If someone were to ask you to rattle off the names of publicly traded restaurant stocks, it's understandable if you would forget about Wingstop (WING +3.57%). It may be a fast-growing chain of eateries specializing in saucy chicken wings, but it's still a small fry in an otherwise cutthroat market.
You might have even missed the company's second-quarter report on Wednesday. It was another blowout performance, even if the headline numbers might not seem impressive right away. Wingstop is still a name that should be on every finger-licking investor's radar. Let's take a closer look at the report and why it could be a name that's ready to flap its wings and fly higher.
Image source: Wingstop.
Let's play chicken
True to its name, Wingstop serves up bone-in and boneless chicken wings that customers can sauce up in nearly a dozen signature flavors. There were 1,624 locations across the world open at the end of June, 188 more than it had in its largely franchisee-fueled empire a year earlier.
We'll get more into the attractive business model soon, but first let's dive into Wednesday morning's financial update. Systemwide sales rose nearly 16% for the quarter, largely a combination of a 13.1% increase in locations and a 2.1% uptick in domestic same-store sales. Adjusted net income rose 13% to $0.38 a share.
Top- and bottom-line growth in the teens might not seem all that exciting. We've seen headier growth from chains reporting earlier this earnings season. The key here is that nearly every concept had a horrendous second quarter last year. The comparisons are going to be great stacked up against negative growth during the first few months of the pandemic. Wingstop just happens to be one of those rare concepts that rocked through the initial stages of the shelter-in-place phase of the COVID-19 crisis.
Wingstop was built for the new normal. It's a small-box concept with a few tables for eat-in business, but 80% of its sales before the pandemic came from takeout and delivery orders. It was an early leader in digital sales, which accounted for 40% of sales before the pandemic found everyone else scrambling to embrace mobile and online ordering.
Unless you've successfully erased the first few months of the pandemic from your memory, folks didn't have a lot of easily accessible options after they tired of cooking at home and putting their sourdough starter to the test. Wingstop was there. In the second quarter of last year, with most chains posting sharp declines in business, Wingstop's comps skyrocketed 32%. This week's 2% increase may not pack a wow factor, but we're talking about the typical store generating about 34% more in sales than it did two years ago. The same can be said for the initially ho-hum income statement, as growth in the low- to mid-teens follows a 36% increase in revenue and a 135% surge in net income in the second quarter of last year.
It's hard not to like Wingstop. It has rattled off 17 straight years of positive comps. It's a concept with a small footprint and low overhead generating average unit volume of $1.6 million a year. Of course it's going to continue to draw in hungry franchisee hopefuls to help build out its store base. Shareholders get to cash in on the scalable and proven business model. Everybody wins, including your radar that just got introduced to a fast-growing restaurant stock that you probably hadn't heard about before.
