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Wingstop (NASDAQ:WING)
Q3 2019 Earnings Call
Oct 30, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Wingstop Inc.'s fiscal third-quarter 2019 earnings conference call. Please note that this conference is being recorded today, Wednesday, October 30, 2019. On the call today, we have Charlie Morrison, chairman and chief executive officer; and Michael Skipworth, executive vice president and chief financial officer.

I would now like to turn the call over to Michael. Michael, please go ahead.

Michael Skipworth -- Executive Vice President and Chief Financial Officer

Thank you, and welcome. Everyone should have access to our fiscal third-quarter 2019 earnings release. A copy is posted under the Investor Relations tab on our website at wingstop.com. Our discussion today will include forward-looking statements.

These forward-looking statements are not guarantees of future performance and therefore you should not place undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause our actual results to differ materially from what we expect. Our recent SEC filings contain a detailed discussion of the risk that could affect our future operating results and financial condition. We also use certain non-GAAP financial measures that we believe can be useful in evaluating our performance.

The presentation of this information -- this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are contained in our earnings release. Lastly, for the Q&A session, we ask that you please each keep to one question and a follow-up question to allow as many participants as possible to ask a question. With that, I would like to turn the call over to Charlie.

Charlie Morrison -- Chairman and Chief Executive Officer

Thank you, Michael, and good morning. We appreciate you joining us for our quarterly earnings call. We celebrated our 25th anniversary as a brand in the third quarter, and if you have read the release that Michael just referenced, then you can understand that we have a lot to celebrate here at Wingstop. Our third-quarter performance was exceptional.

We opened 37 net new restaurants, ending the quarter with 1,340 Wingstop restaurants. Our systemwide sales grew by 21.6%. Same-store sales for the quarter increased 12.3%, driven primarily by transaction growth and represents an acceleration in the two-year comp. We are well on our way to delivering an industry-leading 16th consecutive year of positive same-store sales growth.

This strong top-line growth and leverage on our P&L translated to adjusted EBITDA of $15.4 million, up 25.8% over the prior year, and earnings per share of $0.20. These strong third-quarter results, as well as the fact that we are raising our full-year guidance, is a testament to the effectiveness of our long-term strategies, which include driving same-store sales growth by growing brand awareness and innovation, maintaining best-in-class unit economics for our brand partners, and continuing to expand our global footprint. We are excited about the positive momentum in our business and we believe our focus on these strategic pillars along with the investments we made this year have helped build the foundation for sustained growth for the long term. We previously outlined some of the changes we put in place to deliver on our first strategic pillar, driving same-store sales growth through brand awareness and innovation.

As you may recall, on January 1st of this year, we increased the national advertising fund contribution rate from our brand partners from 3% to 4% of top-line sales. This additional funding enabled us to make key strategic investments to increase our level of TV, media purchases and upgrade the quality of our creative messaging platform. This investment allowed us to deliver two 12-week national TV campaigns, maintain our always-on digital presence and increase our local market advertising in the periods where we are not on national TV, yielding a fully integrated advertising effort to drive sustained top-line growth. We launched our second 12-week national TV campaign of the year at the beginning of September.

The campaign is focused on continuing our brand-building message Where Flavor Gets Its Wings, which highlights the first bite experience of the crave-able flavors that makes Wingstop so popular. This campaign has been successful in building awareness and the increasing conversion of those aware to more occasions, as we have seen our frequency levels increase along with the addition of new guests to the brand, all of which tied back to the acceleration in our same-store sales. We also launched a national test during the quarter leveraging whole three-part chicken wings. This test is key to our strategy of mitigating the volatility that we see in commodity markets due to the price of bone-in chicken wings and improving the overall unit economics for our brand partners.

We bundle these smaller whole wings in a value offering that's promoted on our app, as well as digital messaging, all in an effort to gauge guest engagement of the product while taking the pressure off the jumbo chicken wings during their strongest seasonality. Overall, we were pleased with what we learned from the test and we'll use our learnings to continue to find ways that we can leverage purchasing whole birds as a way to mitigate the volatility of wing prices. Michael will update you later on the progress we're seeing during the fourth quarter on jumbo wing prices that we believe is indicative of the impact this strategy can have. We also continue to focus on technological innovation as a key driver of long-term sustained growth for Wingstop.

We have previously stated the goal of digitizing every transaction at Wingstop. At the beginning of 2019, we launched our proprietary custom-built online ordering site and mobile app, which has improved the guest experience and resulted in increased conversion from users who visit our consumer-facing digital assets. Digital orders are important because they carry a $5 higher average ticket and we think we can continue to drive digital sales without employing discounts or incentives like other brands do. As you may have seen in our earnings release, digital sales accounted for 36% of domestic systemwide sales in the third quarter, an increase of over 1,000 basis points compared to the prior year.

The other area of innovation is the rollout of delivery to our domestic restaurants. Based on two years of profitable testing, we know that delivery offers a high sales mix and highly incremental occasion to Wingstop as new guests that did not prefer takeout as an option will choose delivery. As a reminder, roughly 75% of Wingstop transactions are takeouts, and with our high average check and focus on feeding large groups, we believe delivery is a perfect addition to the Wingstop offering. In late 2018, we began a scaled rollout of delivery across the domestic system and ended the third quarter with 75% of our domestic restaurants offering delivery.

I'm excited to tell you that as of today we have already achieved our 2019 target of offering delivery at 80% of our locations and now expect to exceed 90% of domestic locations offering delivery by the end of 2019. This will put us in a great position for 2020, where we can leverage our national TV advertising to promote the delivery channel for the first time as a brand. These same-store sales drivers combined with higher new restaurant opening sales have led to an increase in our overall domestic system average unit volume. Our domestic system average unit volume exceeded $1.2 million for the first time in the third quarter.

Growing our average unit volume allows us to leverage the efficient operating model of our 1,700-square-foot restaurant, which, coupled with our simple menu and high off-premise product consumption, helps sustain our best-in-class unit economics. With an average initial investment of $380,000, our domestic target year one average unit volume for Wingstop is $820,000. We believe our brand partners can achieve a year two unlevered cash-on-cash return of approximately 35% to 40%. At our domestic system average unit volume of $1.2 million, we believe these returns exceed 50%.

These industry-leading returns are fueling continued new unit growth and the reason that existing franchisees continue to reinvest and grow with the Wingstop system. As a reminder, existing franchisees comprise approximately 80% of the pipeline for new unit development. These best-in-class unit-level economics continue to provide us with a strong domestic pipeline for new restaurants. But that is only half of the global expansion opportunity.

Our first international brand partner in Mexico, who is now our largest brand partner with over 85 restaurants, just signed an agreement in the third quarter to expand their development in Mexico to 200 total restaurants, more than doubling our existing restaurant count in Mexico. In addition, in September, we opened the second Wingstop in London. If you recall, this is the second location in the U.K. where we're leveraging a new speed of service platform that allows us to provide the same great Wingstop experience while reducing the average transaction time from 16 to 21 minutes to as little as five to eight minutes on average.

While we are only open for a few weeks, we are encouraged by the strong start of this new restaurant like its predecessor in London. We will further expand our learnings on the speed of service platform when we open our first Wingstop in France, which we anticipate opening in late November, also leveraging this key method. The continued strength of the domestic businesses, as well as key milestones in our international business provide us the confidence in our global unit expansion strategy, as well as our full-year guidance, which Michael will refer to later. Finally, we just returned earlier this month from our global brand partner convention that was held in Las Vegas.

I'm encouraged by the energy and enthusiasm of our brand partners as they look toward future growth. The convention highlighted our focus on our core strategies and including learning labs and a supplier showcase that enabled brand partners to engage with us on our vision of becoming a top 10 global restaurant brand. We also took some time to celebrate our collective success, as well as the tremendous momentum in the business. However, with that success comes the responsibility of all of us to make sure that we are focused on giving back to the community.

At the convention, we unveiled our corporate social responsibility and sustainability platform, which is aimed at establishing efforts focused on our guests, team members, brand partners, supplier partners, shareholders, and those in the community in which we serve to ensure that we act in the best interest of each. We highlighted two key areas of our CSR strategy: the expansion of Wingstop charities as our platform to give back to the community and a focus on reducing food waste through our supply chain. Wingstop charities is comprised of two elements: the Wingstop Foundation, which provides assistance to company and franchisee team members in times of personal crisis; and Wingstop charities, whose mission is to engage youth in our communities in the pursuit of their passions. During our convention, we saw both of these come alive and also raise the needed funds to ensure that we sustain our efforts.

I would like to encourage you to go to wingstopcharities.org to learn more. We also spent time with our supplier partners, celebrating our shared success based on the growth we have seen over the years. But at the same time, we discussed the importance of making sure that we are focused on reducing food waste at all levels of the supply chain and using every effort to get unused but otherwise good food into the hands of those who need it. Over time, we will begin to implement policies with our supplier partners to ensure that these efforts are tracked and measured.

We are fortunate to have such great support from our suppliers and brand partners as they play a critical role in fueling our growth, as well as the positive impact that Wingstop can have on the world. In closing, our great third-quarter numbers are the result of our focus on the right strategic growth pillars for the brand. None of this would be possible without the hard work and efforts of our brand partners and our team members, and I'm confident that our continued execution against our strategy will continue to deliver best-in-class returns for our brand partners and our shareholders. With that, I'll turn it over to Michael.

Michael Skipworth -- Executive Vice President and Chief Financial Officer

Thank you, Charlie. As you heard from Charlie, we delivered another quarter of strong growth. We ended the third quarter with a global footprint of 1,340 restaurants, reflecting 37 net new restaurants in the quarter. Systemwide sales increased by 21.6% over the prior-year quarter, totaling $383.5 million.

Complementing the unit growth was our domestic same-store sales growth of 12.3% in the quarter, which was 18.6% on a two-year basis. This top-line growth translated to total revenue of $49.9 million for the quarter. Royalties, franchise fees, and other revenue increased $4.1 million to $21.9 million, driven primarily by 121 net new franchise restaurants opening since the third quarter of last year and the 12.3% domestic same-store sales growth. Advertising fees and related income increased $5.4 million to $14.1 million due primarily to the increase in the contribution rate to our national ad fund from 3% to 4% of gross sales in fiscal-year 2019, as well as the 21.6% growth in systemwide sales.

Our company-owned restaurant sales increased $2.1 million or 17.7% to $13.9 million. This increase was due to the same-store sales growth of 11.9% and the acquisition of four franchise restaurants since Q3 of 2018. In August, we completed the acquisition of a restaurant from a single unit brand partner in our home market of Dallas-Fort Worth, bringing us to 30 company-owned restaurants. Cost to sales as a percentage of company-owned restaurant sales increased by 630 basis points compared to the third quarter last year.

This increase was primarily due to 22% increase in the cost of bone-in chicken wings. Also contributing to the increase was the higher contribution rate to our national ad fund, increasing from 3% to 4%; labor and other operating expenses related to the three Kansas City restaurants acquired in late 2018; and third-party delivery commissions. As we discussed in our last earnings call, our renegotiated terms with DoorDash were not implemented until the end of the third quarter. We expect the fourth quarter to reflect the economics associated with our updated DoorDash agreement.

As Charlie alluded to earlier, while wing prices did not move a penny in the third quarter, we are encouraged by the recent relief we have seen in the Urner Barry pricing for jumbo wings. Based on recent trends, we expect wing inflation for the fourth quarter to be 15%, which aligns with our prior full-year estimate of 30% inflation for 2019. Advertising expenses increased $4.2 million to $12.7 million in conjunction with the increase in the ad fund contribution rate. Also to remind everyone, advertising expenses are recognized the same time the related advertising revenue is recognized and does not necessarily correspond to the actual timing of the related advertising.

Selling, general, and administrative expenses were $13.5 million in the quarter, which is a $3.2 million increase versus the third quarter of 2018. This was driven primarily by an increase in stock-based compensation expense of $1.3 million relating to the company's year-to-date performance and $1.4 million increase in advertising-related expenses recorded in SG&A, which has an equal and offsetting amount recorded in advertising fee revenue. The balance of the increase was driven by investments in technology and other strategic initiatives as we continue to position the organization for the next phase of growth. Adjusted EBITDA, a non-GAAP measure, increased 25.8% to $15.4 million for the third quarter.

There's a reconciliation table between adjusted EBITDA and net income to its most directly comparable GAAP measure included in our earnings release. Net income in the third quarter was $5.9 million or $0.20 per diluted share, down from $0.21 in the prior-year period. This decline was the result of the higher interest expense in 2019, which we guided to in our prior earnings call, as well as our effective tax rate for the quarter of 23.4%, compared to a 19.4% tax rate in the third quarter of last year. The higher interest expense is the result of a higher debt balance and applicable interest rate related to our securitized debt that we completed in November of last year, which has a full-year impact of $0.19 per share when comparing 2019 earnings per share to the prior year.

As of the end of the third quarter, we had $309 million in net debt. We ended the third quarter with our net debt to trailing 12-month adjusted EBITDA at 5.6 times. We remain comfortable with this level of leverage and we believe over the long term we will continue to delever through a combination of adjusted EBITDA growth and strong free cash flow generation. We remain committed to returning capital to the shareholders through our quarterly dividend, which is targeted at approximately 40% of free cash flow.

Our board of directors declared a quarterly dividend of $0.11 per share of common stock. This dividend, totaling approximately $3.2 million, will be paid on December 13th to stockholders of record as of November 29. We're consistently evaluating the best use of excess capital and feel our quarterly dividend is an important part of our commitment to our shareholders. Now turning to guidance.

As Charlie referenced earlier, we are reiterating our prior unit growth outlook for the full year of 2019 of 136 to 142 net new restaurants. Based on the strong momentum in the business through the first three quarters of 2019, we are raising our full-year outlook for the following. Domestic same-store sales growth is now expected to be between 10% and 11%, previously high single-digit; and fully diluted adjusted earnings per share is now estimated to be between $0.75 and $0.77, up from $0.74 to $0.76, reflecting 29.8 million shares outstanding. Additionally, we are also updating our SG&A guidance.

We now expect SG&A to be between $53.5 million and $55.5 million, previously between $52 million and $55 million. Consistent with the last quarter, we included the reconciliation on our earnings release from SG&A as reported to an adjusted SG&A number that excludes transaction fees, noncash stock-based compensation, and is further adjusted for convention and marketing related items, which items have an equal and offsetting contribution in revenue and do not impact profitability metrics. Let me provide a few updates on each of the components that are included in the SG&A reconciliation. Convention cost of $1.7 million, previously $2 million.

Expenses related to national advertising are between $7.7 million and $8.2 million, the prior estimate was between $7.3 million to $7.7 million. Stock-based comp of $6.5 million to $6.7 million, previously $5.9 million to $6.4 million. Adjusting for these components, we expect adjusted SG&A for 2019 to be between $37.6 million and $38.9 million, narrowing our range from our prior guidance. Before opening the call for questions, we wanted to comment on our new corporate headquarters that we announced in June.

We closed on the 80,000-square-foot building on September 10th, funding the $18.3 million purchase price with cash on hand. We are not anticipating any significant P&L impact for the new headquarters in 2019. As we finalize the design plans to build up the new space and the overall timing of our move, we will provide an update as part of our 2020 outlook in our next earnings call. In closing, we're focused on the right strategic pillars that give us confidence in our long-term growth algorithm of low single-digit same-store sales and 10% plus unit growth, which we believe will continue to deliver best-in-class returns.

Thank you all for joining us today. We will now be happy to answer any questions that you may have.

Questions & Answers:


Operator

Thank you. [Operator instructions] The first question today comes from David Tarantino with Baird. Please go ahead.

David Tarantino -- Robert W. Baird -- Analyst

Good morning. Congratulations on such strong results. Charlie, I just wonder conceptually if you could talk about your plan for 2020 at this point. I mean, you obviously are going to be cycling some very big comparisons.

So perhaps can you talk about what the sales-driving initiatives are that you think can help to sustain the positive comps as you have to roll over these big comparisons?

Charlie Morrison -- Chairman and Chief Executive Officer

Good morning, David. Thanks for the question. While I can't provide specific insight into the outlook for 2020, what I can point to is the strength of these strategic pillars that we have been talking about, frankly, since our IPO centered on continuing to scale our national advertising efforts, the expansion of digital and delivery as key drivers of our overall business platform. And I think you're seeing even this year even in this most recent quarter, we have been able to demonstrate the ability to lap strong performance with equally if not better strong performance.

And that has been a hallmark of this brand for a number of years and I think it demonstrates just the potential and upside we have to work our way toward our long-term vision of being a top 10 restaurant brand. That said, a couple of areas to call out. Number one, we highlighted that we wanted to be fully rolled out with delivery either this year or into next year. We are ahead of schedule, which is good news.

We do anticipate leveraging our national TV advertising with the delivery message. It won't be the sole message, but it certainly will be a component part of the message. And that will be the first time that we have delivered a message to the consumer pointed toward the delivery platform. So we can expect that next year.

And then I would also call attention to the growth in systemwide sales and the dollars that that continues to produce for our national advertising efforts going into next year. So systemwide sales up over 21% this quarter is a good demonstration of continuing to fuel additional growth in the future as we continue to expand our reach to a much broader segment of consumers, which I believe -- we believe is helping fuel quite a bit of this top-line growth right now.

David Tarantino -- Robert W. Baird -- Analyst

All right. And on the national advertising, I think you mentioned -- or you have the option of increasing the spending ratio. Have you made any decision on whether you plan to do that for 2020?

Charlie Morrison -- Chairman and Chief Executive Officer

Yes. We do not plan to do that for 2020. We feel it's in the best interest of the brand long term that we hold that option back. And given the momentum and strength of the comp and what I just called out a minute ago in terms of the growth drivers that we believe can carry us forward for some period of time, we don't see the need to have to increase the contribution at this time.

David Tarantino -- Robert W. Baird -- Analyst

Makes sense. Thank you very much.

Operator

Thank you. The next question comes from John Glass with Morgan Stanley. Please go ahead.

John Glass -- Morgan Stanley -- Analyst

Thanks very much, Mike. My first question is on delivery in the whole -- that whole ecosystem. As you're well aware, a large aggregator has made some fairly damning comments about the state of the industry and it's not clear to me how that's sort of shaking out. But one of the comments that come out was the relative growth rate of the delivery industry is going to slow as -- or is slowing.

As you look at your -- and obviously your comps are very strong today. But as you look at your oldest cohorts of stores, do you see any evidence of that occurring, that people are -- once you do the anniversary, there's a slowing of growth? And when you do start to see more free offers or delivery competitors, quick service competitors in certain markets, do you -- does it impact your business at all or not?

Charlie Morrison -- Chairman and Chief Executive Officer

Hi, John. Thank you for the question. First and foremost, we do not see delivery in our business slowing. And if you do go back to some of the original test markets which are nearing their second year of operation, we have seen continued organic growth in those markets -- organic because we have not been advertising delivery, but yet we still see natural growth in delivery occasions in those test markets.

So we're encouraged by the sustainability of delivery. As I mentioned on the previous question, we will -- we expect to advertise delivery going into next year. So in our first primary window, which happens late February, early March, we will incorporate delivery messaging. What I will also call attention to is that Wingstop does not through our own delivery channel do any promotional activity to offer free delivery as a means to grow the segment.

And so, while, yes, I've seen the news of the large aggregator, I would point to a very productive and very strong relationship that we have with DoorDash. We choose a great partner who is focused on the merchant, which is us at the end of the day and making sure that logistically they're well-positioned to continue to help us grow and they grow with us. And I would further say that we've aligned our financial goals together to make sure that each brand is maintaining a strong level of profitability as we grow the delivery segment.

John Glass -- Morgan Stanley -- Analyst

Michael, just one question on SG&A. If you -- you're out looking and you strip out all the one-time events to get back to a core SG&A of -- call it $38 million. What was the comparable number in 2018? My question really is as we think about the business -- you say you made investments this year, but some of them were things like stock comp and increased advertising, which is in the form of investment. But are there more underlying investments one would need to make in the business as it's growing as rapidly as it is in headcount and you talked about facilities, but whatever else.

Can you give us a sense of what core SG&A grew '19 versus '18? And then also if there's any thought high level about how you think about that core number in 2020?

Michael Skipworth -- Executive Vice President and Chief Financial Officer

John, I think if you look back actually to our previous quarter's earnings call, we did include a similar reconciliation to adjusted G&A for 2018, and that number was $33.6 million. And so that's what you can compare from an apples-to-apples perspective to the updated adjusted G&A guidance that we provided on the call. I would say as far as the areas of the investments, a lot of those are kind of behind us, and if you will, in our run rate. And they do highly correlate to the strategic initiatives that Charlie alluded to earlier that are really helping deliver some of the strong top-line growth that we've enjoyed this year so far.

And a lot of it is in people, but also in some investments that we've made whether it be technology or continuing to make investments to support national advertising.

Operator

The next question comes from Jeffrey Bernstein with Barclays. Please go ahead.

Unknown speaker

Hi. This is [Inaudible] on for Jeff. Thanks for taking the question. I just want to dig a little deeper into wing costs.

Beyond the normal dynamics and seasonality you see between the Super Bowl and March Madness, has there been any impact on competitive activity in terms of many large QSR players who seem to be engaged in a chicken war and if that has any impact on bone-in prices? And just as you look to 2020, have you heard anything from your relationship with Performance Food Group to kind of help manage that? Thanks.

Michael Skipworth -- Executive Vice President and Chief Financial Officer

Thanks for the question. This is Michael. I think what I would say about wing prices in 2019 is that they were -- we didn't see the usual seasonality that we typically see in the summer months when consumers shift to other grilling meats, if you will, in the summer to improve the overall economics there. And so actually the price remained pretty steady for almost six months, sticking at about $1.76 a pound.

And as we alluded to in our prepared remarks, we think the strategy that we put in place and tested in this quarter to execute against a whole bird strategy we think demonstrated a little bit of impact on the overall market, because just in the last two weeks we've actually seen some nice relief in the pricing of jumbo chicken wing. With that said, we don't anticipate at least what we're learning from all the prognosticators that are out there about 2020 to expect much from a meaningful inflation perspective. But we'll continue to monitor that as we get closer to 2020 and obviously in our next call as we provide guidance in our outlook for 2020.

Unknown speaker

Very helpful. Thank you very much.

Operator

The next question comes from Katherine Fogertey with Goldman Sachs. Please go ahead. Katherine, your line is open. Katherine? The next question comes from Andy Barish with Jefferies.

Please go ahead.

Andy Barish -- Jefferies -- Analyst

Hey, guys. Can you give us just kind of an update on the '20 pipeline and anything different we could expect? I know sort of last quarter you were holding back on a little bit of the international stuff until you saw more results on the new back-of-the-house and things like that. Just a broad overview would be helpful.

Charlie Morrison -- Chairman and Chief Executive Officer

Morning, Andy. Yeah. We will provide at the end of the year, as we normally do, an update on the new unit pipeline for the domestic business. As it relates to international, we are very pleased with the results of that second location that opened in London.

As I mentioned in the call, it's only been a few weeks, but very encouraged on the throughput that we get from that restaurant, that strong volumes. And one thing I would also add to our commentary regarding that new cooking platform is that our annual convention was also attended by all of our international partners as well. We showcased that platform together and talked about the importance of it as it relates to the effectiveness of that platform for new concept build-outs across the world. Very encouraging feedback from our brand partners on that.

And so we want to see again the France restaurant open, see how that goes. And then talk more with our brand partners as we spend time with them over the course of the next couple of months about what the upside opportunity is for that as we grow. But all indications are very positive. And so it would lead therefore to us being back out in the market to expand new relationships and put those into the pipeline as we go into 2020.

Operator

The next question comes from Jake Bartlett with SunTrust. Please go ahead.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Great. Thanks for taking the question. Michael, I first had a follow up on the SG&A guidance. And I think there's some maybe concern or a question about how much the gap between the advertising revenue and the advertising expenses impacted the results in the third quarter.

I think still some confusion about the interplay between those two expenses and what's in SG&A. Could you give us the amount of national advertising expense that's within SG&A kind of year to date? You've given us the guidance for the year. I think it would be helpful to understand what it's been year to date.

Michael Skipworth -- Executive Vice President and Chief Financial Officer

Yeah, Jake. I think obviously we gave the guidance for the full year and what we expect that to be. But I would say year to- ate it's been running at about $5.5 million of advertising-related expenses that are included in SG&A.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

OK. And then just to clarify, the difference between advertising revenue and advertising expenses is not that much. And so the kind of the timing or the offset is going to be found in franchise revenue?

Michael Skipworth -- Executive Vice President and Chief Financial Officer

Yes. It's in the -- yes, you're right. But the unique thing we have here -- and it's really something that's kind of, if you will, clouding our financial statements a little bit, not providing clarity -- is the accounting around this is, as our revenue grows for the total system, so do the contributions that go into the advertising income line and revenue. And then the accounting requires us to go ahead and just record or accrue up an equal amount of expenses.

And so it almost provides a false indication that G&A is growing a lot faster than in reality it actually is. Which is why we've introduced this metric of adjusted SG&A, just to provide more clarity on what the true G&A of the underlying business is growing at.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

And just to help us model there -- and I ask these kinds of detail questions because I think there's some concern about maybe the -- what was the real underlying beat on the EBITDA. But if we think about the $5.5 million in SG&A to date and the guidance for the year, what should -- how should we think about the difference between advertising revenue and expense in the fourth quarter? I think there's probably a lot of range of estimates out there and I just want to make sure we're getting that right.

Michael Skipworth -- Executive Vice President and Chief Financial Officer

Yeah. I think obviously you guys will be able to model systemwide sales based on the comp and unit growth ranges we've provided, and from there -- we've given the right kind of range, if you will, of advertising expenses and SG&A. And so you're kind of left with -- as I mentioned before, kind of, if you will, accruing the expenses up in advertising expense, you can make all that wash on the P&L and not impact adjusted EBITDA or net income.

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

OK. And then, Charlie, I'm just -- a bigger picture question. For delivery, others have -- we're increasingly seeing other concepts adding delivery partners. Is that something that you're considering? And what are the [Technical difficulty] in deciding that?

Charlie Morrison -- Chairman and Chief Executive Officer

We are not considering adding another delivery partner. As I've stated before, we are very comfortable with our relationship with DoorDash. We consider it a strategic partnership with aligned financial goals between the two companies. And our focus is centered on making sure that the logistical side of the equation is met first.

So where other brands may rely on the marketplace elements of a delivery provider to bring revenue to them, our primary focus is making sure that we have the best logistics solution that has integrated technology and a well thought through playbook for how we roll into a new market and execute delivery on a scale basis. So no anticipation of another change -- or another organization coming in.

Operator

The next question comes from Michael Tamas with Oppenheimer. Please go ahead.

Michael Tamas -- Oppenheimer -- Analyst

Hi. Thanks. You've obviously had some pretty strong sales momentum year to date and your two-year trends, like you called out, accelerated. I think the guidance for the fourth quarter implies that it sort of steps down a little bit.

So I just wondered is there something you're seeing quarter-to-date that you can comment on? Or just being a little bit conservative? Or how should we think about that? Thanks.

Charlie Morrison -- Chairman and Chief Executive Officer

Morning. Yeah. Year over year, we will see a step down in the ticket growth that we were experiencing in the prior year, which also goes hand in hand with our commentary that majority of our revenue growth or our same-store sales growth this quarter was fueled by transaction growth. Now we still have some ticket growth in the comp that is associated with our overall long-term algorithm of a point, two points of price and/or check driven by a mix of higher ticket occasions by way of digital, as well as any pricing activity that we've taken, which we've commented on.

Michael Skipworth -- Executive Vice President and Chief Financial Officer

Yes. And I think the one thing I would add just as you think about the balance of this year is we do start to lap our national rollout of delivery which we launched in Q4 of last year. We ended 2018 with roughly 30% of our system offering delivery. And so you're going to see that be a component that we have to consider for the balance of the year.

Michael Tamas -- Oppenheimer -- Analyst

Gotcha. Thanks. And just a follow up on delivery. Do you have any data on trial versus reorder rates? I think you said the vast majority are sort of like new customers.

So I'm just wondering as you're constantly searching for that new customer, are you seeing those customers that try to kind of stick with you? Thanks.

Charlie Morrison -- Chairman and Chief Executive Officer

Well, it's certainly still in the process. So in most cases what we do see is trial. I think the comment we made earlier on the sustainability of delivery in markets that we started our test in almost two years ago, and an increasing mix of delivery while still achieving top-line growth is a great indicator that we do have repeat customers. But that's a very small sample set.

So as we continue to grow and expand delivery, we'll learn a lot more about the frequency of that occasion and we can talk about that a little later on when we have better information.

Operator

The next question comes from Chris O'Cull with Stifel. Please go ahead.

Unknown speaker

Thanks, guys. This is Patrick on for Chris. I wanted to ask really quickly about franchisee profitability. I know that in the past company store performance hasn't necessarily been the best proxy.

So just curious how that -- how they're faring in the kind of cross-currents of higher sales, but also higher commodity prices and the increased ad fund contribution this year? Thanks.

Charlie Morrison -- Chairman and Chief Executive Officer

Sure. I'm not sure I align with the comment that company-owned restaurant margins are not a good proxy for franchise margins, because we essentially operate the same business, albeit at a higher volume. I think it's a great indication of food costs and the opportunity to leverage labor. And at our average unit volume of 1.2 million, our company stores enjoy an average unit volume slightly higher than that.

They do pick up a little bit of efficiency from our simple operating model. But at the same time, I think if you look at the sequential quarter-to-quarter performance in our P&L, you will see improvement in other operating expenses. That is indicative of the efficiencies we expect to see in delivery coming about primarily late in the quarter. More of that will flow through in the fourth quarter.

So we're comfortable. And the other thing I would say as it relates to the P&L, obviously the strong top-line growth. So I guess you do see labor leverage and leverage of other fixed expenses. And then lastly, as Michael commented earlier, the Urner Barry, which is the indicator for the price of chicken wings, has really started to come down rather nicely.

As of yesterday, it was at $1.59, whereas it had stayed at $1.76 for over six months, a pound for wings. So that is indicative as well of improving economic. As we all know, we have -- we enjoy one of the best operating models in the industry, but these efficiencies are going to help further improve profitability for our brand partners.

Unknown speaker

Great. Thanks for that. And then also just in terms of delivery, I'm wondering if you guys see any need to maybe speed up the advertising of DoorDash or delivery availability on the website as opposed to going straight to DoorDash? Or if there's any concern about consumers building up the habit of going through the platform as opposed to coming through the website?

Charlie Morrison -- Chairman and Chief Executive Officer

No, we don't. I think our strategy is pretty clear and we're going to stick to it as it relates to how we want to bring delivery along in the business. No need to accelerate. There's no urgency to that.

It's more about making sure that we deliver an exceptional guest experience by way of delivery and we're going to do that like we've always done very carefully and thoughtfully.

Operator

The next question comes from Joshua Long with Piper Jaffray. Please go ahead.

Joshua Long -- Piper Jaffray -- Analyst

Great. Thank you for taking my question. I wanted to see if we might be able to talk about some of the investments in toolsets, human capital and things of that nature at the store level to help support throughput. I mean, you've got great top line and great transaction growth, but curious on some of the efforts and initiatives in place to help maintain those high levels and probably some more room for upside as you go into 2020 with some new sales-driving initiatives.

Charlie Morrison -- Chairman and Chief Executive Officer

Yeah. I think we've commented on this over the past couple of quarters that it was important to us to make sure that we increase our team and invest in technology both as means to assure ourselves of scaling the business for long term growth. And so we did call out some step-function increases in G&A that Michael referenced earlier now baked into the run rate of our business. And those include further investments in our efforts to support the delivery platform here from our corporate offices and out in the field, as well as investment -- continued investments in technology and new platforms that aid in our strategy to digitize every transaction at Wingstop.

And so we've put a lot into that. I think other areas that we are making investments in that we'll talk about further as we look into 2020 include the area of international, and making sure that as we have this cooking platform optimized, that we're putting the right and appropriate amount of focus on people and resources to make sure that we scale that business thoughtfully as well.

Joshua Long -- Piper Jaffray -- Analyst

Great. Thank you.

Operator

The next question comes from Will Slabaugh with Stephens Inc. Please go ahead.

Unknown speaker

This is actually Niall on for Will. Thanks for taking the question. Just a quick one here. On pricing, can you guys mention the one to two points of price consistently taken -- I'm just wondering if you can give us your thoughts moving forward on this, say, if wing prices do remain a headwind? Or as you start to lap delivery more and more if you can expect any possible changes to this strategy long term?

Charlie Morrison -- Chairman and Chief Executive Officer

Yeah. Let me clarify something on wing prices. We don't consider them a headwind. On a percentage basis, they are up year over year, but that is not outside in terms of the absolute prices for what we would expect in our ongoing model for profitability.

The reason why they are up as high as they are is simply because in the prior year they were as low as they've been in a long time. So it's a little bit of a false read. As I mentioned a minute ago, wing prices have now dropped almost $0.20 a pound, which is excellent for our economics. So I think our cadence of pricing that we've talked about before that achieves one to two points of price into the ticket each and every year by way of a very thoughtful and predictable cadence of price increases will yield a long term sustainable approach that will not erode transaction growth.

Unknown speaker

Perfect. Thank you.

Operator

The next question comes from Jon Tower with Wells Fargo. Please go ahead.

Jon Tower -- Wells Fargo Securities -- Analyst

Great. Just a couple from me. I was curious on the new kitchen equipment that obviously is being tested internationally or in a few stores internationally. Is it being tested here in the States as well? And if so, what would be the impediment to further roll out here? It sounded like you showcased it at the annual convention.

So that's interesting. But then point two. It sounds like during the quarter, you also had tested -- or did a small online promotion of the smaller wings. And I was curious to know how that was positioned on the menu.

Was it a lower price point? And again, what would be an impediment to seeing that potentially be thrown on the menu permanently? Thanks.

Charlie Morrison -- Chairman and Chief Executive Officer

Thanks, Jon. To answer your first question, yes, we are testing that new cooking platform here in the U.S. in three stores in Dallas. We've been at it for a little over four or five months.

All indications are that it's able to deliver consistently with what we've seen overseas in terms of cooking times and quality of product. But we want to make this very carefully. What we're still working on is understanding what the impact would be on a traditional Wingstop restaurant here in the U.S. But what I can say is that it definitely has the potential to help us enter into nontraditional locations.

So that would include locations in airports or perhaps casinos or stadiums, other venues like that where the cook times need to be faster. So that opens up a great opportunity for Wingstop that's not factored into our development assumption. So I think that's the first place we would look. On the other point on the whole wings, it was a large national test that we did, which may seem unusual.

But what we wanted to do was make sure that we saw a couple of things. One, the impact that guests had for -- in terms of their engagement with the product and its effectiveness. And then second, we wanted to know what the market -- how the market would respond to the use of this product. I will call attention to the fact that this product comes from a chicken that is much smaller than we typically buy for our typical jumbo wing product.

And so we do believe that the test was effective in teaching us a little bit about consumer engagement. I do expect that we will continue to work on ways to utilize more of the entire chicken so that down the road some portion of our purchases can include whole birds, which is part and parcel to that strategy we've articulated before with PFG and some of our key chicken supplier partners. So more to come on that, but you can expect that we'll do a little bit more testing into 2020.

Jon Tower -- Wells Fargo Securities -- Analyst

Sure. Just a quick follow up on it. Which was that position -- excuse me. Was that product positioned at a more attractive price point than the traditional wings on the menu?

Charlie Morrison -- Chairman and Chief Executive Officer

It was. It was positioned only as a bundle, so we did not sell them by the piece like we would on our traditional menu. So it was a bundle of wings for a stated price point as a promotional offer, and that was the only way you could acquire these wings. You could add five to an order if you wanted to digitally.

So yes, it was an attractive price point, but not a deep discount for that matter.

Jon Tower -- Wells Fargo Securities -- Analyst

OK. Thank you.

Operator

The next question comes from Matt DiFrisco with Guggenheim Securities. Please go ahead.

Matt DiFrisco -- Guggenheim Securities -- Analyst

Thank you. Just a couple of follow ups here. With respect to delivery, I think the last call you guys focused a little bit on trying to migrate some of the traffic off of the DoorDash marketplace and to better economics being on your app. I just wondered can you give us some metrics around that or how that's progressing, the timing of that? Was that impactful in the third quarter? Or is that also something that might have more of a tailwind in the fourth quarter?

Charlie Morrison -- Chairman and Chief Executive Officer

Hi, Matt. Let me clarify one thing. The desire was not to migrate more people off the platform, but was to make sure that the economics of either platform were at least at parity and complementary to our overall business model. So the negotiation we had with DoorDash that we put in place did improve the overall unit economics for our business.

And some of that is seen in this quarter. More of that will be seen in the next quarter. But as it relates to which channel, at this point we're fairly agnostic as to which channel customers come to us in. We certainly prefer that they go through the wingsstop.com channel.

Why? Because we did raise prices on the marketplace by 10% during the quarter as part of this strategy. So the better value is had by coming through wingsstop.com. But again, that does not affect the economic model given the new approach that we have with DoorDash. The other thing I'll call attention to.

While we do enjoy all of the information we get from customers through the wingsstop.com channel, we also in our partnership with DoorDash do share in the information as well and can leverage that to our benefit. So all in all, we think that the work we've done here really positions us well for the long term.

Matt DiFrisco -- Guggenheim Securities -- Analyst

So is that 10% price increase on the marketplace that was just taken in this last quarter, was that a check driver then overall to your reported comp?

Charlie Morrison -- Chairman and Chief Executive Officer

It's not a -- I would not consider it a check driver to the overall comp. Yes. It was taken during this quarter. It was taken toward the very end of the quarter.

So very little time is in there associated with that.

Matt DiFrisco -- Guggenheim Securities -- Analyst

OK. And then I guess holistically -- last question -- can you just give us what the sort of the range of price overall is on the menu as far as contributor to the comp or to mix?

Charlie Morrison -- Chairman and Chief Executive Officer

Clarify that for me? You mean delivery specifically or in general overall?

Matt DiFrisco -- Guggenheim Securities -- Analyst

In general overall. Obviously, being one of the factors that you're taking 10% on the delivery channel. So how much in price overall?

Charlie Morrison -- Chairman and Chief Executive Officer

Keep in mind delivery currently represents a low-teens mix typically in markets where we've rolled it out, so it's not a large contributor to the overall. And then a portion of that is through the marketplace. But we usually don't provide any sort of indication as to what the traffic or mix is other than my comment earlier that the majority of our growth that we are seeing in our comp is associated with transaction growth.

Michael Skipworth -- Executive Vice President and Chief Financial Officer

Matt, this is Michael. I want to clarify one thing. The way we're treating that 10% price on marketplace is more of a surcharge, if you will. And we're not letting that have kind of a false impact, if you will, on the comp.

So it won't -- that 10% pricing on the marketplace won't be considered when we're calculating same-store sales growth.

Matt DiFrisco -- Guggenheim Securities -- Analyst

OK. So you treat that as a service fee that is netted out of your -- when you do the comp calculation?

Michael Skipworth -- Executive Vice President and Chief Financial Officer

Yes. That's true.

Charlie Morrison -- Chairman and Chief Executive Officer

Yeah. Yeah. And one thing to add to that is we don't collect the royalty off that price increase. So to Michael's point on the surcharge, that doesn't play into the comp that you'll see in terms of the ticket list.

Matt DiFrisco -- Guggenheim Securities -- Analyst

And then I guess to conclude that thought, that's not been factoring into system sales growth either, that the system sales of those.

Charlie Morrison -- Chairman and Chief Executive Officer

That is correct.

Matt DiFrisco -- Guggenheim Securities -- Analyst

Thank you. Thank you for all that detail. Last question -- I'm sorry, second last question here. Big Night In Bundle, are you going to run that again in 2019?

Charlie Morrison -- Chairman and Chief Executive Officer

We don't have any plans to run a bundle promotion in 2019 at this point.

Operator

The next question comes from Nick Setyan with Wedbush Securities. Please go ahead.

Nick Setyan -- Wedbush Securities -- Analyst

Thank you, and congrats on another great comp. I want to kind of turn a little bit to some of your non-core markets and maybe the new unit volumes. With the national advertising obviously, are you surprised that the 820K new unit target hasn't changed all that dramatically over the past five years or so? And -- or maybe you are seeing the new classes outperform that target. And also can you give comments about whether or not there are some comp differentials between your core markets and some your noncore newer geographies? Thank you.

Charlie Morrison -- Chairman and Chief Executive Officer

Nick, thank you for the questions. First on the performance of the new stores and the ramp up. We are seeing new stores open up at stronger AUVs than what we have historically experienced that would -- in reference to that 820,000 you mentioned, we are seeing them open stronger than that. This particular class of stores this year is still in its infancy.

So when we get to the point of getting into that first year, we'll comment on what that looks like. But I would also call attention to the fact that our domestic AUV has grown year over year, quarter over quarter by almost $100,000, which is indicative not only of the same-store sales growth, but the strength of those new stores opening up. I'll give you one other data point just to help give some perspective here. If you look at restaurants that opened in classes prior to 2015, the average unit volume for those restaurants on an annualized basis this quarter would be just short of $1.4 million.

So this ongoing Wingstop trend of seeing our performance out of the gates strong and just continuing to get stronger is indicated by a demonstration of a metric like that.

Michael Skipworth -- Executive Vice President and Chief Financial Officer

And the one thing I would add is that as it relates to the comp, I think both new and emerging markets, as well as some of our more established markets the comp is pretty consistent, and not only is it consistent across markets, but it's also pretty consistent across every vintage, as Charlie referenced just a second ago.

Operator

The next question comes from Andrew Strelzik with BMO Capital Markets. Please go ahead.

Unknown speaker

Hi. This is actually Dan on for Andrew today. My question is just on the digital side. So you mentioned the increased digital mix, over 1,000 basis points over the past year, which is obviously very impressive.

I guess I'm just wondering how much of this digital growth you attribute to the rapid roll out of delivery this year? Understanding that you have other digital drivers in place, is it reasonable to think that the pace of digital growth might slow moving into 2020 once delivery has been rolled out to the majority of the system? And maybe just as a broader follow up. Is there a specific level of digital mix you think you can get to over the next couple of years?

Charlie Morrison -- Chairman and Chief Executive Officer

To answer the question, I don't believe that the roll out of delivery would cause a slowing of the pace of digital growth. All delivery transactions are digital. We don't take a typical phone order or a cash transaction. So in that regard, we believe that we'll continue to see organic growth in digital, which historically has been about 400 basis points a year.

And then also we are seeing certainly the impact of delivery driving our digital mix up this year. We're up as much as 1,000 basis points year over year. So I think delivery is a driver of that. But we don't expect the mix of delivery to stay at these low teens numbers when we start to advertise.

We expect that to grow.

Operator

The next question comes from Peter Saleh with BTIG. Please go ahead.

Peter Saleh -- BTIG -- Analyst

Great. Thanks. Congrats on a great quarter. I just want to come back to the conversation around the delivery and the economics with your partner.

I think you said on multiple occasions you're aligned on economics and profitability. But how confident are you that your delivery partner is actually making money on this with the 10% surcharge? Are you paying them for demand generation or just strictly logistics? And then when you think about 2020, will DoorDash be contributing any funds to national advertising if you step up the national ads to promote delivery? Or is that coming strictly from corporate and the franchisees?

Charlie Morrison -- Chairman and Chief Executive Officer

I can comment on a couple of things here. There are just elements that I'm not going to comment on that are particular to our relationship with DoorDash. But we are not acquiring customers by way of buying them through DoorDash to fuel delivery. We're doing it purely on organic demand for the product regardless of the channel that they go through.

That does not mean that DoorDash doesn't do some advertising for Wingstop. Certainly, and as we've noted before, we expect to advertise Wingstop through wingstop.com to drive delivery in the future. As it relates to shared financial goals. Yes, the comment I made earlier is that we both desire to have a profitable transaction, and that's what we've achieved.

And we remain very confident in our partner DoorDash and their ability to deliver a long term sustainable platform for Wingstop.

Peter Saleh -- BTIG -- Analyst

Right. And then I think you also mentioned you're getting a lot of data not only from your app, but from DoorDash and you're able to leverage that. Can you talk a little bit about what you guys have learned maybe over the past six months to a year about your customer and ways in which you're leveraging the data that you're gathering?

Charlie Morrison -- Chairman and Chief Executive Officer

I think we're going to defer that to year end when we can spend a little more time after we've got the full rollout complete, to walk through that. At this point, it's still early as we've been transitioning into new markets to be able to identify any real specific information that we would consider actionable at this point.

Peter Saleh -- BTIG -- Analyst

All right. Thank you very much.

Operator

The next question comes from Andrew Charles with Cowen and Company. Please go ahead.

Andrew Charles -- Cowen and Company -- Analyst

Great. Thank you. The whole wings and the Full Flavor Fix was the first new approach and I believe you had it since becoming a public company. And was hoping you could remind us of your philosophy toward new SKUs beyond flavor events for the sauces.

And particularly, if the chicken sandwich makes sense for the brand just given your focus on diversifying product mix away from bone and wings, as well as industry buzz around these products?

Charlie Morrison -- Chairman and Chief Executive Officer

Hi, Andrew. Our focus is going to be to remain the wing expert and focus on our flavor as a key differentiator of the brand, which would not position us to make some of the decisions that other chicken chains would make to drive incremental traffic in the near term. If we believe it would be a long-term sustainable protein addition to the brand that we could integrate into our core offering, we would do that. But as of right now, there are no plans for a chicken sandwich.

And I would say that with the whole wing promotion, it's part of the broader whole bird strategy, where we know that we can really start to mitigate the volatility of food cost by acquiring more products from that whole chicken. But as of right now, a sandwich is not in consideration.

Andrew Charles -- Cowen and Company -- Analyst

Makes sense. And then in 2018, you posted national TV advertising on and off throughout the year. While in 2019, you concentrated national TV advertising into two distinct flights. Is it fair to say that based on the same-store sales performance, the concentration of TV advertising is a more effective tactic for the brand? Or are you open to contemplating to posting again just given the larger budget you're going to have in 2020?

Charlie Morrison -- Chairman and Chief Executive Officer

I think as we look forward, the cadence of our advertising will remain consistent. So yes, in 2018, in the third and fourth quarter, we did have a large window similar to what we've done this year in both our first part of the year and second part of the year. But as you look at what we're going to do going forward, we will continue to focus on two primary windows. Those create for us the efficiencies we want to see to be able to drive TRP levels up and broaden the audience by way of a more effective media buy and create the biggest opportunity, which I think we've proven this year in our performance in the most recent, as well as the first window we did this year.

So I would expect much of the same in the future.

Operator

The next question comes from James Sanderson with Northcoast Research. Please go ahead.

James Sanderson -- Northcoast Research -- Analyst

Hi. Thanks for taking the question. I just wanted to dig in a little bit more on delivery. You mentioned the 10% increase in menu prices on DoorDash.

So we're wondering how this is impacting demand from DoorDash versus delivery more broadly? And then in general, how do TV ads impact delivery demand in markets where it's relatively new? Thank you.

Charlie Morrison -- Chairman and Chief Executive Officer

To clarify a statement I made earlier, we have not been on TV and advertised delivery. And we anticipate doing that next year. So I don't know the answer to that second question. The first question is we've had no impact on the transaction performance either through DoorDash or wingstop.com.

James Sanderson -- Northcoast Research -- Analyst

No change in mix?

Charlie Morrison -- Chairman and Chief Executive Officer

No.

Operator

[Operator signoff]

Duration: 68 minutes

Call participants:

Michael Skipworth -- Executive Vice President and Chief Financial Officer

Charlie Morrison -- Chairman and Chief Executive Officer

David Tarantino -- Robert W. Baird -- Analyst

John Glass -- Morgan Stanley -- Analyst

Unknown speaker

Andy Barish -- Jefferies -- Analyst

Jake Bartlett -- SunTrust Robinson Humphrey -- Analyst

Michael Tamas -- Oppenheimer -- Analyst

Joshua Long -- Piper Jaffray -- Analyst

Jon Tower -- Wells Fargo Securities -- Analyst

Matt DiFrisco -- Guggenheim Securities -- Analyst

Nick Setyan -- Wedbush Securities -- Analyst

Peter Saleh -- BTIG -- Analyst

Andrew Charles -- Cowen and Company -- Analyst

James Sanderson -- Northcoast Research -- Analyst

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