With Americans set to consume over 1.42 billion wings on Super Bowl Sunday, there's no better time to take a look at Wingstop (NASDAQ: WING) -- the industry leader in chicken wings.
A history of outperformance and growth
Wingstop went public in 2015, and its stock has gone up about 400% since -- outperforming the S&P 500 by more than 270 percentage points. The company operates under a franchise business model, which generates the majority of its revenue. First, each franchisee must pay a one-time $20,000 franchise fee to open a Wingstop. Then the franchisee is expected to pay ongoing royalty and advertising fees that equate to 5% to 6% of gross sales net of discounts and 5% of gross sales, respectively. With that in mind, it greatly benefits Wingstop to rapidly expand its footprint. Over the past two years, Wingstop has opened a net 288 stores, representing 20% growth.
Better yet, Wingstop has been able to avoid growing pains. The company has an envious 18-year streak of same-store sales growth. Same-store sales are a key stat for restaurants to determine how well their existing locations are performing. And chicken wings are more popular than ever -- a good sign for the wing chain's staying power.
While the competition for wings is getting saucy, no other restaurant does chicken wings quite like Wingstop. CEO Charlie Morrison claims that Wingstop has "no true competitor." It's hard to argue differently when Wingstop is the only fast-casual restaurant chain that focuses solely on wings.
Perhaps more importantly, the company is excelling with digital sales: Online and mobile ordering account for 61.6% of total sales -- up from 39% in December 2019. Additionally, Wingstop recently opened its first delivery and carryout-only location, calling it the "restaurant of the future," as the company attempts to reach its goal of digitizing 100% of transactions.
IMAGE SOURCE: WINGSTOP.
Inflation, inflation, inflation
Even without a direct competitor, Wingstop's business isn't without its challenges. As Americans' love for chicken deepens, the prices of chicken wings are coming under serious inflationary pressures. During Wingstop's Q3 2021 earnings call, management said the company experienced "unprecedented inflation in the cost of bone-in wings" at an effective year-over-year increase of 49%. As a result, the company returned a total of $6.9 million to its franchisees as an advertising fee rebate, which led to revenue missing expectations and Wingstop's stock subsequently sold off.
To combat inflation, Wingstop recently introduced chicken thighs to its menu, a measure the company hopes will alleviate stress on its franchisees. While the company has yet to share sales data on "Thighstop," it claims the new offering has had a "meaningful effect" on its ability to purchase entire chickens, instead of just buying the wings and some of the breast meat. In theory, the cost-cutting measure could prevent future menu price hikes, which totaled more than 10% in 2021.
The bottom line
It may be strange to think of a chicken wing restaurant as a growth company, but Wingstop should be considered as one. The company has a five-year compound annual growth rate in revenue around 25% -- 20 percentage points higher than the restaurant/dining sector during the same period.
So, after you've enjoyed Wingstop's wings and thighs while watching the big game, keep an eye on its earnings report on Feb. 16 for the latest update on store expansion, thighs sales, and other inflationary solutions. If the company finds success in those areas, the stock could continue its tasty returns.
