Wingstop (NASDAQ:WING) missed analysts' expectations for its fourth-quarter 2021 financial results on Wednesday. But the stock has traded as much as 3% higher since, thanks to some tasty tidbits from management.
Fourth-quarter results
Wingstop's total revenue jumped from $63.3 million a year ago to $72.0 million, and the company flipped from a net loss of $6.4 million to a net income of $6.9 million, or $0.24 earnings per share. Both of those key performance indicators missed analysts' expectations, which were $74.3 million in revenue and $0.32 EPS.
IMAGE SOURCE: WINGSTOP.
We also learned that the global leader in wing sales opened a record 58 net new stores in the quarter, with 193 net openings in 2021. With a franchise business model, the company needs to continually expand its footprint in order to generate more revenue. Wingstop also cemented its 18-year streak of same-store sales growth -- a figure that the company claims leads the industry -- with 8% same-store sales growth for 2021. Same-store sales are an essential metric for restaurants because they indicate how well existing stores are performing.
What happened
Even as Wingstop missed analysts' predictions, management's expectation that chicken wing prices will decline could be helping to keep shares afloat. On the earnings call, management said that they expect chicken wings prices to drop from current levels of $2.60 per pound to "closer to the $2.00 range", which not only improves margins, but also keeps franchisees happy. Notably, the company gave its franchisees an advertising rebate of $6.9 million to help with inflation in Q3 2021.
After the expansion of "Thighstop," its chicken thigh branded product, in mid-2021, Wingstop began purchasing the entire bird instead of just wings. Those mitigations showed up in Wingstop's latest quarter, as its cost of sales rose only 27.5% compared to the 41% increase of jumbo wings.
Additionally, CEO Charlie Morrison mentioned that Wingstop is "actively exploring a variety of strategic options to gain more control of our supply chain," including the possibility of acquiring or partnering with suppliers to get closer to the production of its product.
What could go wrong
Thighstop hasn't been a smash hit just yet. While the new product may have helped ease inflation pressures, it has been "a slow build," according to Morrison. The company didn't give specifics on sales, but stated Thighstop is "not growing perhaps at the rate that some would expect." If chicken thighs fail to resonate with consumers, Thighstop's cost-cutting benefits could be diminished by its lack of sales.
Another area of concern is Wingstop's 10% hike in menu prices to combat the rising cost of chicken in 2021. Historically, Wingstop hikes its menu prices by 1% to 2% each year, so some of its customers may be priced out, especially as there is more competition in the fast-casual space than ever before. Still, management feels confident that the company has seen any negative effect on transaction volume to date.
What's next
In 2022, Wingstop plans to open more than 200 net new units, which would represent an 8.65% restaurant count increase from its 1,731 worldwide locations. The company's long-term goal is to have 4,000 domestic and 3,000 international units -- representing a 300% increase from its current total count.
And while the prices of chicken may fall in the short term, look to see how Wingstop is able to find a long-term solution to stabilize the roller-coaster prices. Additionally, the market leader in wing sales will need to find some traction with its Thighstop product; otherwise, it may not make economical sense to continue buying the entire bird instead of just the chicken wings. If Wingstop delivers can deliver on its lofty goals and inflation mitigation efforts, look for the stock to extend its flavorful growth.
