Wingstop (WING) is a company on the move, driven by its aggressive unit expansion strategy, a successful franchise model, and a strong focus on digital innovation. The company’s commitment to opening new restaurants at a rapid pace has resulted in over 300 net new restaurants in the past year alone, demonstrating its ability to grow both domestically and internationally. This expansion is fueled by the impressive success of Wingstop’s franchise model, with average unit volumes soaring from $1.5 million two years ago to over $2 million today, generating record demand for new locations. Franchisees are reaping the rewards, reporting unlevered cash-on-cash returns exceeding 70%, making Wingstop an attractive investment for current and potential brand partners.
Wingstop’s digital strategy is another key driver of growth. Digital sales accounted for 68.3% of total sales in the second quarter of 2024, highlighting the company’s ability to leverage technology to enhance the customer experience. With over 45 million digital users, Wingstop is capitalizing on its MyWingstop platform to drive engagement and conversion rates through hyper-personalization. This commitment to data-driven marketing and digital transformation is positioning Wingstop for sustained long-term growth.
In addition to its growth strategy, Wingstop is demonstrating a strong focus on enhancing shareholder value. The company’s stock repurchase program and dividend policy are tangible evidence of this commitment. During the second quarter, Wingstop repurchased 75,862 shares at an average price of $381.29. As of the end of the quarter, the company reported $96.1 million remaining under the current repurchase authorization. Furthermore, Wingstop increased its quarterly dividend by 23%, reinforcing its dedication to returning capital to shareholders. This combination of repurchase programs and dividend payouts makes Wingstop a compelling option for investors seeking both growth and income.
However, Wingstop’s journey is not without challenges. The company faces headwinds from a challenging macroeconomic environment and rising operational costs. In recent months, Wingstop’s shares have underperformed against the industry, reflecting these concerns. The company’s selling, general, and administrative (SG&A) expenses have risen significantly, increasing by $6 million year over year to $28.1 million in the second quarter. While some of this increase can be attributed to investments in digital platforms like MyWingstop, the rapid growth in short-term incentive compensation and stock-based compensation raises concerns. With projected total SG&A expenses reaching $116 million by the end of 2024, up from $111 million, cost control could become a significant issue. If growth stalls, Wingstop could find itself burdened by these escalating expenses.
Despite these challenges, Wingstop’s ability to open new restaurants at a record pace, combined with its high franchisee returns and increasing digital sales, underscores its long-term growth potential. The company’s commitment to shareholder value through stock buybacks and dividend increases further enhances its appeal for investors seeking both capital appreciation and income. However, investors should remain mindful of the challenges posed by rising operational costs and a challenging economic environment. As Wingstop continues to invest heavily in technology and expansion, cost management will be crucial for sustaining profitability. Overall, Wingstop’s growth drivers and strategic initiatives make it a compelling stock to retain for now, as it navigates these headwinds and capitalizes on future opportunities.
