Is Wingstop The Perfect Fast Casual Restaurant Model?
Wingstop Inc. (NASDAQ: WING) has a simple restaurant concept. Sell chicken wings, chicken tenders and chicken sandwiches with fries and sodas. It offers a simple menu and sells a relatively simple product, chicken.
We're not talking locally sourced grass-fed steaks, hand-made sides, customized salad bowls, half-pound burgers, alcohol, steak quesadillas, Mediterranean salads or Caramelized Garlic Steak Bowls.
And yet, Wingstop’s domestic comparable restaurant sales (comps) growth of 28.7% demolishes fast-casual restaurant leaders like Sweetgreen Inc. (NYSE: SG) at 9% and Chipotle Mexican Grille Inc. (NYSE: CMG) at 11.1% or restaurant leaders like Texas Roadhouse Inc. (NASDAQ: TXRH) at 9.3% and Brinker International Inc. (NYSE: EAT) owned Chilli’s Grill & Bar at 14.8% YoY comps.
Wingstop is a retail/wholesale sector wunderkind that has stumped analysts and thrilled investors. They have the industry’s highest comps and may have stumbled upon the perfect fast casual restaurant operating model.
Wingstops are Just 1,700 Square Feet
Wingstop has an asset-light model that operates 2,352 restaurants in the United States, of which 1,988 are franchised and 52 company-owned. Wingstop franchises out 97.5% of its locations. The average Wingstop location is just 1,700 square feet, compared to 2,000 to 2,700 square feet for CAVA and Chipotle, which are all company-owned. The company opened 73 net restaurants in Q2 2024.
Franchise owners tend to make back their total investment in less than 2 years. The average unit volume (AUV) per restaurant in the second quarter of 2024 rose to $2.03 million, up from $1.7 million in the year-ago period. The company plans to increase AUV to $3 million in the coming years.
The New Prototypes are Just 1,300 Square Feet
The company has a new, more efficient, modern prototype restaurant that will drop the square footage down to just 1,300 square feet. The company wants to bolster digital sales orders, keeping it convenient and frictionless, ultimately becoming cashless and all-digital.
It Takes Just 4 Employees to Operate a Wingstop
Because Wingstop’s menu is frankly so simple, it only takes 4 workers to operate a shift. Compare this to the 8-12 people necessary to chop the vegetables, cook the meats, prepare the toppings, assemble the bowls and cash out the customers at a CAVA or Chipotle restaurant. Wingstop doesn't have to contend with the 38 ingredients and 17 billion combinations that CAVA employees are responsible for.
The Metrics are Frighteningly Efficient
Wingstop reported second-quarter 2024 EPS of 93 cents, beating analyst estimates by 10 cents. Revenues surged 45.3% YoY to $155.7 million, beating $146.04 million consensus estimates. Digital sales increased to 68.3% of system-wide sales.
Wingstop Continues to Raise Forecasts
Wingstop raised its financial outlook for 2024. It expects 20% YoY same-store sales growth, up from low double-digits. It now expects to open 285 to 300 global net new stores, up from earlier guidance of $275 to 295.
Upbeat CEO Boldly Targets $3 Million AUV and 3X More U.S. Stores
Wingstop CEO Michael Skipworth commented, “The second quarter marked another industry-leading quarter for Wingstop, further solidifying our category-of-one position. With same-store sales growth of 28.7%, driven primarily by transactions, our AUVs now exceed $2.0 million, a target we set only two years ago when AUVs just crossed $1.5 million. Due to the strength and staying power of our multi-year strategies, we believe we have a line of sight to a new AUV target of $3.0 million."
Skipworth concluded, "This growth in AUVs has further enhanced our best-in-class unit economics, and as we continue to open new restaurants at a record pace, we believe there is an opportunity to more than triple our current U.S. footprint."
WING Stock Attempts to Breakout of a Descending Triangle Pattern
A descending triangle pattern is comprised of a falling upper trendline connecting lower highs on bounces and a flat-bottom lower trendline support. As the stock gets closer to the apex point where the trendlines meet, a breakout through the upper trendline resistance or below the lower trendline support is imminent.
WING started its descending trendline at $430.20, and its flat-bottom lower trendline support is at $352.90. The lower trendline held the sell-the-news reaction to its Q2 2024 blowout earnings as it slingshot shares back up from a low of $340.96. WING triggered a breakout through the descending trendline on a spike to $409.77. The daily relative strength index peaked under the overbought 70-band and is stalled at the 51-band. Fibonacci (fib) pullback support levels are at $136.37, $131.77, $127.82 and $121.19.
Wingstop’s average consensus price target is $318.50, and its highest analyst price target sits at $380. This indicates the stock may have gotten way ahead of itself, trading at 103X forward earnings propelled by its 4.65% short float.
Actionable Options Strategies: Bullish investors must be careful not to chase the stock. Seasoned options traders can consider using cash-secured puts at the lower Fib support levels to enter deep pullbacks. To generate income, a wheel strategy can be implemented upon being assigned shares and writing covered calls while collecting the 0.28% annual dividend yield.
Source MarketBeat
