What happened
Shares of Wingstop (WING 1.97%) were up 20.9% as of 1:53 p.m. ET on Thursday after the company reported better-than-expected earnings results. Heading into the latest round of earnings updates, investors have been nervous for many consumer goods companies, given the inflation and other challenges in the economy right now.
While Wingstop's domestic same-store sales declined 3% year over year, investors were pleased with solid revenue and profit growth. Moreover, Wingstop expects lower food costs to continue benefiting the company's profitability next quarter.
So what
Wingstop opened 67 new stores in the quarter, which fueled a healthy revenue increase of 13% year over year. Digital sales comprised 60% of total revenue.
Adjusted net income increased 20% over the year-ago quarter, as bone-in wing costs plummeted 19% year over year. The drop in food costs, along with a decline in beverage and packaging expense, more than offset the increase in wages and restaurant opening expenses.
Now what
Wingstop ended the quarter with 1,858 restaurants open. Management sees the potential to open 3,000 over the long term, so this top restaurant stock still has more upside for patient investors.
As for the next quarter, management expects low-single-digit same-store sales growth, which would be an improvement over last quarter's slight decline. Most importantly, the improving profitability allows management to stay on schedule with investments in new restaurants to keep growing through a slower economy.
With the economy posting two consecutive quarters of contraction, there could be some near-term bumps in the road, but Wingstop's profitability and expectation to deliver positive same-store sales in this environment shows tremendous resiliency for this emerging restaurant brand.
