Wingstop’s third quarter performance trounced Wall Street’s expectations on Wednesday, as strategic innovations from last year expanded Wingstop’s consumer base through the second half of the year and the company successfully insulated itself from supply-side inflation.
The fast food chicken wings restaurant experienced a 26.1% annual increase in revenue, to $117.1 million, beating analyst expectations of $109.1. The improvement over the quarter was dramatic as well, building upon an already strong performance in the first half of the year. Domestic sales increased by 15.3%, more than doubling analyst projections for an 7.27% increase, and the company was able to invest in 53 new stores over the same time. Earnings per share jumped to $0.69 per share from $0.45 year over year and bypassed analyst expectations for a modest increase to $0.52 per share.
Analyst projections were too conservative because Wingstop’s robust performance was far from guaranteed. A hostile borrowing environment, persistent momentum for wage increases across the fast food industry, and mounting strain on the consumer pocket books were all potential headwinds for the company that has reported domestic same-store sales growth since it was first launched nearly 20 years ago. Wingstop was able to avoid these pitfalls through strategic initiatives that were set into motion at the end of last year, which are now advancing profitability.
Most notably, the company entered a lucrative partnership with Uber Eats at the same time that it launched 12 new chicken sandwich variations in late 2022, which Chief Executive Officer Michael J Skipworth says attracted a new demographic of younger, childless consumers who are now spending more and driving same-store sales.
“This consumer is right in the sweet-spot for our brand,” Skipworth said.
The single Gen-Z and Millennial customer demographic contributed to a 5 percentage point increase in digital sales to 66.9% over the same period last year.
At the same time, Wingstop is leveraging its scale of operations in order to out maneuver the supply-side inflation that is hurting other food providers industry wide. The poultry industry in particular suffers from price volatility – in large part due to a chicken’s short lifespan – which can make expenses difficult to predict and undermine investor confidence.
Wingstop’s remarkable expansion in the past decade allowed the company to mitigate unpredictable expenses by buying its poultry through large contracts at scale, locking in favorable prices.
Chris O’Cull, who was one of numerous sell-side analysts that underestimated Wingstop’s performance, said that protection from inflationary expense costs means that Wingstop’s reported revenue increases were more meaningful than some competitors, who have been able to pass cost pressures along to consumers.
“[Wingstop’s] franchisees haven’t taken the amount of price increases that a McDonald’s franchisee has taken,” said O’Cull. “Most of [Wingstop’s] sales growth is coming from transaction growth, whereas almost all of McDonald’s sales growth is coming from price.”
On Wednesday, Wingstop’s stock price jumped to $196.50 at market close on Wednesday, from $189.72. The stock is up 43% year to date.
Still, Wingstop was not the only strong-performer in the quick food service cohort. Analysts pointed to Cava, a fast-food Mediterranean restaurant that experienced an astounding 63% increase in revenue annually, as a sign that things could be better.
“The cool factor is extremely important right now. New restaurant brands have to be cool,” said John Gordon, co-founder of Pacific Management Consulting Group, adding that while Wingstop fulfills a basic need, “Cava and Chipotle are at the top of the cool list right now.”