Earnings Call
Wingstop Inc. (WING)
Earnings Call Transcript - WING Q1 2023
Operator, Operator
Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Wingstop Inc. Fiscal First Quarter 2023 Earnings Conference Call. Please note that today's event is being recorded today Wednesday May 3, 2023. On the call today are Michael Skipworth, President and Chief Executive Officer; and Alex Kaleida, Vice President and Chief Investment Officer. At this time I would like to introduce Mr. Kaleida to begin the presentation. Thank you.
Alex Kaleida, CIO
Thank you, and welcome to the Fiscal First Quarter 2023 Earnings Conference Call for Wingstop. Our results were published earlier this morning and are available on our Investor Relations website at ir.wingstop.com. Our discussion today includes forward-looking statements. These statements are not guarantees of future performance and are subject to numerous risks and uncertainties that could cause our actual results to differ materially from what we currently expect. Our SEC filings describe various risks that could affect our future operating results and financial condition. We use certain non-GAAP financial measures that we believe can be useful in evaluating our performance. Presentation of such information should not be considered in isolation, or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are contained in our earnings release. Lastly, for the Q&A session, we ask that you please each keep to one question and a follow-up to allow as many participants as possible to ask a question. With that I would like to turn the call over to Michael.
Michael Skipworth, CEO
Good morning, and thank you for joining our call. The positive momentum we experienced in the second half of 2022 has carried over into 2023, providing us with a robust start to the year. Our strong beginning this year reflects the resilience of the Wingstop brand and the effectiveness of our strategies as we continue to focus on various long-term sales initiatives. This gives us confidence in our capability to achieve another year of leading industry results. Our strategies are anchored in our people, and I am incredibly proud of our team and brand partners who are propelling us towards becoming a top 10 global restaurant brand. In the first quarter, we achieved 20.1% same-store sales growth. Almost all of this growth stemmed from increased transactions, highlighting the underlying strength of the Wingstop brand. Our sales growth saw a significant rise in our digital channels, reaching a record 65% digital sales mix for the quarter. We opened 37 new units during this period, marking an 11.4% growth rate. Global system-wide sales increased by 30%, nearing $3 billion in system sales. Adjusted EBITDA for the quarter was $34.6 million, which is a 60% increase compared to the previous year. The transaction growth driving our same-store sales results is attributable to the long-term sales initiatives we have been pursuing, which we believe gives us clear visibility to increase average unit volumes above $2 million. Our strategic growth initiatives involve enhancing brand awareness, menu innovation, expanding delivery channels, digital transformation, and data-driven marketing. In just three years, our average unit volume has increased by nearly $400,000 and now approaches $1.7 million. We believe these growth initiatives will continue to boost average unit volumes, and we see a major opportunity to enhance brand awareness. Our advertising fund is growing at a rate similar to our system sales, which increased by 30% in Q1, providing resources to continue addressing the awareness gap compared to other national brands. During the first quarter, the ad fund was additionally strengthened by a change allowing the conversion of the local advertising requirement to national advertising, taking effect in Q2 of last year. The increase in our advertising spending enabled us to enhance our presence in social streaming and digital platforms, and to become major purchasers of media, including premium outlets like the NFL and NBA. The year 2023 will be our first full year of implementing a continuous messaging strategy, keeping Wingstop at the forefront of consumers' minds all year long. This approach began in the latter half of 2022 and seems to be effective. While we're making strides in closing the awareness gap with other national brands, there remains significant potential as we aim for our 20th consecutive year of same-store sales growth and to maintain growth long-term. We recently named our new creative agency, 72andSunny, which operates as the lead agency for the NFL and other well-known brands. We believe 72andSunny can elevate the Wingstop brand during our next growth phase, and we are eager to see what they have planned for our creative efforts this year. A new creative campaign will further support the growth strategies we are implementing. In fact, we are beginning to see new creative featuring one of our recent menu innovations, the chicken sandwich, introduced in August 2022. We launched not just one, but 12 chicken sandwiches showcasing our unique flavor profiles to both new and existing customers. This offering has proven to significantly enhance brand awareness, increase visit frequencies, and attract new occasions. The chicken sandwich presents an opportunity to showcase our Wingstop flavors in a category that accounts for over 2.8 billion servings annually, and we are only beginning to tap into this market. Additionally, the chicken sandwich supports our supply chain strategy in a meaningful way, aiming for a mix of over 50% boneless options, which we believe could lead to long-term changes in our food costs, decreasing COGS to the low 30% range and further improving our unit economics. We continue to drive innovation through flavor, as demonstrated in the first quarter by reintroducing our fan-favorite flavor, Hot Honey Rub, which became our highest mixing limited-time offer on record. Flavor limited-time offerings effectively engage our existing customers while attracting new ones, and we have a variety of consumer-tested flavors ready for future limited-time offerings. Another factor contributing to our average unit volume growth is our delivery channel, which has shown no signs of decline. The introduction of Wingstop to the Uber Eats platform in July of last year, coupled with continued growth on DoorDash, gives us a broader consumer base to build awareness and capture new occasions. We have seen growth across all channels, but our delivery channels demonstrate the long-term scaling opportunity we believe exists, further driving average unit volume growth. We attained a record digital sales mix in Q1, exceeding 65%, and our first-party customer database has reached an impressive 35 million. This database fuels our marketing efforts, enhancing retention rates, increasing visit frequencies, and attracting new customers. Although we have seen early success in leveraging first-party data, there is still a substantial opportunity for Wingstop to enhance retention and frequency further. As we pursue our goal of digitizing every transaction, we are excited about the early positive results from a recent test involving AI-enabled phone orders. We plan to broaden this test, converting phone orders, which currently account for about 10% of our sales, into digital orders using AI voice technology. The initial results are encouraging, as they show improvements in team member experiences, order times, guest satisfaction, and the potential for increased ticket sizes by capturing guests digitally. This also allows team members to better serve guests picking up their orders in the restaurant. The transaction growth leading to 20% same-store sales growth in Q1 is bringing numerous new guests to the brand, engaging them in new occasions and increasing their visit frequency, a significant boost for continued average unit volume growth. We understand that providing a great guest experience is crucial, and we prioritize operational excellence, which has been a major focus for us. We are encouraged by the progress our restaurants are making to deliver a best-in-class guest experience, and the results confirm this, but we recognize there is still room for further enhancement to improve guest satisfaction, which will drive top-line growth. The long-term sales initiatives we are implementing give us confidence to push average unit volumes above $2 million. Even at our current average unit volume of nearly $1.7 million and an initial investment of around $450,000, we are generating top-tier returns for our brand partners. A useful indicator for our system is our company-owned restaurants, where we observed unit economics improving to margins of 27.6% in Q1. We are committed to continuing our supply chain strategy to become less dependent on fluctuating spot prices for wings, ensuring more predictable food costs for our brand partners. Our scale and strategic approach have enabled a fundamental shift in our supply chain operations, allowing us to make significant progress toward securing more of our purchases under long-term pricing agreements, moving away from the spot market. Our brand partners are enthusiastic about our progress and the strength of our business, which is leading to considerable growth in our development pipeline, setting us up for another strong year of development in 2023. Given the strength of our pipeline and the visibility into approved sites and our construction progress, we are reaffirming our 2023 guidance of approximately 240 net new restaurants, which would set another record for Wingstop. As we concluded 2022, we achieved over 200 net new restaurants for the first time, and we have a motivated group of brand partners ready to expand and develop more territories. As of the end of the first quarter, we have established a record global development pipeline nearing 1,200 restaurant commitments. We are also seeing a record number of approved sites at the start of the year, supporting our outlook for openings in 2023. This strong momentum in development allowed us to reach an exciting milestone by opening our 2000th restaurant this past month. These are truly exciting times for Wingstop, with rapid development and tremendous opportunities ahead as we aim to grow to over 7,000 global restaurants. We are making impressive strides in our international markets, where we see potential for more than 3,000 restaurants. Our U.K. market, which serves as a model for future launches, continues to see average unit volumes exceed $2 million, with unit economics comparable to our domestic performance. Our Canada market launched in June last year, and we are pleased with the positive consumer response. We opened our first Wingstop in Korea during Q1, and recently signed a commitment to open 30 restaurants in Puerto Rico, further demonstrating the strength of our business development pipeline. This week, Raj Kapoor, our new Head of International, joined my leadership team. Raj is an exceptional business leader, and I'm excited to work with him to expand Wingstop globally. He brings valuable experience and a strong desire to lead our international operations into the next growth phase. Wingstop is well positioned for another standout year. I am thrilled with our beginning to 2023 and focused on achieving our 20th consecutive year of same-store sales growth. With our solid start, we are adjusting our full-year 2023 outlook to high-single-digit same-store sales growth, up from our previous guidance of mid-single digits. Our brand partners are experiencing some of the best unit economics in our history. We believe this positions us well to meet our target of approximately 240 net new units. Wingstop stands out as an asset-light, high-growth brand, backed by top-tier unit economics and sustainable same-store sales growth drivers in an industry-leading pace of restaurant development. This truly emphasizes the opportunities ahead of us at Wingstop and positions us to deliver exceptional shareholder returns. Before I hand it over to Alex, I want to express my gratitude to our brand partners, our restaurant team members, and those at the Global Support Center for their hard work and dedication. Now, I’d like to turn the call over to Alex.
Alex Kaleida, CIO
Thank you, Michael. As you just heard from Michael, the first quarter demonstrated the strength of our long-term strategies. We delivered 30.4% growth in system-wide sales in the first quarter, which now totals $2.9 billion on a trailing 12-month basis. Total revenue increased to $108.7 million from $76.2 million in the prior year fiscal first quarter. Royalty revenues, franchise fees, and other revenue increased by $13.1 million in Q1, driven primarily by 199 net franchise openings since the prior year comparable period and a 20.1% increase in domestic same-store sales. The transaction growth we experienced in the second half of the prior year continued, and the majority of our first-quarter comp was driven by transaction growth. Company-owned restaurant sales totaled $23.1 million in Q1, an increase of $4.5 million primarily due to a 10.3% increase in company-owned same-store sales driven entirely by transaction growth and six net new restaurants versus the prior year comparable period. Cost of sales as a percentage of company-owned restaurant sales improved by more than 1,100 basis points compared to the prior year, mainly driven by a 1,000-basis-point reduction in food, beverage, and packaging costs. We are pleased to see this continued improvement in restaurant margins, which for the first quarter benefited from a 53% decrease in the cost of bone-in chicken wings. With our supply chain strategy and based on what we know today with leading indicators for our core commodities, we believe we have line of sight to predictable food costs for 2023 in the low 30% range. As a result, we anticipate company-owned restaurant cost of sales to be approximately 75%. Combined with this deflation in our core commodity, our supply chain strategy to reduce the volatility in our food cost is paying dividends, and is generating quite a bit of excitement among our brand partners as unit economics have strengthened to near record levels. In the first quarter, SG&A increased by $5.6 million versus the prior year comparable period to a total of $23.6 million, driven by investments in strategic projects to support the long-term growth of the business and an increase in performance-based stock compensation and incentive compensation as a result of the business' performance. We will continue to make investments in strategic areas of our business, such as in technology, development, and international to allow us to sustain these industry-leading results. Adjusted EBITDA, a non-GAAP measure was $34.6 million during the quarter, an increase of 60% versus the prior year. Adjusting for non-recurring items, we delivered adjusted earnings per diluted share, a non-GAAP measure of $0.59, an 80% increase versus the prior year. Our highly franchised asset-light model continues to deliver strong free cash flows. As of the end of the first quarter, we had $513.3 million in net debt. Our net debt to trailing 12-month adjusted EBITDA was at 4.3 times, which is 0.5 times lower than at the end of the fourth quarter, underscoring our ability to quickly delever through a combination of adjusted EBITDA growth and strong free cash flow generation. We are maintaining a strong cash balance that stands at over $200 million and it allows us to be opportunistic as we navigate any uncertainty in the macro backdrop in the back half of this year. We will also continue to explore opportunities with this cash to maximize shareholder returns. We remain committed to driving shareholder value and returning capital to shareholders through our regular quarterly dividend. Today, we announced a dividend of $0.19 per share of common stock, a demonstration of the strength of our model. This dividend totaling approximately $5.7 million will be paid on June 9, 2023 to stockholders of record as of May 19, 2023. Now, shifting to our outlook for 2023. With the strong start to the year, we have increased our outlook to high-single-digit same-store sales growth for 2023 from mid-single-digit same-store sales. Based on the visibility we have in our pipeline at this point in the year, we are reiterating our development outlook of approximately 240 net new units, translating to a unit growth rate of more than 12% versus the prior year. We also anticipate our pace of openings to be weighted more towards the second half. SG&A guidance is estimated to be between $85.5 million and $87.5 million, including $2.8 million in consulting projects to support our strategic initiatives and an estimated $12 million to $13 million of stock-based compensation expense. We are excited by the momentum in our business, the underlying health of the Wingstop brand, and the opportunity that lies ahead for 2023 and beyond. Our growth strategy is a unique part of the story for Wingstop, have staying power, and gives us the confidence in delivering our outlook for 2023. With that, I'd like to now turn to Q&A. Operator, please open the line for questions.
Operator, Operator
Yes. Thank you. At this time, we will begin the question-and-answer session. And the first question comes from David Tarantino with Baird.
David Tarantino, Analyst
Hi. Good morning and congratulations on such a strong start to the year. My question is related to the strength you're seeing in the domestic comps or AUVs. I guess, the way we look at it on a seasonal basis, it looked like you had a pretty strong surge in volumes relative to normal seasonality. And I was wondering, Michael, if you could maybe talk about the factors that drove that step up from the last quarter? And whether you think those are structural or whether you think there was some temporary benefit in the first quarter? And then I have a follow-up.
Michael Skipworth, CEO
Hi, David. Good morning. Yes. I think we mentioned this on our last call, how we did acknowledge that we saw the comp momentum build as we progressed through Q4, and that continued into Q1 this year, giving us a really strong start to the year, as you mentioned. And we really believe it is structural, not a seasonal change in our business in that these growth levers that we're executing against are putting us in a pretty unique spot to have so many different levers that are not only continuing to drive repeat visits with our core consumers, we're bringing a lot of guests into the brand, whether that's through just expanding brand awareness through the growth in our national ad fund or the expansion in the delivery channel or winning occasions with chicken sandwich, just to name a few that we've been executing against. And so we saw that momentum build as we progressed through the quarter. And obviously, as we think about the rest of this year and kind of how it's going to shape up, everyone is trying to get their arms around what the back half of the year holds for the consumer. But we feel pretty confident in the strategies that we're executing against and in our ability to deliver on our outlook which would result in the 20th consecutive year of same-store sales growth.
David Tarantino, Analyst
Great. Thank you. Michael, I did want to ask about the guidance. I guess the guidance assumes your comps moderate pretty significantly and maybe even your seasonally adjusted volumes moderate pretty significantly from what you just reported for Q1. So, I guess first question is are you already seeing that, or are you seeing something, or is this just maybe a bit of conservatism as you think about the second half of the year?
Michael Skipworth, CEO
Yes, David, I think it's probably more of the latter. Obviously, there's still a fair amount of uncertainty with the macro environment and consumer recession. Everyone is trying to really understand what's going to happen later today with the Fed as an example. And so we're all trying to get our arms around exactly what that means to the overall consumer. That said, and I mentioned it just a second ago we feel like we're in a pretty unique spot as a brand to be able to raise our guidance this year even considering that overall macro backdrop and deliver a really strong year.
David Tarantino, Analyst
Great. Makes sense. Thank you.
Operator, Operator
Thank you. And the next question comes from Jeffrey Bernstein with Barclays.
Jeffrey Bernstein, Analyst
Great. Thank you very much. Two questions. The first one just on the unit growth. Clearly there are concerns of macro easing and rate increases and just over the best month or two a lot of small bank concerns. So, I'm just wondering if any or all of those factors you think are having any impact on your unit growth outlook. I know you've reiterated the guidance for this year for 12% plus. But just trying to get some color on whether you think that has any impact at all. I think you mentioned your pipeline is 1,200 units. So, I'm just wondering maybe that could provide some color, maybe what was that pipeline last year and the year before? Any kind of color in terms of the any headwinds on that unit growth outlook based on the current macro? And then I have one follow-up.
Michael Skipworth, CEO
Jeff, good morning. Yes, the pipeline as we sit here today we mentioned is at a record level 1,200 strong. And just to provide some perspective that was close to 1,000 this time a year ago. And then you layer on top of that the openings we had over the past year of 200 roughly. It really speaks to the demand that we're seeing from our brand partners to reinvest in Wingstop and their desire to continue to grow. And as we sit here today, we have pretty good visibility into our pipeline. In fact, the number of sites that we need to deliver on that outlook that we reiterated of 240 net new units are sitting in our pipeline today. And so we feel pretty confident regardless of what happens in the overall macro to be able to continue to deliver industry-leading unit development. A lot of that has to do if you think about financing, the rate environment or these regional banks there's not a lot of lending or leverage conversations we have with our brand partner community. A lot of their growth is fueled by cash flow from operations. And then on top of that compared to other brands, it's a relatively modest initial investment to open a Wingstop. So, I think all those things help position us to be able to sit here today with confidence in delivering another industry-leading return from a unit development perspective.
Jeffrey Bernstein, Analyst
Understood. And then the follow-up is just on the commodity cost outlook. Clearly the deflation of 50% plus on the bone-in wings is incredible. Just wondering your outlook for that for the second quarter or the back half, just wondering when you would think it might turn into a headwind? And I think you mentioned something about from a supply chain's perspective, you're shifting more to long-term buys versus the spot market. If there's any incremental color you could provide in terms of new details, that would be great. Thank you.
Michael Skipworth, CEO
We're really encouraged by the current commodity landscape. As we review some leading indicators related to wing prices, they appear favorable. There's a slight indication of softness from a broader perspective, but we aren't experiencing that in our business. Currently, the pricing remains favorable according to Urner Barry, though we anticipate it will return to a more seasonal trend. Typically, as we enter the latter half of the year during football season, wing prices tend to rise a bit. Despite the market conditions, we expect to maintain overall favorable food costs, both for our company-owned restaurants and our brand partners, which should continue to drive demand for growth. The combination of our size and scale, along with effective execution of our supply chain strategy, allows us to shift more of our purchases away from the spot market and negotiate longer-term pricing agreements. This provides us with greater predictability regarding food costs in the future, and these arrangements are also giving us confidence about how 2024 is beginning to take shape.
Jeffrey Bernstein, Analyst
Understood. And just to clarify, in your response there I think you mentioned the macro outlook maybe softening a little bit, but not anything you're seeing in your results. I think it was questioned earlier, but is that safe to assume then without giving specifics that the momentum you saw through the first quarter, there really hasn't been a change in trend, at least through the month of April?
Alex Kaleida, CIO
Jeff, I can jump in here. One of the leading indicators is around frozen inventory levels on wings and breast meat. And I think that's the one that we're pointing to, that signals some softness as suppliers are rebalancing that equilibrium, between demand and supply right now.
Jeffrey Bernstein, Analyst
I'm sorry. I was talking about the comp momentum, with the 20% plus in the first quarter, and I think you've indicated you really haven't seen a slowdown from a top line comp perspective thus far in the second quarter, despite the macro concerns. I wasn't sure if that was the message you were trying to convey about April?
Michael Skipworth, CEO
No, I don't think we were trying to be intentional about April, but more just around some of the leading indicators that influence the outlook and what the Urner Barry will do. As it relates to our business and overall demand, I think all of that factored into kind of our outlook for the balance of the year, which resulted in us raising our guidance for the year from mid-single digits to high-single digits.
Jeffrey Bernstein, Analyst
Thank you.
Operator, Operator
Thank you. And the next question comes from Jon Tower with Citigroup.
Jon Tower, Analyst
Great. Thanks for taking the questions. One question, and then a follow-up. Just curious on the chicken sandwich where that mixed in in the quarter, but more importantly, just looking at the LTO you talked about the Hot Honey Rub, doing quite well. I'm curious if you could speak to how a product makes its way from an LTO to a permanent menu item, especially given the success that this product seemed to have during the quarter?
Michael Skipworth, CEO
Hi, Jon, I'm sorry. Good morning. I would say, as it relates to the LTO and maybe I'll start there. As we reflect on Wingstop as a brand over our almost 30 years, there hasn't been a significant amount of menu innovation and specifically related to flavors. I think we've eliminated one and added two. So, it is a decently high bar to make it on our menu permanently. That said obviously, we look at and listen to the overall consumer sentiment and demand for a flavor like Hot Honey Rub, which has been significant. And so we'll continue to evaluate that and monitor it, Jon. But as it relates to Chicken Sandwich, what's exciting for our brand and kind of what we've seen is, we've seen growth in all channels. If you look at digital carryout, non-digital carryout you look at delivery you name it we saw growth across all channels. And Chicken sandwich we saw that mix sustain from what we've seen in prior quarter of about a mid-single-digit mix range. And we're encouraged by that because it's a bit of a halo effect in that we're seeing bone-in wings, boneless wings, tender cells, and all categories rise as we're experiencing some of the strength in the overall business. And so we're encouraged by that. And really excited to see that we continue to see that Chicken Sandwich sales mix sustain, which means we're winning more occasions and bringing new guests into the brand as we mentioned earlier, which we're really excited about what that can mean for the brand long-term.
Jon Tower, Analyst
Thank you. I would like to know more about the consulting projects you mentioned. Are these focused on the supply chain aspects of the business, or are there other opportunities you are currently exploring that could affect the business in the future?
Michael Skipworth, CEO
Yes, Jon, as we take a moment to reflect, we feel that this is a significant opportunity for our brand. We have a history of making strategic investments aimed at advancing our growth and delivering outstanding results. I would categorize our current focus as part of this approach, as we seek to capitalize on our brand's momentum. We are actively pursuing strategies to position the brand for the upcoming growth phase, which we are very enthusiastic about.
Jon Tower, Analyst
Okay. So this is not to do with the supply chain examination you've done previously?
Michael Skipworth, CEO
Yes. It's not specifically related to that overall supply chain strategy that we've talked about historically, correct.
Jon Tower, Analyst
Great. Thanks. I’ll pass it on.
Operator, Operator
Thank you. And the next question comes from Andrew Charles with TD Cowen.
Andrew Charles, Analyst
Great. Thanks. Michael in 1Q is impressive comps with your higher 2023 outlook what's the plan with the surplus the ad fund that comes on top of what was already a robust planned 20% ad fund increase that followed the 40% increase in 2022? Is the plan to deploy this later in 2023, or are you able to hold on to the surplus to beef up 2024 TRPs?
Michael Skipworth, CEO
Andrew, good morning. I think it ties back a little bit to my comment I just made to Jon about this feeling like a little bit of a put-our-foot-on-the-gas moment. And so we are leaning in and finding opportunities to strategically invest any surplus that we do see coming into the ad fund to continue to drive growth and take advantage of these growth levers we have in front of us that are bringing a lot of new guests into the brand that we mentioned in our prepared remarks. And we're really excited about what we're seeing not only within the four walls of the restaurant but how we're able to retain more of those guests and see them move up the frequency curve with the brand which is what you want to see. And we think to tie back to an earlier comment as part of an overall structural change that we're seeing in AUVs for the brand.
Andrew Charles, Analyst
Okay. Great. And then, I wanted to just check-in as well just on the opportunity to mitigate bone-in wings volatility. You described that you're very flexible in the approach here and so, roughly a year later after first detailing the project. Just kind of want to see the progress that's been made. Just kind of where your head is with this? And obviously, when you did the recap a year ago, you took on about $130 million of cash on the balance sheet to help fortify. Is that something you still view as really needed to help you with your efforts, or is there perhaps more of a lower intensity, lower cash usage approach here that may be able to lead to the cash to be deployed to shareholders?
Alex Kaleida, CIO
Good morning, Andrew. This is Alex. Thank you for the question. As you may remember, our supply chain strategy encompasses several key components, including a cost-plus pricing model, moving away from the spot market, exploring co-investment options, and considering complex acquisitions or potential builds. We have focused intently on the first aspect of our strategy, which, as Michael noted during the call, has transformed our discussions regarding procurement year after year. You are beginning to observe evidence of this in our projections. This is truly one of the first years we can clearly outline our visibility into food costs, anticipated to remain in the low-30% range for 2023. We will continue to pursue this less capital-intensive approach to harvest its benefits. Moreover, we have sufficient cash on our balance sheet to seize opportunities, whether that involves aspects of our supply chain strategy or returning capital to shareholders in the future.
Andrew Charles, Analyst
Very good. Thanks guys.
Operator, Operator
Thank you.
Alex Kaleida, CIO
Thank you.
Operator, Operator
Thank you. Our next question comes from Brian Harbour with Morgan Stanley.
Brian Harbour, Analyst
Yeah. Thanks. Good morning, guys. Can you talk about just demographic exposure a little bit? Because, I know about a year ago we had talked about kind of some of the lower-end customers pulling back. I think the higher-end customers have since come to you in quite a strong way especially given kind of delivery. But what do you observe more recently? Has some of the lower end improved, or what have you seen just from a demographic perspective?
Michael Skipworth, CEO
Hey, Brian, good morning. A few years back, we implemented a strategy to expand our reach to heavy quick-service restaurant users, who account for about 60% of all QSR visits and tend to have higher incomes and less diversity than our core customer base. We're really pleased with the progress we've made in attracting these heavy QSR users to our brand. About four or five years ago, lower-income consumers made up over half of our business, and now that's down to approximately 30%. This indicates that we're clearly making strides. However, our brand has a distinct position with our core customers, as their visits are infrequent, averaging once a month or three times a quarter, and they tend to engage with our brand for indulgent occasions. We've noted that during tough economic times or when consumers feel financial pressure, they might cut back on frequent QSR visits. As the month ends, they often feel the need to treat themselves. As long as we maintain top-of-mind awareness and offer value, we've shown we can keep those indulgent occasions, which is exactly what we've observed in the first quarter with our core customers.
Brian Harbour, Analyst
Great. Thank you. And I mean related to that, is there anything you can quantify just in terms of the increase in frequency more recently too? And you sort of alluded to this and certainly I think elsewhere in the industry we are seeing some of the higher-frequency QSRs holding on or even building frequency at this point, but it kind of depends on the brand. What have you seen with that more recently?
Alex Kaleida, CIO
Hey, Brian, this is Alex. I can jump in here. As we mentioned, we've attracted this new guest that comes in that's into Wingstop at a lower frequency than our core average, yet we've been able to sustain that average overall of about three times a quarter. So I think that demonstrates the continued focus to build frequency with our core as well as move our new guests along the frequency curve.
Michael Skipworth, CEO
And then, I'll just add to that, Brian. We mentioned our comp in Q1 of 20.1% was entirely driven by transaction growth. And I think that just further supports the point Alex is making about bringing in a lot of new users and new occasions into the brand, while retaining those indulgent occasions with their core.
Operator, Operator
Thank you. And the next question comes from Joshua Long with Stephens Inc.
Joshua Long, Analyst
Great. Thank you for taking my question. My first question was more of a clarification on some of the build-out costs that you mentioned. I understand that the pipeline is very strong. That's very exciting. Curious, if you could talk about some of the construction cost inflation or just maybe permitting things that may have been kind of pushing and pulling on the development pipeline? I understand that your stores and your format is advantaged versus many others of your peers, but just curious what kind of pressures in your feeling in the current environment? And then I have one follow-up.
Alex Kaleida, CIO
Thanks for the question, Josh. This is Alex. I think what you've seen is we've been able to sustain that initial investment of about $450,000 for brand partners and while building our AUVs to now approaching $1.7 million. So that yield is a payback of less than two years. So while we're not certainly immune to inflation, we've been doing things very strategically behind the scenes to stage inventory buy forward equipment in order to mitigate some of the smaller headwinds we see on some of their purchases. But I think with the growth in the expansion of our margins with what you're seeing in the pipeline and the level of commitments that we've continued to build on, and that low upfront investment that's got our brand partner base energized to continue to grow and open more Wingstops.
Joshua Long, Analyst
Great. That's very helpful. And maybe shifting gears when we think about the goals you set forward in terms of becoming a top 10 global restaurant brand scaling to more than 3,000 stores internationally, can you talk about some of the near-term opportunities with that? Michael, you mentioned kind of using the UK as a kind of jumping-off point for how you can think about going into new markets. And I believe you've also made some key hires here recently on the human capital side to help propel that. But could you kind of frame up how we should be thinking about some of the near-term opportunities internationally as you start to work towards that 3,000 unit target?
Michael Skipworth, CEO
Yes, absolutely. And I think you've heard us refer to our international business as being supercharged for growth. We have a significant amount of demand in our business development pipeline for new territories. We mentioned a few that we've recently opened that are starting to build the pipeline there and we'll continue to expand. We noted in our prepared remarks that we just secured a partner for Puerto Rico, just to speak to the overall business development pipeline and demand there. But really excited about what's in front of us. Obviously, you mentioned it, bringing in Raj is a big hire, and someone we're really excited about in him leading our international business and that growth strategy. But we talked about the overall unit outlook and target for this year of roughly 240 net. Within that number is another record year for international and something we're really excited about that I think speaks to the momentum. But as we bring new territories online, the way those development agreements are written is they start out with a little bit of a slower pace. But then as they get up to the pace of what we see in the UK today, which is opening roughly mid-teens units a year, more territories get to that pace is when it becomes a more meaningful contribution to the overall unit growth story. But we're pretty excited about what we see today, the demand for the brand outside of the US and obviously Raj joining our team.
Joshua Long, Analyst
Great. Thank you.
Operator, Operator
Thank you. And the next question comes from Jeff Farmer with Gordon Haskett.
Jeff Farmer, Analyst
Great. Good morning and thank you. I'm curious where did the 20% Q1 same-store sales performance stand or come in relative to what you guys were thinking in terms of internal expectations heading into the quarter?
Michael Skipworth, CEO
In full transparency, it exceeded our expectations. We knew we exited 2022 with great momentum. We were expecting to execute at a low-double-digit growth rate, but we saw that momentum continue to build as we progressed through the quarter. We're encouraged by how the team came together and the effectiveness of our strategies, and we will continue to push forward.
Jeff Farmer, Analyst
Okay. That's helpful. Just one follow-up for clarification on the Q1 same-store sales components. You mentioned it was largely all traffic, but can you confirm that there was virtually no menu pricing or mix impact at all in the Q1 same-store sales number?
Michael Skipworth, CEO
Yes. I think the right way to think about it, Jeff, is that we expect to return to our more historical approach to pricing, which consists of 1 to 2 points of price increases at two strategic points during the year. We implemented that pricing in Q1. However, we experienced some impact on ticket sizes from the success of the chicken sandwich, which tends to be more popular during lunch and has a lower overall average check. We view this as a positive. Overall, these two factors balanced out within the quarter, resulting in nearly all of the comp growth being driven by an increase in transactions.
Jeff Farmer, Analyst
Understood. Thank you.
Operator, Operator
Thank you. And the next question comes from Nick Setyan with Wedbush Securities.
Nick Setyan, Analyst
Thank you. You guys talked about 75% cost of sales for 2023 even with the food basket being in the low 30s. Assuming labor is flattish to slightly lower what's driving that uptick in other OpEx? Is it just a delivery mix?
Michael Skipworth, CEO
In Q1 alone really what you're seeing is the 1% ad fund contribution that changed year-over-year.
Alex Kaleida, CIO
And I think as we progress through the year, as we mentioned there is some seasonality associated with the Urner Barry that's contemplated in our food cost outlook and embedded in our approximately 75%. And we see some small seasonality within some of the OpEx components that come into play. But I think we're really excited about what that means with that type of outlook and how our brand partners feel about that type of margin profile.
Nick Setyan, Analyst
Got it. So, it's more of a signpost than a hard line to the 25% level margin. Is that fair?
Michael Skipworth, CEO
Yes, that's right.
Nick Setyan, Analyst
Would you guys be willing to break out the international part of system-wide sales in Q1?
Michael Skipworth, CEO
That's not something we've done yet as it still continues to develop. However, as we move forward and it evolves into more of a growth narrative, we will provide more details. I'll mention that our international business had a very strong comparable performance in the first quarter, similar to what we experienced in our overall domestic business.
Nick Setyan, Analyst
Okay. Thank you very much.
Operator, Operator
Thank you. And the next question comes from Andrew Strelzik with BMO.
Unidentified Analyst, Analyst
Hi, thanks for taking my question. This is Daniel on for Andrew Strelzik. I was hoping you can provide some details on the domestic franchise base? How many units does your average franchisee operate? And what is your philosophy around partnering with larger well-capitalized partners? And also regarding your new unit pipeline what would be the split between new and existing franchisees?
Alex Kaleida, CIO
Daniel yes we've seen that gradually the account per brand partner tick up. And I think it's something we've talked about over the years as we've had single operators take the opportunity to exit and having the willingness to grow around the trade area. So, that number is around seven and a half restaurants per brand partner. But the unique part of Wingstop is the growth we're seeing 90% plus of our development is from existing brand partners reinvesting that cash they're generating from their business. So, we do see some new brand partners that come into the system, but we're very selective about who those are and strategically where they fit within our geography.
Unidentified Analyst, Analyst
That’s very helpful. Thank you.
Operator, Operator
Thank you. And the next question comes from Andy Barish with Jefferies.
Andy Barish, Analyst
Thank you for the question. I noticed you've mentioned that momentum has built and exceeded your expectations. Historically, the brand hasn’t focused as much on sports, but considering your comments about March Madness and the new Bundle deal with flavors, was March particularly significant? Is this a shift to ensure you're capitalizing on major sporting events?
Michael Skipworth, CEO
Hi, Andy, this is Michael. Good morning. I think we've clearly talked about, as we looked at our media placement and media strategy for television, we felt the most eyeballs were going to be in live sports. And so that is where our TV buy has been focused. We really leaned into that last year, back half of last year, and that continues to be our strategy this year. So, I wouldn't say a huge change year-over-year. But I'll say the thing we're also doing is making sure that we're being really smart about how we scale the brand to become a national brand, a household name that we continue to lean into culturally relevant moments that we can resonate with the guests there as well. And so I think your what you saw in Q1, wasn't anything I would point out around a pivot in our media strategy or advertising, but just continuing to execute against these unique growth initiatives that we have in place that are bringing a lot of new guests into the brand and retaining those indulgent occasions with our core.
Andy Barish, Analyst
Got you. I mean, could we assume March was the strongest month of the quarter, or is that not correct?
Michael Skipworth, CEO
That is correct. It was.
Operator, Operator
Thank you. And the next question comes from Michael Tamas with Oppenheimer & Company.
Michael Tamas, Analyst
Hi. Thanks. You mentioned a couple of times, some of the strategies that you're executing on the driver business, and obviously, you put some of those pretty powerful strategies in place in the back half of 2022. So, can you talk about maybe what some of the incremental drivers are, as you roll against those tougher comparisons in the later part of the 2023? Thanks.
Michael Skipworth, CEO
Yes, Michael, I appreciate the question. And I think that's kind of a reaction we often hear is how are you going to lap these levers that you pull? And I think it's really important to understand that these are not single-year, one-time drivers for our business, but we've demonstrated over the years and I don't think 2022 and 2023 will be any different, in our ability to be really intentional about how we pull these levers, when we pull them and take the launch of Uber Eats as an example. We've seen some really strong growth in that channel. But even as we sit here today, you're talking low single-digit of eaters on Uber Eats have engaged with our brands. So just a significant amount of opportunity for us to continue to lean in there and partner with Uber Eats as well as DoorDash in ways that we can continue to expand the delivery channel, which we mentioned this last quarter, we are encouraged with where our mix level is today, but see an opportunity for that to almost double. And then you take chicken sandwich, mixing mid-single digits something we're excited about. Those are highly incremental occasions that we're winning there. But there's 2.8 billion chicken sandwich servings a year in the US. So we think there's a huge opportunity and we're just scratching the surface. And so we really think about these strategies that we're executing against the levers that we pulled specifically in the back half of 2022 as being multiyear drivers for our business. And I think kind of that statement is supported by the fact that 2022 was our 19th consecutive year of same-store sales growth. And based on our outlook for this year we think we're well on our way to our 20th.
Michael Tamas, Analyst
Makes sense. And then I think last quarter there was an implication that EBITDA in 2023 would be somewhere around $122 million. Do you have any update on that or thoughts about where that might shake out? Thanks.
Michael Skipworth, CEO
Yes. I think we did signal to a growth rate last quarter, but obviously, if you take Q1 results, which were well above even our own expectations, but clearly consensus expectations. And you take our updated outlook where we've raised same-store sales guidance it would clearly imply a higher number.
Operator, Operator
Thank you. And the next question comes from Peter Saleh with BTIG.
Peter Saleh, Analyst
Thanks for taking the question and congratulations on a great start to the year. I want to revisit the delivery discussion. Could you share the mix for delivery in the first quarter? Additionally, could you provide more details on the types of guests using your service through the two third-party platforms? Are they from lower or higher income brackets, are they younger or older? Also, are you seeing an increase in unique users on these platforms?
Michael Skipworth, CEO
Hi, Peter, I appreciate the question. What we're encouraged about and what we're excited about is we saw growth as we mentioned within the delivery channel as an overall mix perspective within Q1. But that's on top of seeing growth across all channels. And so it just I think really speaks to the opportunity that we have there. And that growth was in all platforms whether it was DoorDash or Uber Eats we saw growth across the board and we were encouraged by that. And obviously, we don't have a ton of visibility into the users on their platforms. But I think we view those since we saw growth in every other channel in our business as being highly incremental. And again, as I mentioned before just we see a ton of opportunity within that delivery channel to continue to drive growth long-term.
Peter Saleh, Analyst
Great. And then just lastly I think I know what the answer to this is, but I will ask it anyway is there any thought or change in your real estate strategy given how important delivery has become over the past couple of years? Are you guys looking at different types of sites or kind of sticking with the same strategy going forward?
Michael Skipworth, CEO
Yes, Peter, it's a good question. And I think even if we reflect back to 2020 where we saw meaningful growth in our business and I think I referenced in the prepared remarks how our AUV over the last three years alone has grown about $400,000. And I really think what's behind that is Wingstop was built for this. You sit here today and 94% of our sales are off-premise. So whether that's carryout or delivery, our model was built for this. And so as it relates to our overall strategy around real estate, I wouldn't say that there's anything that's changed significantly there. We clearly understand where we play well. We've master planned every key market in the US and have a clear line of sight to expanding our footprint today, which globally we just crossed 2,000, but in the US see a line of path to a line of sight to a path of over 4,000 units in the US and know pretty much exactly where those will be. So no real change to call out.
Peter Saleh, Analyst
Thank you.
Operator, Operator
Thank you. And the next question comes from Jim Sanderson with Northcoast Research.
Jim Sanderson, Analyst
Hi. Thanks for the question. Just wanted to get a little bit more detail on what drove traffic growth in the first quarter. Wondering if you can comment on any noticeable improvement in daypart mix based on traffic or late night? And then I had a follow-up question about the full court promotion.
Alex Kaleida, CIO
Good morning, Jim. Yes, it's been interesting and very consistent across all channels and all days. There's nothing significant to highlight. We are noticing new guests coming in and an increase in frequency from both new and existing customers. Overall, both digital and non-digital channels are on the rise. One aspect we've mentioned previously is how the chicken sandwich mix performs. It tends to be more popular during lunch and among individual diners. Additionally, as Michael mentioned earlier, there's a positive impact on the rest of the business due to the influx of new customers.
Jim Sanderson, Analyst
All right. And just a quick question about the full court promotion. I think that was at a bit of a higher price point. Any commentary on how the consumer reacted? Did you see it mix as strongly despite the higher price point for the promotion?
Michael Skipworth, CEO
Yes. I think a bundle like that we saw an opportunity where we knew guests were going to be gathering for group occasions to watch college basketball, and so it mixed well. We were encouraged by the results that we saw. But the other thing I would call out is just it really speaks to the unique position we have with our menu and how we can use piece count and protein mix to create value for consumers. Even if that was at a higher price point it did include meaningful value we think for guests if you look at it on a per person basis. And so something we're pretty intentional about, and we were encouraged with what we saw from that promotion.
Jim Sanderson, Analyst
All right. Thank you.
Operator, Operator
Thank you. And this concludes both the question-and-answer session as well as the event itself. Thank you so much for attending today's presentation. You may now disconnect your lines.