August's stock appreciation drove home the sense that, so far, it's been a rewarding year to hold the stock. Shares have gained 29% to date as of mid-September, but when we include a special dividend of $2.90 per share which Wingstop paid out to shareholders in July, the company's stock has pocketed a 44% total return in 2016.
Yet Wingstop still faces similar challenges to its competitors in the sports-centered fast casual restaurant space. Comps growth for next year is projected by management to fall in the low single digits -- which doesn't leave a lot of room for error before comps turn flat or, worse, head into negative territory.
In addition, rising commodity prices in the form of higher chicken wing costs present a margin challenge. Last quarter, bone-in chicken wing costs climbed 8%, which is quite a leap on an annualized basis. Spiraling wing costs were a primary factor behind a 300-basis-point rise in cost of sales among company-operated restaurants.
Overall, investors appear confident that Wingstop can deliver ample earnings growth in the near future. Aggressive franchising, fast total unit development, and an international expansion plan, which is initially focused on wealthy Middle Eastern countries like Saudi Arabia, all point to the possibility of sustained success. But in the near term, it's not too early to anticipate the chain's third-quarter report, due out in November, to seek confirmation that Wingstop's recently adjusted full-year targets can be met.