Chicken wing chain Wingstop (WING) sees its stock fly higher this week after topping fiscal first-quarter earnings estimates on the top and bottom lines. Wingstop CEO Michael Skipworth sits down in-studio with Yahoo Finance's Josh Lipton and Brooke DiPalma to talk about the restaurant's same-store sales and menu pricing.
"Consumers engage with us on average three times a quarter, once a month — it's an indulgent occasion. So what we have found is that when consumers are feeling pressure, are wanting to pull back, they pull back on those high-frequency fast food occasions," Skipworth says. "They save up and almost want to reward themselves... What we saw in our business in 2023, the fact that we were bringing in a lot of new guests and we were actually seeing that frequency uptick..."
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JOSH LIPTON: Wingstop posting a big earnings beat on the top and bottom lines earlier this week. The stock trading higher today after a slight dip post earnings, with much of the Street suggesting it was caused by perhaps a more cautious outlook than expected. Wingstop CEO Michael Skipworth joins us now along with our very own Brooke DiPalma. Welcome to you both.
Michael, let me start here with this outlook. So domestic same-store sales will grow mid-single digits this year. And that did track with analysts' expectations. But maybe some on the Street were suggesting it was kind of conservative in their opinion. But walk us through the forecast. What are you seeing?
MICHAEL SKIPWORTH: Yeah. Our business was really strong in 2023. We had a record year actually the strongest year ever for the brand. And we delivered an 18% plus same-store sales growth, which was primarily driven by transactions. And that's against an industry backdrop. That's actually measuring declines in transactions.
And so we have a lot of momentum in our business. And we saw that momentum accelerate. And so for us, we're really confident in our ability to continue to drive same-store sales growth. And we commonly will anchor on R3 to five year outlook to start the year. But we feel confident in our ability to continue to grow on a record year, which is pretty remarkable when you stack that guide of mid-single digit same-store sales to what we delivered in 2023.
BROOKE DIPALMA: Yeah. Michael, you definitely set the bar high there for investors. That was certainly the case here. I do want to hit on that increase in frequency among lower-income consumers. You seem like you were a one-off in the major-- you know, the overall industry. What do you think the state of your consumer is? And do you feel like you are sort of immune to that pullback among low-income consumers.
MICHAEL SKIPWORTH: Wingstop, we often refer to ourselves as being in a category of one. And consumers were not a high frequency occasion. Consumers engage with us on average three times a quarter, once a month. It's an indulgent occasion. And so what we have found is that when consumers are feeling pressure, are wanting to pull back, they often pull back on those high-frequency fast food occasions. And they save up and almost want to reward themselves for that indulgent Wingstop occasion.
And so what we saw in our business in 2023 was the fact that we were bringing in a lot of new guests. And we were actually seeing that frequency uptick, because we were bringing in New guests through a new occasion for us, chicken sandwich. And then from there, they're learning, like the rest of our guests, to navigate the rest of our menu. And we're seeing an uptick in frequency in that low-income bracket. But we're actually seeing an uptick in frequency in every income bracket, which is really exciting for us.
JOSH LIPTON: That is interesting. I want to talk to you, too, Michael, about pricing. So you're going to raise prices, I guess, by about 1% to 2%. It sounds like there's a bigger price hike, though, coming to California. Why is that?
MICHAEL SKIPWORTH: We've taken a historical approach of being very disciplined around pricing. And we do a historical cadence of about one to two points of price a year. And that's allowed us to protect that value perception score with our consumers. And in 2023, we actually measured improvements in our value scores with guests, which is really unique in the industry.
In California, there's about to become a really high increase to minimum wage. And so our brand partners there, our franchisees are going to have to take a little bit more price. But our model is a bit unique, in that we don't have a really big roster. Our average unit volumes are $1.8 million now. And you can actually run a Wingstop with as few as four team members.
So we do have to take a little bit of price to offset the increase in minimum wage in California. But it's not materially above what we're going to be taking as far as the whole system of one to two points as the system. But in California, it will be somewhere around that mid-single digit range.
BROOKE DIPALMA: And do you plan to add more automation to stores given this uptick in labor inflation?
MICHAEL SKIPWORTH: I think for us, our labor profile is so efficient to start. With as few as four team members, it's hard to take much labor out. What we're actually seeing is as we continue to grow our average unit volumes, which just in the last year have increased on average $200,000, it's almost as though our labor lines becomes a little bit fixed and we start to see leverage on that line. We're able to put more sales through the restaurant without adding labor.
JOSH LIPTON: And let's talk about competition for a second, Michael. Large national chains moved into the category, Popeyes for example, right? I hear they did pretty well with it. When you think about Wingstop, what do you think about in terms of your competitive advantages?
MICHAEL SKIPWORTH: I think for us, Josh, we actually love it when other brands promote wings, because if consumers are aware of Wingstop, there's really not a decision tree, they choose Wingstop. And so what we've seen historically is when other brands are out there promoting wings, it's actually a tailwind for our business. And I think it goes down to the quality and the value that we deliver to our consumers.
Our wings are cooked to order every time. They're hand-sauced and tossed in our 11 craft-made flavors that really are unique. And so consumers once-- we call it that first bite experience. But once they try Wingstop, they're hooked.
BROOKE DIPALMA: I do want to hit quickly on chicken prices. We have seen them moderate as of late. But of course, it was a major headwind in 2023. How is early 2024 shaping up? And do you expect it to be another headwind this year?
MICHAEL SKIPWORTH: What's exciting for us is we've made a lot of progress in our supply chain strategy. And that strategy is centered around minimizing the volatility that our brand partners see in food cost. And we actually have a pretty good outlook and have structured agreements with our strategic supplier partners to where-- we're going to solve for a food cost this year that is in our target of mid 30% range.
And at that range, on that average unit volume of $1.8 million, our franchisees are enjoying a less than two-year payback on their investment in Wingstop, which is fueling unit growth. 2023 was a record year for us, 255 net new restaurants. But even after opening that many restaurants, we have our brand partners signing up for more. 95% of the restaurants that we opened are existing brand partners reinvesting in Wingstop, which I think is one of the strongest statements you can make around the health of the unit economics.
JOSH LIPTON: Mike, I'll get it out in here this. When you're at a Wingstop, what's your go-to wing?
MICHAEL SKIPWORTH: I am an original hot guy. All flats.
BROOKE DIPALMA: Plain and simple.
MICHAEL SKIPWORTH: All flats.
JOSH LIPTON: Yeah. I'm getting hungry just thinking about it. Michael, thank you so much. Appreciate it. And Brooke, thank you as well.