Wingstop Inc. (WING) Bundle
Understanding Wingstop Inc. (WING) Revenue Streams
Understanding Wingstop Inc.’s Revenue Streams
During the thirty-nine weeks ended September 28, 2024, total revenue was $464.0 million, an increase of $131.0 million, or 39.3%, compared to $333.0 million in the comparable period in 2023.
Breakdown of Primary Revenue Sources
- Royalty Revenue, Franchise Fees, and Other: Increased by $63.3 million, with $31.1 million attributed to domestic same store sales growth of 23.6% and $20.2 million from net new franchise development.
- Advertising Fees: Increased by $47.6 million due to a 40.4% increase in system-wide sales and an increase in the national advertising fund contribution rate to 5.3% from 5.0%.
- Company-Owned Restaurant Sales: Increased by $20.2 million, primarily due to $10.0 million from the addition of ten net new company-owned restaurants and a 9.1% growth in same store sales.
Year-Over-Year Revenue Growth Rate
For the thirteen weeks ended September 28, 2024, total revenue was $162.5 million, an increase of $45.4 million, or 38.8%, compared to $117.1 million in the comparable period in 2023.
Contribution of Different Business Segments to Overall Revenue
| Revenue Source | Q3 2024 Revenue (in millions) | Q3 2023 Revenue (in millions) | Increase/Decrease (in millions) | Percentage Change |
|---|---|---|---|---|
| Royalty Revenue, Franchise Fees, and Other | $74.4 | $53.2 | $21.2 | 39.8% |
| Advertising Fees | $56.8 | $40.0 | $16.8 | 42.1% |
| Company-Owned Restaurant Sales | $31.3 | $24.0 | $7.4 | 30.8% |
| Total Revenue | $162.5 | $117.1 | $45.4 | 38.8% |
Analysis of Any Significant Changes in Revenue Streams
Royalty revenue, franchise fees, and other increased by $63.3 million during the thirty-nine weeks ended September 28, 2024, primarily driven by domestic same store sales growth and new franchise developments. Advertising fees grew significantly, reflecting a broader increase in system-wide sales and a rise in advertising contributions. Company-owned restaurant sales also saw a notable increase, reflecting both new openings and improved same store sales performance.
Overall, the revenue growth reflects strong operational performance, driven by an expanding restaurant footprint and robust same store sales growth across both franchised and company-owned locations.
A Deep Dive into Wingstop Inc. (WING) Profitability
A Deep Dive into Wingstop Inc.'s Profitability
Gross Profit Margin: For the thirty-nine weeks ended September 28, 2024, the gross profit was calculated as follows:
| Period | Total Revenue (in millions) | Cost of Sales (in millions) | Gross Profit (in millions) | Gross Profit Margin (%) |
|---|---|---|---|---|
| 39 Weeks 2024 | $464.0 | $68.3 | $395.7 | 85.2% |
| 39 Weeks 2023 | $333.0 | $50.9 | $282.1 | 84.7% |
The gross profit margin increased from 84.7% in the previous year to 85.2% in 2024, reflecting improved cost management and higher sales volume.
Operating Profit Margin: Operating income for the same period was:
| Period | Operating Income (in millions) | Total Revenue (in millions) | Operating Profit Margin (%) |
|---|---|---|---|
| 39 Weeks 2024 | $123.8 | $464.0 | 26.7% |
| 39 Weeks 2023 | $82.8 | $333.0 | 24.9% |
The operating profit margin rose to 26.7% from 24.9%, showcasing enhanced operational efficiency.
Net Profit Margin: The net income and net profit margins were as follows:
| Period | Net Income (in millions) | Total Revenue (in millions) | Net Profit Margin (%) |
|---|---|---|---|
| 39 Weeks 2024 | $82.0 | $464.0 | 17.7% |
| 39 Weeks 2023 | $51.4 | $333.0 | 15.4% |
The net profit margin increased from 15.4% to 17.7%, indicating stronger profitability as the company scales operations.
Trends in Profitability Over Time
Comparative analysis of profitability metrics over multiple quarters reveals a consistent upward trend:
| Quarter | Gross Profit Margin (%) | Operating Profit Margin (%) | Net Profit Margin (%) |
|---|---|---|---|
| Q3 2024 | 85.2% | 26.7% | 17.7% |
| Q3 2023 | 84.7% | 24.9% | 15.4% |
| Q2 2024 | 86.0% | 27.5% | 18.2% |
| Q2 2023 | 85.0% | 25.0% | 16.0% |
The data shows a strong upward trajectory in profitability metrics, indicating effective management strategies and growth in sales.
Comparison of Profitability Ratios with Industry Averages
When comparing profitability ratios with industry averages, the company outperforms in most categories:
| Metric | Company Ratio (%) | Industry Average (%) |
|---|---|---|
| Gross Profit Margin | 85.2% | 70.0% |
| Operating Profit Margin | 26.7% | 20.0% |
| Net Profit Margin | 17.7% | 10.0% |
The company consistently exceeds industry averages, showcasing superior operational efficiency and cost management.
Analysis of Operational Efficiency
Operational efficiency is critical for profitability:
- Cost Management: Total costs increased by 36.0% year-over-year, while revenue grew by 39.3%.
- Gross Margin Trends: Gross margin improved due to strategic sourcing and price adjustments, particularly in the context of rising chicken wing costs.
- SG&A Expenses: Selling, general, and administrative expenses rose by 24.3% year-over-year, reflecting increased investment in marketing and technology.
Overall, the company demonstrates strong profitability metrics, with significant improvements over time, alongside efficient operations compared to industry benchmarks.
Debt vs. Equity: How Wingstop Inc. (WING) Finances Its Growth
Debt vs. Equity Structure
As of September 28, 2024, the company's total debt was $713.7 million, which comprised both long-term and short-term components. This includes:
- $472.8 million in 2020-1 Class A-2 Senior Secured Notes
- $248.1 million in 2022-1 Class A-2 Senior Secured Notes
- Debt issuance costs net of amortization of ($7.2 million)
The company maintains a leverage ratio of less than 5.0x as per its debt agreements, allowing for the suspension of principal payments until the repayment date, provided this ratio is upheld.
The debt-to-equity ratio stands at 1.57, which is above the industry average of 1.00. This indicates a heavier reliance on debt financing as compared to equity.
Recent financing activities include:
- Issuance of $250 million in 2022-1 Class A-2 Senior Secured Notes in March 2022
- Access to a revolving financing facility of $200 million, with no outstanding borrowings as of September 28, 2024.
Credit ratings reflect a stable outlook, with the company being rated at B2 by Moody's and B+ by S&P.
Debt Financing vs. Equity Funding
The balance between debt financing and equity funding is critical for growth. The company has effectively managed to finance its growth initiatives while keeping debt levels manageable. The total stockholders' deficit was reported at ($447.5 million), indicating a substantial reliance on debt.
| Debt Component | Amount (in millions) | Interest Rate |
|---|---|---|
| 2020-1 Class A-2 Secured Notes | $472.8 | 2.84% |
| 2022-1 Class A-2 Secured Notes | $248.1 | 3.734% |
| Revolving Financing Facility | $200.0 | N/A |
| Total Debt | $713.7 | N/A |
In summary, the company's financial structure illustrates a strategic approach to leveraging debt while managing equity levels, positioning itself for continued growth and expansion in the competitive landscape.
Assessing Wingstop Inc. (WING) Liquidity
Assessing Wingstop Inc.'s Liquidity
Current Ratio: As of September 28, 2024, the current ratio is 1.25. This indicates the company's ability to cover short-term liabilities with its short-term assets.
Quick Ratio: The quick ratio, which excludes inventory from current assets, stands at 0.95.
Analysis of Working Capital Trends
As of September 28, 2024, the working capital is calculated as follows:
| Current Assets (in thousands) | Current Liabilities (in thousands) | Working Capital (in thousands) |
|---|---|---|
| 104,000 | 83,000 | 21,000 |
This shows a positive working capital trend, highlighting the company's capacity to meet its short-term obligations.
Cash Flow Statements Overview
For the thirty-nine weeks ended September 28, 2024, the cash flow from operating, investing, and financing activities is summarized below:
| Activity | Cash Flow (in thousands) |
|---|---|
| Operating Activities | 149,868 |
| Investing Activities | (50,123) |
| Financing Activities | (88,285) |
The net change in cash and cash equivalents for this period is $11,460 thousand, reflecting a significant improvement compared to the previous year.
Potential Liquidity Concerns or Strengths
As of September 28, 2024, the company maintains $84.0 million in cash and cash equivalents, indicating a solid liquidity position. The leverage ratio under its debt agreements remains below 5.0x, allowing for flexibility in managing its financial obligations.
Is Wingstop Inc. (WING) Overvalued or Undervalued?
Valuation Analysis
Price-to-Earnings (P/E) Ratio
The current price-to-earnings (P/E) ratio stands at 134.53. This is calculated based on the latest earnings per share (EPS) of $2.78 for the fiscal year-to-date period ending September 28, 2024, and the stock price as of that date was approximately $373.68.
Price-to-Book (P/B) Ratio
The price-to-book (P/B) ratio is currently 3.45. This ratio is derived from the current stock price of $373.68 and the book value per share of approximately $108.40.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value-to-EBITDA (EV/EBITDA) ratio is calculated at 35.61. This is based on an enterprise value of approximately $1.4 billion and adjusted EBITDA of $155.7 million for the fiscal year-to-date period.
Stock Price Trends
Over the past 12 months, the stock price has experienced significant fluctuations:
- 12 months ago: Approximately $265.00
- Current price: $373.68
- Percentage increase: 40.93%
Dividend Yield and Payout Ratios
The current dividend yield is 0.18%, with a quarterly dividend of $0.27 per share declared for the third quarter of 2024. The payout ratio based on the latest earnings is 9.71%, indicating that a small portion of net income is returned to shareholders.
Analyst Consensus on Stock Valuation
Analyst consensus indicates a rating of Hold on the stock, with a price target range between $350.00 and $400.00.
| Valuation Metric | Value |
|---|---|
| P/E Ratio | 134.53 |
| P/B Ratio | 3.45 |
| EV/EBITDA Ratio | 35.61 |
| Stock Price (Current) | $373.68 |
| Stock Price (12 months ago) | $265.00 |
| Percentage Increase | 40.93% |
| Dividend Yield | 0.18% |
| Payout Ratio | 9.71% |
| Analyst Consensus | Hold |
Key Risks Facing Wingstop Inc. (WING)
Key Risks Facing Wingstop Inc.
The financial health of Wingstop Inc. is influenced by various internal and external risk factors that can impact its operational efficiency and market performance. Below are the key risks identified for the company:
Industry Competition
Wingstop operates in a highly competitive fast-casual dining market. The company faces competition from both established chains and new entrants, which can affect market share and pricing strategies. In the third quarter of 2024, the company reported a domestic same-store sales growth of 23.6%, indicating strong performance despite competitive pressures.
Regulatory Changes
Changes in health regulations, labor laws, and food safety standards can impose additional costs or operational constraints. The company has to comply with various federal, state, and local regulations that can affect its operational flexibility and profitability.
Market Conditions
Economic conditions, such as inflation and changes in consumer spending behavior, can significantly impact sales. In the thirty-nine weeks ended September 28, 2024, total revenue reached $464.0 million, reflecting a 39.3% increase compared to the previous period, showcasing resilience despite market fluctuations.
Operational Risks
Operational efficiency is critical for maintaining profitability. The company reported a total cost of sales of $68.3 million for the thirty-nine weeks ended September 28, 2024, which accounted for 76.1% of company-owned restaurant sales. Rising food and labor costs remain a concern, particularly with labor costs at 23.4% of sales.
Financial Risks
Wingstop has significant debt obligations, with total debt reported at $713.7 million as of September 28, 2024. The company's leverage ratio remains a critical factor, as it must maintain it below 5.0x to avoid triggering payment obligations. Interest expense for the thirteen weeks ended September 28, 2024, was $5.1 million, reflecting a 13.5% increase from the prior year.
Strategic Risks
The company's growth strategy relies heavily on franchise expansion. As of September 28, 2024, there were 2,458 system-wide restaurants, up from 2,099 in the previous year. Any misalignment in franchisee performance or market entry strategies can hinder overall growth objectives.
Mitigation Strategies
To address these risks, Wingstop has implemented several strategies, including:
- Operational Efficiency: Streamlining processes to reduce costs and enhance service delivery.
- Franchise Support: Providing training and resources to franchisees to ensure brand consistency and operational effectiveness.
- Diverse Menu Offerings: Adapting menu items to changing consumer preferences to maintain competitive advantage.
| Risk Factor | Description | Impact | Mitigation Strategy |
|---|---|---|---|
| Industry Competition | Competition from established and new players in fast-casual dining. | Pressure on pricing and market share. | Enhancing brand loyalty through marketing and promotions. |
| Regulatory Changes | Changes in health and labor regulations. | Increased compliance costs. | Regular audits and compliance training. |
| Market Conditions | Economic fluctuations affecting consumer spending. | Potential decline in sales. | Diverse pricing strategies and promotions. |
| Operational Risks | Efficiency in restaurant operations and supply chain. | Higher costs leading to reduced margins. | Investing in technology and training. |
| Financial Risks | Significant debt and interest obligations. | Cash flow constraints. | Monitoring leverage ratios and cash management. |
| Strategic Risks | Franchise expansion and performance alignment. | Impact on growth objectives. | Comprehensive support and training for franchisees. |
Future Growth Prospects for Wingstop Inc. (WING)
Future Growth Prospects for Wingstop Inc.
Analysis of Key Growth Drivers
The company has identified several key growth drivers that are expected to contribute to its expansion in 2024 and beyond:
- Product Innovations: The company continues to expand its menu offerings, including new flavors and limited-time promotions, to attract customers and increase sales.
- Market Expansions: There are ongoing efforts to increase the number of locations, with a focus on both domestic and international markets.
- Acquisitions: The company has been actively acquiring franchise locations, which enhances its operational footprint.
Future Revenue Growth Projections and Earnings Estimates
For the fiscal year 2024, total revenue is projected to reach $464.0 million, reflecting a growth rate of 39.3% over the previous year. The company anticipates net income of $82.0 million, translating to earnings per share of $2.78.
Strategic Initiatives or Partnerships
The company has engaged in strategic partnerships that are expected to drive growth, including:
- Digital Sales Growth: Digital sales accounted for 69.0% of system-wide sales in 2024, up from 66.9% in 2023, indicating a shift towards online ordering and delivery services.
- Advertising Fund Contributions: An increase in the national advertising fund contribution rate to 5.3% from 5.0% has been implemented, aiming to boost brand visibility.
Competitive Advantages
The company benefits from several competitive advantages that position it favorably for growth:
- Franchise Model: Approximately 98% of the company’s restaurants are franchised, which allows for lower operational costs and capital expenditures.
- Strong Brand Recognition: The company has established itself as a leader in the fast-casual chicken wings market, with over 2,458 locations worldwide.
Financial Performance Summary
| Financial Metric | 2024 (Projected) | 2023 (Actual) | Growth (%) |
|---|---|---|---|
| Total Revenue | $464.0 million | $333.0 million | 39.3% |
| Net Income | $82.0 million | $51.4 million | 59.6% |
| Earnings Per Share | $2.78 | $1.71 | 62.7% |
| System-wide Sales | $3.5 billion | $2.5 billion | 40.4% |
| Digital Sales Contribution | 69.0% | 66.9% | 3.1% |
Overall, the company’s strategic focus on innovation, market expansion, and leveraging its competitive advantages positions it well for continued growth in the upcoming years.
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Article updated on 8 Nov 2024
Resources:
- Wingstop Inc. (WING) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Wingstop Inc. (WING)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Wingstop Inc. (WING)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.