consideration set for many delivery consumers. With Wingstop Smart Kitchen, we are unlocking delivery times under 30 minutes on third-party delivery marketplaces, and we are now in the consideration set for those guests. For our restaurants in the Dallas-Fort Worth market, year-over-year sales growth in the delivery channel is outpacing the U.S. average growth rate by mid-single digits. What's more, our brand partners see the impact of the kitchen operating platform in their team member experience and training, guest feedback, as well as insight from the new reporting capabilities, all contributing to enhanced profitability. I can't tell you how many brand partners have told me how much they love the new system and how much of a game changer it is for their restaurant operations. Most importantly, the results we are seeing from the Wingstop Smart Kitchen are exactly what we had anticipated and are validating the opportunities we have within our strategy supporting our long-term target of scaling AUVs to $3 million. Our commitment to innovation is proven, and we have focused investments aimed at driving long-term sustainable value. One of those investments was in our proprietary tech stack, MyWingstop, which recently marked its first full year in operation. In that time, we have harnessed the data gathered to provide our guests with relevant personalized and optimized content. We have been continuously fine-tuning our robust guest segments, leveraging our segmentation to reach guests and give them a more meaningful experience while mining for additional insights to inform future strategies. Since the launch, our digital database has grown by 30%, now approaching $60 million. We will continue to invest as we advance towards our aspirational goal of digitizing every transaction. With the launch of MyWingstop, coupled with our rich database of digital guest insights, we are uniquely positioned to build and subsequently launch a differentiated loyalty program, designed to strengthen guest engagement by encouraging repeat visits and deepening the emotional connection guests have with our brand. It's a clear example of how we're leveraging technology to create lasting value for our guests. We're excited about this next phase in our digital journey and remain on track to pilot our new loyalty program in the fourth quarter with a full system-wide launch planned for 2026. Our ongoing investments in technology continue to advance us on our path to $3 million AUVs and further strengthen unit economics for our brand partners, which are translating to industry-leading unlevered cash-on-cash returns of 70%. Brand partners' confidence in our model is showing up in our 2025 pace of new restaurant development. We have opened 255 net new units through the first half of 2025, which is equivalent to the number of units opened during the entire year in 2023, just 2 years ago. Over 95% of those openings are from existing brand partners reinvesting, furthering their commitment to Wingstop. The level of reinvestment by our brand partners truly speaks to the strength of our unit economics. After delivering a record 129 net new restaurants in Q2, we updated our guidance again to 17% to 18% unit growth for 2025. This implies net new units of between 435 to 460 globally. The demand for additional growth with our brand partners remains strong as we replenish our development agreement pipeline, which has now grown to the highest level of sold restaurant commitments on record. In addition to the strength in our domestic business, a key contributor to our growth is the exciting progress we continue to make with our international business. Demand is strong, and our first half results were impressive. Last month, we hosted our International Summit in Toronto, where Wingstop brand partners and team members from around the world came together to connect, share ideas, and spotlight their early successes. It was especially rewarding to see our more seasoned brand partners share insights and advice with those newer to the brand, delivering confidence into the playbook we are executing. What stood out most was the passion for the brand; it is real, and it's growing fast. In the second quarter, we opened our first restaurant in Sydney, Australia, where new Wingstop fans lined up around the block in the pouring rain, just to get a taste of that bold, distinctive Wingstop flavor. Another example is in Paris, where more Wingstop fans lined up for our first flagship restaurant in the city, building on the momentum we established from last year's house of flavor event at the Olympics. Our new international markets are opening at levels surpassing domestic average unit volumes. In more established markets like the U.K., we continue to see strength where our newest restaurant shattered Kuwait's recent record for highest global weekly sales. That's brand love in action, and we are just getting started. We've officially signed two additional markets, and we are set to open our first Wingstop this year in Italy and the Netherlands with several more markets in the pipeline. The world is craving our flavor, and Wingstop is delivering. While we recognize the challenging macro environment we're navigating, the resiliency of our model and disciplined focus we have on executing our strategies, as well as the game-changing initiatives such as the Wingstop Smart Kitchen and loyalty, give us the confidence in our path to $3 million AUVs. I want to thank our team members in the restaurants and at the global support center, brand partners, and supplier partners for their ongoing commitment and collaboration advancing our vision to become a top 10 global restaurant brand. With that, I'd like to turn the call over to Alex.

Thank you, Michael. Our second quarter performance highlights the momentum in our global development and showcases the strength of our asset-light model. Through consistent execution of our strategies, we've continued to enhance brand partner returns. In just 3 years, average unit volumes have surged to over $2 million, an increase of more than $500,000. At today's average unit volumes of $2.1 million and on a low $500,000 investment to build a Wingstop, brand partners are seeing unlevered cash-on-cash returns of over 70%. This is driving yet another record-breaking quarter for development and, as Michael mentioned, fueling a record pipeline of sold restaurant commitments. We opened 129 net new restaurants in the second quarter, marking our fourth straight quarter with 100 or more net new openings. System-wide sales grew 13.9% to $1.3 billion for the quarter, pushing us past $5 billion in system-wide sales over the last 12 months. Total revenue increased 12% to $174.3 million versus the prior year. Royalty revenues, franchise fees, and other revenue increased by $8.7 million in Q2, driven primarily by 464 net franchise openings since the prior year comparable period and partially offset by a 1.9% decline in domestic same-store sales. Company-owned restaurant sales increased $2.6 million due to same-store sales growth of 3.6%, primarily driven by transaction growth and two net new restaurants versus the prior year period. Our company-owned restaurants have fully implemented the Wingstop Smart Kitchen and are delivering a consistent 10-minute average ticket time, and these results are a good indication of the early success we're seeing with our new kitchen operating platform. Cost of sales as a percentage of company-owned sales were 75.2% for the second quarter, a decline of 70 basis points. The decrease was primarily driven by sales leverage on labor and operating expenses. Our supply chain strategy to mitigate volatility in food costs continues to pay dividends and is creating predictability for our brand partners. System average food cost has sustained at approximately 34%, which is well within our targeted range of mid-30%. In the second quarter, SG&A increased $4.8 million versus the prior year comparable period to a total of $32.9 million. This increase was driven by headcount-related investments to support the long-term growth of the business, plus $1.5 million of nonrecurring system implementation expenses associated with our new ERP and HRIS platform. Adjusted EBITDA, a non-GAAP measure, was $59.2 million during the quarter, an increase of 14.3% versus the prior year. Adjusted EPS, a non-GAAP measure, for the second quarter was $1 per diluted share, a 1.6% increase versus the prior year. This includes an $0.18 EPS impact from the additional interest associated with our $500 million securitization transaction completed in December of 2024. Proceeds from this transaction were used to enhance shareholder returns and subsequently funded $370 million in share repurchases through the first quarter of 2025. We remain focused on creating long-term value for our shareholders through a balanced approach that includes our regular quarterly dividend and remaining $191 million authorized under our current share repurchase program. Acknowledging the strong cash flow generation from our asset-light model, on July 29, our Board of Directors approved an increase to our regular quarterly dividend from $0.27 per share to $0.30 per share of common stock, a demonstration of the strength of our model. This dividend totaling approximately $8.4 million will be paid on September 5, 2025, to stockholders of record as of August 15, 2025. Shifting to our outlook for 2025. Based on the visibility we have into our development pipeline at this point of the year, we are increasing our global unit growth rate to a range of 17% to 18%, previously 16% to 17%. Our new outlook implies a 30-unit increase to our prior outlook in a range of 435 to 460 global net new units for the year. For domestic same-store sales growth, we are reiterating our guidance for fiscal year 2025 of approximately 1%. Our outlook remains dependent on macroeconomic conditions and is based on the most recent information available to us. For modeling purposes, our current outlook anticipates sales growth will return as the third quarter progresses and as the impact of tougher prior year comparisons begins to moderate in the back half of the third quarter and into the fourth quarter. We are also reiterating our guidance for SG&A to be approximately $140 million, which includes nonrecurring system implementation costs of $4.5 million that will be an add-back to adjusted EBITDA and approximately $26 million of stock-based compensation expense. With these inputs and for modeling purposes, these assumptions translate to an estimated adjusted EBITDA growth rate that exceeds 15% versus 2024. Our second quarter results underscore the strength and resilience of our model in this uncertain environment. The strengthening industry-leading returns our brand partners are experiencing is fueling global demand for development reflected in our robust pipeline and record pace of growth. We remain steadfast in executing our long-term strategies to realize our vision of becoming a top 10 global restaurant brand. I want to thank our global support team members, restaurant team members, brand partners, and supplier partners for their continued dedication and commitment to Wingstop. With that, I'd like to now turn to Q&A. Operator, please open the line for questions.

The first question comes from David Tarantino with Baird.

A clarification question on your third quarter guidance. And I think, Alex, you mentioned that you expect to return to positive comps as the quarter progresses. But are you expecting the full quarter to be positive in Q3? And then maybe as a follow-up to that. I just wanted to ask about your general confidence in that trend playing out. Is it more of a matter of just running the current trends forward against easier comparisons, or are you expecting some sort of acceleration in the underlying trend?

David, thank you for the question. I'll jump in. I think you've read a lot of others mention some weakening with consumer demand to start the third quarter and some industry signals have signaled some softness to the start. I don't think that's any different for Wingstop. What we've referenced in some of our prior calls about seeing some softness in a few pockets that over-indexed to lower income or Hispanic consumers, I would say we really haven't seen those pockets improve. As we look at the business for the balance of the year and kind of the behaviors that we observe with the guests within our business. Alex mentioned it: our compares ease as we start to exit the third quarter or the back half of the third quarter. As we run our current trends out, we would expect that to position us to return to growth when we compare that against the strategies that we're executing. As you move further past the third quarter, the comparisons ease. As it relates to our outlook for the full year of approximately 1%, our confidence in delivering on that number is really related to just running out the trends we see in the business today combined with the easing of the compares that we see.

Great. And then just a follow-up. I don't think, at least as of the last call, you were assuming much benefit from the Smart Kitchen in the numbers, but it does sound like you're seeing a benefit in the stores that have been. Can you just explain kind of what you're seeing in the stores or the restaurants that have had that the longest in terms of whether you want to quantify the lift or however you want to talk about it? And just to kind of frame up what this might look like as you get it fully implemented?

Yes, David. We are extremely excited about Smart Kitchen and really just what it means for what's in front of us here at Wingstop and the opportunity it presents. We've often referred to it as a game changer, and the early results that we are seeing are validating that thesis, which is really encouraging for us. But as of today, we're in about 1,000 restaurants with Wingstop Smart Kitchen. It takes about 4 weeks for restaurants to acclimate to the new operating platform and really start to deliver on that targeted speed of service, up approximately 10 minutes. You're seeing quick improvements in guest satisfaction scores, obviously, in speed and consistency. We called out some of the improvements we're seeing in accuracy as well as overall guest satisfaction, which is super encouraging for us. But what we're really seeing, I think the best example is in the Dallas-Fort Worth market. Once we hit that 4-month mark, you're really starting to see it impact the overall trend in overall sales of the business.

The next question is from Jeffrey Bernstein, Barclays.

My first question is just on the unit growth side of things. Your long-term guidance is for 10% plus, and you've exceeded that pretty consistently in recent years. And I know starting this year, you guided to 14% to 15%, but I guess, 10% plus still seems like a reasonable longer-term target. But now you've increased it twice in the first 2 quarters. Now we're talking about 17% to 18%. I'm just wondering if you could talk about the increased franchisee demand. And maybe if there's anything unusual about the 2025 growth, or should we now think about future years' unit growth more in the 15% type range rather than 10%, which you seem to be far surpassing. Any color you could share on that demand and maybe the balance of what you think of U.S. versus international as we think about this in forward years? And then I had one follow-up.

Jeff, thank you for the question. We're really encouraged by the pace of development we're seeing in 2025. We think it's a powerful statement towards the strength of the unit economics and the strength of the returns. As we went into this year, we contemplated that we were asking our brand partners, albeit not a meaningful capital investment, but as you add up the number of restaurants based on brand partners, we wanted to make sure there was plenty of capital to deploy and implement the Wingstop Smart Kitchen. But what we've seen this year is that capital investment set against the opportunity to expand their footprint with Wingstop hasn't slowed down our brand partners at all. I think that's an encouraging sign and a strong statement again to the returns. Our international business is on pace for a record year there, and you’re really starting to see momentum pick up in that business, which is encouraging. We are excited about the pace of development and the opportunity we have here today to increase outlook yet again. We talked about it in our prepared remarks that it's hard to believe: just 2 years ago, we opened 255 net new restaurants for the full year, and we've already hit that number through the first half of 2025. We are encouraged by that, and as we mentioned in our prepared remarks, even though we are opening a lot of restaurants, the demand continues to grow. Our pipeline of sold commitments sits at a record level today.

Understood. And then my follow-up is just on some commentary about the loyalty program. I know in the past, you guys have been somewhat hesitant when you're delivering the results you have been; no surprise there. But I'm wondering what details you can share in terms of the structure of the program. I think you said you're going to pilot it in the fourth quarter and maybe roll it out across the entire system next year. But any thoughts in terms of the type of program or the potential impact on comp or frequency or check or the type of awards you're going to offer? Any kind of sneak peek into what a Wingstop Rewards program would look like would be great.

Jeff, this is Alex. I can take this one. It's pretty exciting for us on the genesis of how we thought about loyalty and rewards: watching the industry, studying that, and also amassing this database that's approaching 60 million guests that we've been able to unlock insights around. You heard us talk a little bit about tenders and the reactivation of lapsed users. That was a good example of how we've leveraged our hyper personalization strategies to reactivate lapsed users that we can then inform approaches that we're going to have designed into our loyalty rewards program. We really draw aspirations from what we see as best-in-class—those that really tie an emotional connection to the rewards program, so where you're not transacting, or you don't have this transactional relationship with a guest, but you're driving a connection to the brand that wants them to be engaged, and you're rewarding them with surprises or unique things like even just Wingstop swag as a way for our guests to be rewarded that they're looking for and experiences that they could get access to through our partners. So there's a wealth of different approaches we're examining to activate our rewards program. We think it's going to be something pretty unique in the industry, and we're a bit advantaged with what we have in our digital business that's over 70% strong.

Next question is from Christine Cho with Goldman Sachs.

Congrats on the quarter. You've leaned into kind of the value messaging this year with very compelling deals such as 20 for 20 or 999, 3-piece crispy tender offers? Could you elaborate on how these value deals were received by customers, and what impact they had on average ticket or traffic during the quarter? Also curious what feedback you're receiving from your brand partners regarding these promos and how it has impacted their 4-wall economics, if at all, doesn't seem like it.

Christine, thank you for the question. For those who aren't as familiar with Wingstop, what we did with this 20 for 20 bundle, as an example, is a page out of our playbook that we've been executing for years. It's an opportunity for us to showcase abundant value and quality. A lot of other brands, when they promote value, that usually comes at the risk of lower margin. For us, we approach bundles, and we approach value and quality a little differently. I think 20 for 20 is a great example. This bundle performed really well for us and delivered on the food cost on the P&L, right in line with our target. The guests clearly saw value and quality associated with this bundle. What we were really encouraged to see is when you look at the overall basket associated with 20 for 20; it actually carried a higher average check than our typical average check, so we were encouraged by that. We saw this again as a way for us to lean into our proven playbook and showcase value and quality in a very differentiated way that Wingstop can do.

Great. Just one follow-up. So with kind of that increased price sensitivity and consumer anxiety that you're seeing? Are you seeing any meaningful shift in the percentage of the checks that are on deals or promos, or is there any specific consumer cohorts that are responding more actively to these promos?

Christine, this is Alex. Nothing I'd specifically point to. We've talked just generally about pockets where we've seen some consumer pressure among lower-income Hispanic consumers. Mike mentioned earlier that that's been consistent with what we've seen from the start of the year. In that situation, there's been some ticket management, but they're still finding ways to engage with Wingstop. We’re really encouraged by that.

The next question is from Brian Harbour with Morgan Stanley.

With those stores that have Smart Kitchen deployed, have you sort of seen a pickup in delivery mix? I know you said that all dayparts were seeing the benefit, but are you seeing more of a benefit where you expected? I know that your digital mix has still been ticking up over the last couple of quarters. Is that part of what you're seeing as well?

Brian, thanks for the question. There is a little bit of a difference we're seeing in performance on comp for restaurants that have Smart Kitchen by daypart. Lunch and late night are performing better than other dayparts without the Smart Kitchen. When we measure results for Smart Kitchen restaurants on delivery sales, we are seeing about a mid-single-digit growth rate differential versus restaurants that do not have Smart Kitchen. We're now in the consideration set for those guests filtering for speed.

No, Brian, I think we've got a pretty well-sought-out development strategy we refer to as playbooks built down to the market level that really outlines the sequencing and who we are growing with in each market. We measure if there's any impact to other restaurants. I think we got a similar question last quarter, and nothing's really changed materially from that. It's not a significant number to the overall business.

And Brian, I would just add that when we set our new targets, we thought about the overall total addressable market for the U.S. with 6,000-plus restaurants updated from 4,000-plus, as well as the AUV increasing from a $2 million target to now a $3 million target. Within these playbooks, we have data down to pins on maps, trade areas identified as well as predictions of sales at both the restaurant level and at the market level. This shows our confidence in scaling this beyond our existing range.

The next question is from Jim Salera with Stephens.

I was hoping you guys might be able to provide a little bit more detail on the record-breaking new unit openings. Are you able to offer any color on how many of those are in existing established markets versus entrants into newer kind of expansion markets? And then maybe as part two to that, does the unlock from the Smart Kitchen, do you find that there's actually more consumers that are closer to each restaurant that you want reaching before? And so perhaps the density in each market could be higher with a greater efficiency from the Smart Kitchen.

Jim, thanks for the question or multiple questions. But on the first one, what I would say is we opened restaurants in the second quarter in 46 different states. It's pretty diversified development for us. I wouldn't say anything was concentrated in any certain market or area. As for your second question about the Wingstop Smart Kitchen, I think really, we understand our guests and the core occasion that Wingstop is best positioned to win in. We share that we're winning a little over 1% of that core demand space. When we benchmark other brands, most are winning about 20%. There's a meaningful opportunity for us to win our fair share that we believe Wingstop Smart Kitchen will unlock. We did the work that Alex described earlier to build out the development strategy to the total addressable market of over 6,000. We increased our AUV target to $3 million, which ties back to winning our fair share of the demand space that we're best positioned to win in.

Got it. And then just since you mentioned marketing talent in your answer, do they thought you can offer given we'll be entering football season with a lot more visibility on the third-party platforms? Anything can tease on marketing or anything that would drive greater visibility?

If you take a step back, our media investment throughout the year, Q4 will be our highest investment out of all of 2025. We're executing a playbook that's working. We have great partnerships, including our early partnership with Amazon for Thursday Night Football. We're excited about football season, and we think the consumer is too, so we're encouraged about the back half of the year.

The next question is from Andrew Charles with TD Cowen.

I'm curious in terms of the reiterated guidance; July seems weaker than you anticipated along with the industry. So curious about the mechanics where was the offset? Was it that 2Q outperformed expectations? Or is there perhaps more consideration for Smart Kitchens versus prior forecast that didn't include any impact from Smart Kitchen in the back half of this year?

Andrew, it's Alex. We haven't considered any benefit from Smart Kitchen in our outlook, as well as any change in the consumer and any additional macro pressure that broadens more than what we're seeing today. I think it was that as it relates to how we thought about the quarter and the start. Certainly, you're hearing more commentary around the start of July across various industries with consumer pressure. Our reiterated guidance shows us the confidence in our strategies that we're executing. In the third quarter, we expect and anticipate that we would return to growth at the end of the quarter, positioning us well in Q4 to hit our guidance of approximately 1%.

When we provided our prior outlook, we noted that it was based on recent business trends and modeling that out, looking at comparisons as they ease toward the balance of the year. So there are similar trends that we're forecasting off of. I wouldn't say a material change. If you look at the contribution of the incremental net new restaurants we're opening, it's powerful for our asset-light model. To drive over 40% sales growth over the past three years is a testament to the staying power of our strategies. We're excited about what's in front of us as it relates to the Wingstop Smart Kitchen, which is genuinely a game changer for our business.

That's very well said. My follow-up question was just on the pockets of challenges that you're citing. What tools do you have in your toolkit to help address this more? Obviously, 20 for 20 was nationwide, but could there be an opportunity to invest more in advertising? You guys did a flavor innovation with Mexican street corn. Just curious on other items here to help accelerate performance in those pockets.

Yes. Andrew, it’s a component of our playbook that you're seeing us activate: showcasing abundance, quality, and value that differentiates the Wingstop experience. We had great flavor news last quarter with Mexican street spice. You'll see additional flavor news from us that engages our guests and reminds the consumer about high-quality, high-value occasions.

We believe the softness we see in these pockets is temporary as well. So we expect to get on the other side of this over time.

The next question is from Andy Barish with Jefferies.

Can you just kind of give us a little sense of the huge unit growth year this year? Just how we should be thinking about some normalization next year, or maybe total unit count up or down a little bit? Just trying to kind of get our arms around how huge the development has been and whether this is the run rate for now.

Andy, thanks for the question. We're obviously excited and encouraged about the pace of development. It wasn't that long ago we celebrated hitting 2,000 restaurants as a system. Based on our outlook for this year, we're going to reach 3,000 units, which is exciting for us. We mentioned that the pipeline of sold commitments is at a record level, so the demand is there. We're not in a position to provide guidance related to 2026, but we will focus on disciplined and sustainable growth while delivering our long-term algorithm.

Got you. And then just a follow-up on the labor line, which saw some leverage obviously in the company-owned stores that have Smart Kitchen. Can you just talk to — I know it's already a very efficient back of the house, but is there — is there anything out there, or does this just kind of show that, hey, you can run higher volumes with the same team, and they're just getting more efficiency out of the technology.

Andy, this is Alex. Yes, that's right. We talked about how Smart Kitchen can improve the team member experience, simplify operations, and make kitchen operations much more efficient. You're seeing that play out in the corporate restaurants. We do have a little bit of a dynamic in both labor and operating expenses related to the refranchising of our New York market last year. But I think you're seeing a combination of the benefits showing up as well.

The next question is from Gregory Francfort with Guggenheim.

My question, maybe it's a little nuanced, but your customer is lower frequency than some of the other QSR categories. But I think some customers are probably coming 15 to 20 times a year. Have you noticed with the Smart Kitchens, or are you able to detect at what point that customer notices that you've gotten faster and that the operations are better and changes their visitation patterns? Is it on the first or second visit? Is it a couple in? Any thoughts or just color there?

Thanks for the question. Some of this is a little anecdotal, but we can clearly be in restaurants with Smart Kitchen and see and hear guests react to the improvement in speed, consistency, and experience. For our core, higher frequency guests, you're seeing benefits sooner as they realize the additional benefits associated with the Wingstop Smart Kitchen. We talked about the improvement in comps versus control. We're seeing sales outperformance in that market.

The next question is from Sharon Zackfia with William Blair.

We've heard a lot of companies talk about kind of having to increase the pace of innovation or create more calls to action in this environment. I know you have that with your value messaging. But I'm curious about the pace of innovation, just given success with the relaunch of tenders. How are you thinking about that for the balance of '25? Is there an opportunity to accelerate that into '26 as you've got the smart kitchens fully rolled out?

You mentioned tenders and the relaunch of tenders. The feedback from guests has been very strong. We believe we have the best tender on the market, but tenders themselves are a great example of menu innovation at Wingstop, and we're just scratching the surface of the opportunity. There are 1.6 billion chicken tenders served annually, and we're a long way from winning our fair share. We also compare against chicken sandwich occasions of 2.8 billion. There's a ton of upside there. We see substantial runway in our growth, and as we look at the upside in both categories, we believe Wingstop Smart Kitchen positions us well to win our fair share.

And as a follow-up, I know you mentioned lunch and late night as particular opportunities. Are there any products that you have in the queue or any flavors that you think will really resonate with those dayparts?

Sharon, across restaurants, we see tenders and sandwiches index a bit higher at lunch occasions. Both products can take advantage of that. We can position existing products in a way that engages guests and builds excitement.

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

Michael, the marketing fund continues to increase substantially. I know you've moved the needle on the quality and quantity of placements over the past few years. So I was hoping you could just discuss what doors continue to open as the fund grows. Are there any key inflections where you can invest at a level that might disproportionately bring more visibility to the brand?

Chris, our ad fund has been growing at a consistent pace with system sales. We feel it gives us the ability to chip away at the meaningful opportunity we have to close the gap to more mature restaurant brands regarding brand awareness. We see opportunities to lean into other areas, like WWE. We did a test last year and saw that as a chance to lean in, as WWE fans look like Wingstop fans but many of them don’t know us or engage with our brands. There’s a ton of opportunity for us to lean in. We’ll continue to be strategic with our partnerships.

And then I had a follow-up on delivery. Given the improvement you're seeing in quote times and placements, does that increase the attractiveness of deploying some incremental marketing investment on these platforms over the next few quarters?

It's incredible how many consumers, when they engage with DoorDash or Uber Eats, start their decision-making by filtering for speed. Historically, Wingstop wasn't even in those considerations, so we weren't in the mix. The early results are showing that Wingstop is now a contender for this large group of users looking for speed and consistency, and we’ll continue to explore marketing investment to support that.

This concludes our question-and-answer session, and the conference has also now concluded. Thank you for attending today's presentation. You may now disconnect.