What happened
Shares of Wingstop (WING 2.81%) flew 61.2% higher in the first half of 2020, according to data provided by S&P Global Market Intelligence, making it the top restaurant stock in that period.
The stock has bumper returns for good reason. Wingstop kicked the year off with the vision of becoming a top-10 global restaurant brand, and its plan hasn't been derailed by the COVID-19 pandemic.
So what
During its investor day presentation, Wingstop's management set a long-term unit goal of 6,000 locations worldwide, which would put it in the top 10 restaurant chains. It also outlined strategies for controlling food costs and growing comparable sales. If it reaches all its goals, Wingstop will be among the largest, most profitable restaurant chains -- reason for bullish sentiment.
However, shortly after this presentation, Wingstop investors got spooked because of the COVID-19 pandemic. At one point, shares were down over 50% as Wall Street wondered how any restaurant could survive, let alone thrive, with dining rooms closed.
But thrive Wingstop did. Domestic comparable sales exploded 30% higher in April -- unheard of for a restaurant chain. This means the company's comp-sales growth streak of 16 years is still intact. It didn't skip a beat when dining rooms closed, because 80% of sales were already to-go orders before the coronavirus. And its digital sales were already 40% of total sales, giving it a strong technology platform to accommodate the sudden shift in consumer behavior.
Image source: Getty Images.
Now what
Fittingly, Wingstop ended the first half of 2020 with a press release that might point toward the company's future. In Dallas it opened its first U.S. ghost kitchen -- a small space designed for an entirely to-go operating model, leveraging labor and real estate expenses to drive profitability.
COVID-19 is forcing many consumer-goods companies to rethink how they do business -- restaurants included. Ghost kitchens were a topic Wingstop's management addressed during its investor day presentation, which preceded the coronavirus outbreak. However, it's a timely experiment now. And the company isn't the only restaurant trying this kind of thing out. Starbucks is closing down over 400 full-service locations to pursue to-go stores, and even Brinker International's Chili's launched a completely new restaurant chain from existing locations.
The ghost kitchen trend is one for restaurant investors to watch. If this operating model is the future, Wingstop shareholders should be encouraged the company is an early adopter prepared for the shift thanks to its existing strength in digital sales.
