Wingstop Inc

NASDAQ:WING

Earnings Call Transcript 2022-Q2

[Operator]

Good morning, ladies and gentlemen and thank you for standing by. Welcome to the Wingstop Inc. Fiscal Second Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded today, Thursday, July 28, 2022.

I would now like to turn the conference over to Susana Arevalo, Vice President of EP&A [ph] Investor Relations. Please, go ahead.

[Susana Arevalo, Vice President of FP&A & Investor Relations]

Thank you and welcome to the fiscal second quarter 2022 earnings conference call for Wingstop. On the call today are Michael Skipworth, President and Chief Executive Officer; and Alex Kaleida, Senior Vice President and Chief Financial Officer.

Our fiscal second quarter 2022 results were published earlier this morning and are available on our Investor Relations website at ir.wingstop.com.

Our discussion today includes forward-looking statements. These statements are not guarantees of future performance and are subject to numerous risks and uncertainties that could cause our actual results to differ materially from what we currently expect. Our SEC filings describe various risks that could affect our future operating results and financial condition. We use certain non-GAAP financial measures that we believe can be useful in evaluating our performance. Presentation of such information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are contained in our earnings release.

Lastly, for the Q&A session, we ask that you please each keep to one question and a follow-up to allow as many participants as possible to ask a question.

With that, I would like to turn the call over to Michael.

[Michael Skipworth, President & Chief Executive Officer]

Thanks, Susanna, and good morning, everyone. Thank you for joining us. Our second quarter results demonstrated the resiliency and underlying strength of the Wingstop brand and continue to give us confidence in our long-term growth strategy to expand Wingstop into a top 10 global restaurant brand.

Our AUVs remain at $1.6 million, fueled by our three-year same-store sales growth of over 30% and we have seen unit economics strengthen as we have progressed through 2022. This has generated quite a bit of excitement with our franchisees, whom we affectionately refer to as our brand partners. This excitement has been showcased in two consecutive record development quarters.

Wingstop is currently in a unique spot, where we are one of the only brands benefiting from meaningful commodity deflation, while the rest of the industry navigates record inflation against the challenging consumer backdrop. This, coupled with our AUV growth, is translating to strong cash flows for our brand partners.

At the beginning of the second quarter, we experienced a bit of a perfect storm. We were lapping over $400 billion in stimulus money, leading to some really tough sales comparisons. Pent-up consumer demand around dining out, 40-year high inflation, an unnecessary war in Ukraine, gas prices hitting record highs and early signs of deteriorating consumer sentiment.

As we stated last quarter this caused a marked change in our same-store sales beginning in March and we saw that trend continue into April. However, with 2021 marking our 18th consecutive year of positive same-store sales, Wingstop has demonstrated an ability to grow through various cycles and we have a proven playbook, one we began to deploy in the second quarter.

As consumer behavior shifted towards dine-in occasions, we reopened all of our dining rooms and have seen that business organically build as we progress through the quarter. We also leaned into value, acknowledging that the lower income consumer would be focused on seeking value when pursuing restaurant occasions.

Early in the second quarter, we launched the boneless mill deal, a bundle consisting of 20 boneless wings, four flavors, two dips, a large fry, all for only $15.99, a compelling value. We have been extremely pleased with the boneless meal deal with it being the highest mixing bundle we have launched with approximately 7% sales mix.

That said, our domestic in-store sales declined 3.3% for the quarter. However, the cadence of the comp improved as we progressed through the quarter in line with the timing of the boneless meal launch and as the compares eased. Over the last 18 years, we have seen various cycles that when consumers start to pull back on restaurant occasions, they tend to do so more with frequent QSR occasions. And remember, our average frequency is about 3x a quarter.

So what we have seen in past cycles is that guests will pull back on these more frequent QSR occasions that save up for that indulgent occasion with Wingstop, a unique position we have with consumers and how they engage with us as a brand. Presenting guests with value both in the form of price point with a bundle like the boneless meal deal and with that high-quality made-to-order Wingstop experience position us well to retain those indulgent Wingstop occasions.

On the new restaurant development front, quarter two marked another record. We opened an all-time high 67 net new restaurants. This included our first restaurant in Canada in a total of 16 net new restaurants internationally, which is the continuation of the exciting growth and momentum in our international business. I have the opportunity to see firsthand the excitement for Wingstop at the opening of our restaurant in Toronto during the second quarter. We believe Canada has the potential for 150 to 200 Wingstop restaurants.

We also signed a development agreement in the second quarter for the rights to South Korea with an experienced multi-brand operator and see long-term potential for 200 to 250 total restaurants in this market. We expect the first restaurant to open in early 2023 and believe South Korea will further unlock restaurant development in the Asia Pacific region.

Our business development conversations with prospective international brand partners continue to gain momentum with active dialogue for development opportunities in Europe, Asia and other key growth markets. The momentum we have in our international business continues to build and we believe our international expansion of the brand will become more and more of the growth story as we continue to serve the world flavor.

At this point in the year, we have visibility into our construction pipeline for new restaurant development for the balance of the year, which supports our updated range for our development outlook for 2022. Our updated guidance reflects approximately 13% unit growth, which is something we're really proud of and well above our three to five year target of 10% plus.

As you saw in our release, we are reiterating our same-store sales guidance for 2022 of low single-digits, which would represent our 19th consecutive year of positive same-store sales growth. The trend we saw during the second quarter coupled with the growth levers we have to pull as a brand give us confidence to deliver on our guidance for 2022 despite the challenging consumer backdrop.

Let me walk through the growth levers that I'm referencing. Just over a week ago, we expanded our delivery service provider base by adding Uber Eats nationwide. We have known for a while that this would be a sales-driving lever for us and we have seen the lift it provided other brands who have made this move in the past. While it's only a couple of weeks into the Uber Eats national launch and without any advertising support, we are encouraged by the early results.

In addition to expanding our delivery service provider base, we also have a meaningful increase in the amount of dollars we can deploy from our national ad fund. If you recall, beginning in the second quarter of this year, we started consolidating the local 1% ad spend into our national ad fund taking our national contribution rate to 5%. This benefit -- the benefits of this increase was somewhat muted in the second quarter as we were lapping the 2021 investment of the surplus we had in our ad fund to help support lapping 2020 comps of 32% during the onset of the pandemic.

This translated to relatively flat ad spend year-over-year in the second quarter. As we look to the balance of the year, we expect an increase of over 35% in the amount of ad dollars to be invested, providing us with the firepower to drive top-of-mind awareness and consideration, as consumers become more discerning with their dining choices.

Lastly, we just completed our market test of the Wingstop Chicken Sandwich. This is not just a plain and the spicy chicken sandwich, as you see on most other restaurants, but a variety of 12 chicken sandwiches soft and tossed and Wingstop's bold distinctive flavors and of course served with our iconic scratch-made ranch or blue cheese for dipping. The results of our market tests showcase the opportunity to launch this sandwich nationally, achieving our targeted sales mix levels of approximately 4%, while maintaining the simplicity of our operations.

But what we are really encouraged by is that these chicken sandwich occasions were highly incremental and mixed very nicely over the lunch daypart. We are excited to announce a national launch of the Wingstop Chicken Sandwich, which will hit restaurants in early September.

These strategic sales drivers in addition to our ability to lean into bundles to present the consumer with value give us confidence in our ability to deliver on our guidance of low single-digit same-store sales growth. But what further strengthens the Wingstop back half of the year story is the current commodity environment. Wingstop is a year ahead of other brands. We navigated record wing inflation in 2021 and our brand partners took the appropriate level of pricing that year to navigate that inflation and manage margins.

Fast forward to today, we are experiencing meaningful deflation in our business as the price of wings has normalized from unusually high levels in 2021. This is against a backdrop where the industry is navigating 40-year high inflation, forcing other brands to take price to manage margins while consumer sentiment is shifting.

Wingstop is different. We are in a position where we do not necessarily have to take price. And in fact, we have the ability to return some of this deflation in the form of value to the consumer in order to retain those indulgent occasions or even take share, a true unique position to be in.

I couldn't be more excited about what's in store for Wingstop in the second half of this year. These sales driving levers we are executing are the same ones we recently discussed during our Investor Day a few months ago. While we are navigating this environment and pulling strategic growth levers to sustain same-store sales growth, we remain relentlessly focused on executing our long-term strategies.

We continue to make investments in building our proprietary tech stack, which will protect our digital business, which is now $1.5 billion strong and will also enable us to scale our best-in-class digital platform outside of the US.

Our first-party digital database continues to expand and is now 30 million user strong. In addition, we continue to work against our supply chain strategy, which is to take greater control of our supply chain in an effort to minimize the volatility we see in food costs and maintain our best-in-class unit economics, of which our brand partners have enjoyed returns on their investments of more than 50%. These unit economics continue to fuel a strong pipeline for development, which gives us confidence in our ability to continue to deliver industry leading unit growth.

Lastly, the foundation is our people and our culture something that we believe is a competitive advantage for Wingstop and something that we will continue to invest in and preserve. Despite the challenging macroeconomic backdrop, Wingstop is well positioned to deliver another industry-leading year, driven by our best-in-class unit economics, sustaining growth levers and record restaurant development. We believe this really highlights the opportunity we have in front of us here at Wingstop and our long-term growth story.

Before I hand it over to Alex, I want to thank our brand partners, our team members in the restaurants and the team at the Global Support Center for all their incredible work and commitment that has put us in a strong position to execute these strategies and deliver a strong back half of the year.

With that, I'd like to turn the call over to Alex.

[Alex Kaleida, Senior Vice President & Chief Financial Officer]

Thank you Michael. The second quarter marked another record for development with 67 net new restaurants, showcasing our momentum and the focus by our brand partners to expand Wingstop globally. We also delivered 7.5% growth in system-wide sales in the second quarter, which now totals $2.5 billion on a trailing 12-month basis and on our way to $3 billion in system-wide sales.

We grew royalty revenues, franchise fees and other revenues by approximately $3 million in the second quarter, driven primarily by 229, net franchise openings since the prior year comparable period. This was partially offset by domestic same-store sales decline, of 3.3% which you heard Michael explain in detail, as well as the sales drivers we're executing to deliver a strong second half.

In the second quarter, company-owned restaurant sales totaled $18.7 million up about 3% primarily due to six net new restaurants versus the prior year comparable period, as we continue to invest in building out Manhattan. This was partially offset by a 4.9% decline in same-store sales. Cost of sales as a percentage of company-owned restaurant sales, increased by 1.8 percentage points compared to the prior year, driven by increases in labor and other operating expenses inclusive of preopening expenses totaling one percentage point, which were partially offset by lower food costs driven by a 19% reduction in the cost of bone and wings, as we began to see deflation progress through the second quarter.

Comparing the first quarter to the second quarter of 2022, cost of sales declined by 480 basis points, highlighting the effect of improving food cost and labor, which was the result of an improved labor environment and training yielding efficiencies within labor. We are also encouraged by the deflation we are seeing in our business. Looking at the leading indicators, such as frozen wing inventory levels, which are near 2018 levels the highest in five years and record breast meat prices, that are motivating suppliers to substantially increase production levels, provide us the confidence in a favorable commodity outlook for the second half of the year and into 2023.

As Michael mentioned in his comments, the deflation we are seeing is unique to wing while many in the restaurant industry are facing significant inflation. Based on what we know today, we anticipate food costs for the average brand partner restaurants, to be near the midpoint of our targeted range of 34% to 38%, which is an 800 basis point improvement versus the second half of 2021.

We believe the significant deflation in wing prices and our sales drivers will further strengthen brand partner unit economics. For modeling purposes, in company restaurants given our higher bone-in mix relative to the system average we anticipate seeing food costs at approximately 38%. In addition, the second quarter labor and operating expenses as a percent of company and restaurant sales align with, what we expect to see for the balance of the year. As a result, when you add this all together, we anticipate company-owned restaurant cost of sales in the second half, we'll see an improvement of approximately 900 basis points versus the second half of 2021.

Shifting to SG&A expense. In the second quarter, SG&A decreased by $2.1 million versus the comparable period driven by forfeitures of stock awards and partially offset by travel expenses and continued investments in strategic projects to support the long-term growth of the business. Adjusted EBITDA a non-GAAP measure was $23.7 million during the quarter, an increase of 3.4% versus the prior year. Adjusting for non-recurring items we delivered adjusted earnings per diluted share, a non-GAAP measure of $0.45, an 18% increase versus the prior year.

Our highly franchised asset-light model, continues to deliver strong free cash flows This coupled with our debt transaction in March of this year, has increased our cash balance to over $165 million. And as we shared at our Investor Day in May, this cash positions us to be opportunistic to support our supply chain strategy, as we explore options to take greater control of our supply chain.

We remain committed to driving shareholder value and returning capital to shareholders through our quarterly dividend, which is targeted at approximately 40% of free cash flow. Our Board of Directors approved an 11% increase in our quarterly dividend, to $0.19 per share of common stock, a demonstration of a strong cash flow generation and the strength of our business. This dividend totaling approximately $5.7 million will be paid on September 2, 2022 to stockholders of record as of August 12, 2022.

Now on to our outlook for 2022. For the full year, we are reiterating our guidance for same-store sales growth of low single digits and SG&A of between $70 million and $72 million, including stock-based compensation expense of between $7.5 million and $8.5 million. When adjusting for the impact of the 53rd week in the fourth quarter, we expect SG&A expense to be more evenly distributed in the second half. We are also reiterating our diluted earnings per share guidance of between $1.55 to $1.57. In addition we are updating our guidance for net new units to a range of 220 to 235 from prior guidance of 220 plus for the full year.

Our strategies remain consistent and we are focused on execution. We truly have a lot to be excited about at Wingstop as we move into the second half of 2022. Wingstop is well positioned to deliver against our vision of becoming a top 10 global restaurant brand.

With that, I'd like to now turn to Q&A. Operator, please open the line for questions.

[Operator]

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from David Tarantino with Baird. Please go ahead.

[David Tarantino, Baird]

Hi, good morning. My first question relates to your commentary about the trajectory of the sales trends as the quarter progressed and I appreciate that commentary but I was wondering if you could maybe update us on what you're seeing so far this quarter and how that plays into your confidence in the outlook for the balance of the year?

[Michael Skipworth, President & Chief Executive Officer]

Hey David, good morning. It's Michael. I appreciate the question. I think as we talked in our prepared remarks or as we shared in our prepared remarks, we clearly have some pretty strong levers that we're pulling. And as I mentioned earlier that the early results of us expanding our delivery provider base to include Uber Eats nationally the early results have been encouraging.

So, I think when you couple that with what we saw in our market tests with the chicken sandwich and how that mixed as well as just the elevated level of advertising that we're able to spend in the back half of the year up over 35%. So a couple of those things with the trend I think it's really what gives us confidence and sitting here today and being able to reiterate our guidance for low single-digits.

And I think if you reflect back over the years, David, we've been a brand that has been pretty thoughtful about when to pull levers. And clearly as we saw the environment we were navigating through and we knew this lever we had with expanding our DSP base was going to be a powerful one for the brand and we knew now was the right time to pull that lever. And so all of that supported with the trend that we referenced in the second quarter gives us confidence in reiterating that low single-digit same-store sales outlook.

[David Tarantino, Baird]

Okay. And Michael on that last point on the delivery provider would you be willing to share any sort of context on what you do see from a lift perspective when you added Uber Eats just order of magnitude what that could do for the business?

[Michael Skipworth, President & Chief Executive Officer]

Yes. I mean I'm a little cautious being a little over -- or about two weeks in, but I'll tell you this David what we've seen in those first two weeks are encouraging if not at or above our expectations. And that's without really any advertising support behind us being on Uber's platform.

And so I think you can look back at other brands who have expanded their delivery base beyond one provider and have seen a pretty meaningful lift for them and their cells. And so we would expect something similar. But obviously, it will take a little bit of time for that to build as awareness around Wingstop on Uber's platform builds.

[David Tarantino, Baird]

Great. Thank you very much.

[Michael Skipworth, President & Chief Executive Officer]

Thank you.

[Operator]

The next question comes from Jeffrey Bernstein with Barclays. Please go ahead.

[Jeffrey Bernstein, Barclays]

Great. Thank you very much. First question was on franchise sentiment. I mean all things sound good based on your prepared remarks but I'm just wondering in conversations since they are the driver of the brand I mean is there any talk that the difficult operating environment or perhaps rising interest rates or the most recent negative comps. Anything along those lines that might temper the appetite for unit growth? I mean seemingly you've reiterated or bracketed 2022, but maybe looking into 2023, it seems like those are a lot of potential headwinds. Just wondering what that sentiment is like in those conversations over the past quarter? And then I had one follow-up.

[Michael Skipworth, President & Chief Executive Officer]

Yes, Jeff, and thank you for the question. We've -- obviously in an environment like this, we're in constant dialogue with our brand partners and I would say the conversation has been extremely positive. The sentiment is really encouraging. Those conversations, Jeff, aren't really at all about the comp trends in the second quarter, what they're looking at, and what they're focused on is really two things. The fact that over the last few years, they've seen their AUVs grow by over 30% to the tune of $400,000 on average. And they're looking at food costs right now that's falling right in that sweet spot for our model. And that compares to a pretty challenging year in 2021 where we experience record inflation in our core commodity.

And so as they look at their P&L today, as they look at the cash flow they're generating, it's creating a lot of excitement, a lot of excitement for development. We can say, as we sit here today, the total pipeline we have right now of sold commitments is stronger than it was this time a year ago. So I think that just supports the statement around brand partners sentiment and around the opportunity we have to continue to deliver on the unit growth story here at Wingstop.

[Jeffrey Bernstein, Barclays]

Understood. And then just following up. I mean, clearly, from a comp perspective, I guess, everyone would like to see positive comps and it seems like that's what you're forecasting in the second half. And it seems like you have the drivers there. But are there any early indicators, such as slowing traffic, or lower check, or maybe lower attachment to demonstrate that there is a headwind in terms of broader consumer spending slowdown? Again, maybe you're able to mitigate that and you'll be able to deliver net positive comp growth. But is there any indication, especially if you do have an elevated mix of lower income consumers? Just trying to get a read for what you see through the comp data in recent months. Thank you.

[Michael Skipworth, President & Chief Executive Officer]

Yes. Thanks, Jeff. As we mentioned on our last call and in our prepared remarks, we clearly did see a pullback in frequency particularly with that lower income consumer. But as we mentioned, we were able to lean into a proven playbook that's allowed us to grow our business through various economic cycles, which is demonstrated by over 18 years of positive same-store sales growth. And so when we leaned into value presenting that value-focused consumer with a bundle like the boneless meal deal at $15.99, which can feed two to three people. So, a price per person it's a really compelling value.

Couple that with the quality occasion a consumer gets with Wingstop in it's that indulgent occasion, once a month three times a quarter that they almost save up for. And that's not where they want to find ways to cut back and save. So as long as we're presenting them with value -- we have -- we've demonstrated an ability to retain those occasions. And so we did see that improve throughout the quarter. And then as we obviously pull some of these growth levers that we've referenced in the back half of the year, we fully expect to see transaction growth in our business.

And again, we're in a little bit of a unique spot. If you take a step back and think about the gap we have that we've talked about before in brand awareness through other mature brands, we referenced the growing user -- first-party user database that we have now over 30 million strong. So we're continuing to bring in a lot of new guests into the brand and have a big opportunity there. We know that adding a platform like Uber allows us access to a completely different consumer segment, as these DSP platforms have created loyalty to each one of their platforms.

So, again, another opportunity for us to bring new guests into the brand that weren't perhaps accessing us before. And so I think all of these working in concert give us confidence in the ability to deliver on that reiterated guidance, which would include growing transactions.

[Jeffrey Bernstein, Barclays]

Understood. Thank you.

[Michael Skipworth, President & Chief Executive Officer]

Thank you.

[Operator]

The next question comes from John Glass with Morgan Stanley. Please go ahead.

[John Glass, Morgan Stanley]

Thanks very much. Michael I was intrigued by your comments about being able to lean into value given your commodity situation, which is unique. How do you think about that in the second half? Are there ways you can expand value bundles at different price points maybe to encourage individual leaders to come in, or is this good enough? And how do the franchisees feel about expanding value? Are they excited about it, or is it -- how does that conversation go?

[Michael Skipworth, President & Chief Executive Officer]

Yes. Yes it's a great question, John. And it's one thing that we try to make sure we're pretty clear on is when we talk about value, often people interpret that to being discounting, and that's not how we approach value as a brand. And so the boneless meal deal as an example is that a food cost that still comes in at – within that targeted range for our brand partners. And so it's presented as value, particularly with the price point to the consumer. But my comments that I shared around willing to invest some of that deflation, if it's called for it, if we saw further deterioration in consumer sentiment and we needed to lean in a little bit and do something that – we're just now piloting for the first time as an example is another bundle that again is still at a nice food cost but includes our premier product, the Classic Wing with boneless and with tenders in a triple mill deal is an example of where we can lean in and present the consumer with value and we're able to do that and not have to take price, which is the key differentiation.

But then as we fast forward and look at the chicken sandwich, that we're excited to launch, that's something that we're able to present, again at a nice food cost for our brand partners but present at a compelling value. We have a chicken sandwich combo that we'll be launching at $7.99, which includes the sandwich, soft and tossed in one of our bold unique flavors with a dip for dipping and then includes a fry and a drink.

Again a compelling value for a high-quality occasion that we think is going to resonate really well, particularly based on what we saw in our market tests. And so we're encouraged by the various levers we have to pull for when the consumer needs us to lean in and play to their value needs or focus.

[John Glass, Morgan Stanley]

Thanks a lot. And then just on development, I appreciate the update on the units. I still think though if you – even at the high end of that range you might expect lower development in the second half on a unit basis versus the first half. Is there any reason that would actually occur? And maybe inside of that, can you maybe a little color on those international units that picked up nicely, where those were? And if that is that pace can be continued as well? Thanks.

[Michael Skipworth, President & Chief Executive Officer]

Yes John, actually the point you bring up about the cadence of development throughout the year is actually something we've been working on for a while. And I think that's kind of the maybe the genesis of the question is we've typically had a pretty heavily weighted back half of the year. And we've been working hard to balance out the development throughout the year. And so what we're seeing in 2022 is a much more balanced cadence of development, which is great for our brand partners because they're getting restaurants opened earlier, making a return on their investment sooner and then it's good for us as we're getting those operating weeks in the year and the royalties on those.

And so I think we'll see a much more balanced cadence in development, which obviously isn't implied in the guidance that we provided based on what we see in the pipeline this year. And as far as the international development, it's pretty balanced throughout the markets. We had a handful of openings in some of the markets that we're really excited about.

Obviously, we profiled our first opening in Canada and that market and our partner there is actually on track to be ahead of their development schedule. We believe we have another three openings potentially coming this year in that market, which I think really goes second part of your question around our confidence in that continuing.

And we shared this – for international – we shared this earlier I think in the last call, where we do expect this to be a record development year for our international business, which I really think speaks to the excitement and momentum we have around that the strategy, the proven playbook, the markets we're in how we're showing up and how that's going to become a bigger part of our growth story as we look into the outer years.

[John Glass, Morgan Stanley]

Got it. Thank you.

[Operator]

The next question comes from Andy Barish with Jefferies. Please go ahead.

[Andy Barish, Jefferies]

Yes. Thanks. Just quickly on the earnings guide for the year, the numbers – the 2Q is certainly ahead of consensus you kept the guide the same. Is that something to do with G&A timing as we go through the year, or any we should be aware of on the earnings for the full year?

[Alex Kaleida, Senior Vice President & Chief Financial Officer]

Good morning, Andy. This is Alex. Yes I think you're spot on. It's really just a function of how the forfeitures were modeled in the consensus numbers that was really just more of a timing aspect. That was contemplated in the guidance we had both last quarter and in this quarter.

[Andy Barish, Jefferies]

Okay. Thanks, Alex. And then just on a quick business question. Can you help us a little bit -- I know Michael, you talked about positive transactions and just a lot of changes going on with the dining rooms reopening now delivery, I assume was kind of drifting for, but just can we level set on kind of how much price is running through the system right now, what you -- would go on with mix -- forward in -- all these moving pieces including chicken sandwich?

[Michael Skipworth, President & Chief Executive Officer]

Yes. No absolutely, Andy. And I can appreciate your question because I know with a lot of other brands who had a much bigger dine-in business seeing that come back and whether it's smaller group sizes or just a smaller check impacting their business quite a bit. What's interesting about Wingstop is our -- we were over 80% off-premise before the pandemic. And so, our business was, if you will kind of built and design for this. And so we haven't seen a lot of what other brands have seen.

Our dine-in business, I'll tell you is growing back nicely at a nice organic rate. I think by the end of the quarter, we're at about 5% mix. If you remember, pre-pandemic that was about 20%. What's interesting though, Andy is, with that dine-in business returning, we haven't really seen, what was maybe a pre-pandemic average check size. It's much closer to our average check of the mid call it $22 range.

So we're not seeing in our business a lot of mix shift, as we navigate through this environment we're in right now. And so, I wouldn't really over contemplate anything as it relates to mix shift in your model for the back half of the year. And again as we think about mapping our way through the back half of the year and delivering on our outlook of low single-digit same-store sales growth, we think a lot of that's just going to be transaction growth.

[Andy Barish, Jefferies]

And where do you think pricing is currently in the system roughly?

[Michael Skipworth, President & Chief Executive Officer]

Yes, sorry about that. Consistent with what we said last quarter, we saw in the second quarter, about four to five points of price flowing through the comp. And so we would expect that to tail off kind of ratably, as we move through the back half of the year.

[Andy Barish, Jefferies]

Thanks, Michael.

[Michael Skipworth, President & Chief Executive Officer]

You’re welcome.

[Operator]

The next question comes from Andrew Charles with Cowen. Please go ahead.

[Andrew Charles, Cowen]

Great. Thank you. Michael, what gives you confidence that after you launched Chicken Sandwich and presumably put some of that 35% year-over-year increase in the national ad fund budget towards building more awareness for the product that you won't see any mix deterioration from the guest who was going to order a higher ticket bundle of wings instead getting the sandwich?

[Michael Skipworth, President & Chief Executive Officer]

Yes Andrew, it's a good question. And really what we're anchoring to is what we saw in our market test. We did not see in those -- in the four markets where we tested this, a meaningful impact to mix shift. What we saw was a lot of incrementality, Chicken sandwiches being added to existing check sizes orders. And so, it was encouraging what we saw. And obviously, the mix around lunch daypart is really encouraging for us to see an opportunity to grab new occasions there.

And then, as we take a step back and kind of what we thought about, as we planned the launch of the chicken sandwich was, we've heard over the years the concept of a veto vote, where you've got a group and not everybody wants wings and what we think -- we believe we saw in some of the consumer feedback during our market test was this chicken sandwich really helped us solve that veto vote. And so, we're excited about what this can do for our business, not to mention, we think it's an incredible product that what we saw in the market test, the feedback from consumers was extremely encouraging.

[Andrew Charles, Cowen]

That's very helpful. And then Alex, separately for you, I know at the Investor Day in May, the most recent cohorts of opening saw an impressive $1.3 million for the first year sales volume. You've had a few more months to observe the data in the backdrop of a very challenging consumer environment, are you still seeing this $1.3 million hold up, or has it perhaps deteriorated with the overall same-store sales?

[Alex Kaleida, Senior Vice President & Chief Financial Officer]

Good morning. Andrew, yeah, great question. We have not seen that change. Our strength of our opens and as a reminder, just three years ago those new restaurants were opened in the mid $900,000 range and we're still in that average restaurant opening of about 1.3 today.

[Andrew Charles, Cowen]

Very encouraging. Thanks, guys.

[Operator]

The next question comes from Jared Garber with Goldman Sachs. Please go ahead.

[Jared Garber, Goldman Sachs]

Good morning. Thanks for the question. I wanted to ask about the supply chain strategy and any update there, as you continue to work through your plans to better integrate the supply chain, if you could help us just contextualize, how we should be thinking about potential timing there? And also, it would be helpful if you could run through maybe just the economics of how to think about that in terms of maybe an initial cash outlay, but still being committed to that asset-light business model? That would be really helpful. Thanks.

[Michael Skipworth, President & Chief Executive Officer]

Yes, Jared, good morning. Yeah. I'll start and then maybe Alex can jump in. But I want to reiterate the supply chain strategy that we've shared is really one that has a few different elements to it. One is, around different ways we contract or potentially partner with suppliers. Another one is around whether or not we go all the way to bright and vertically integrate and take control of an entire poultry complex, or do we go all the way to building our own complex, which would obviously be a longer-term cycle.

And what we're doing right now and the work that's underway is we are in active – we have been having active dialogue with potential targets around whether or not it's the right fit the right opportunity is there for us to do a vertically integrated strategy around acquiring a poultry complex.

But one of the things that's been extremely encouraging and we're excited about is our stated strategy us being more vocal about it and being clear around what our plan is around taking more control of our supply chain. Ultimately, with the effort of simply minimizing volatility – that's what we're solving for here is minimizing volatility. And just by us talking about that more publicly, the dynamic of the conversation with our suppliers is really evolved and we're making a lot of exciting progress around how do we contract differently how do we get away from the spot market, and how do we deliver a much more predictable landed food cost for our brand partners and their P&L.

But as it relates to the structure and how we'll execute it, we do obviously we were opportunistic and raised some capital and have some dry powder sitting on our balance sheet. So that if and when an opportunity presents, itself we can move quickly and take advantage of that.

In parallel, at the same time, we are doing work around what would that structure look like. And in our minds, it would be any sort of acquisition would be something that would be put into a franchisee-owned purchasing co-op, which then we would put debt on that co-op and pay ourselves back, if we had to initially capitalize it. So there wouldn't be anything on our balance sheet as it relates to an asset for that poultry complex. And we would expect a pretty short time line around when we would return or get our initial investment or funding back.

And so we will maintain that asset-light profile that we have today and enjoy today, but we're simply sitting here in a position that allows us to be opportunistic, if we see the right opportunity present itself.

[Jared Garber, Goldman Sachs]

Great, color. Thanks so much.

[Michael Skipworth, President & Chief Executive Officer]

You’re welcome.

[Operator]

The next question comes from Jon Tower with Citi. Please go ahead.

[Jon Tower, Citi]

Great. Thank you. Just a quick clarification and then a question. Curious as the dining rooms reopened did you guys see a higher cash tender kind of run through your business than what it's been in the past? That's kind of the clarification. Then two, I think based on the math, if you guys hold the same share in terms of delivery that you hold on Uber Eats – excuse me, on DoorDash on Uber Eats that would imply something like a low single-digit type of same-store sales tailwind for your business. Is there any reason to believe your share should be either higher or lower than what you've gained on DoorDash? Maybe there's something you have in the relationship that might move it one way or the other?

[Michael Skipworth, President & Chief Executive Officer]

Hey, John, good morning. On your first question, no, I wouldn't say, we saw anything, I would call out on our dine-in business as it relates to cash tender, so nothing unusual or anything to point out there.

As it relates to delivery mix and kind of how that will play out, I think we'll have to see. Obviously as you sit here today DoorDash has more market share than Uber Eats. So I think that plays into it a little bit.

But we've got plenty of experience with a subset of restaurants that have had Uber Eats for a period of time. And we've seen strong mix levels in those restaurants on Uber's platform.

So I think time will tell, but I think at a minimum we're in a position to where we feel confident when we consider the opportunity we have to grab a new customer base on the Uber platform combined with the other levers that we're pulling in the back half of the year to be confident in reiterating our low single-digit same-store sales guidance for the year.

[Jon Tower, Citi]

And just on the chicken sandwich itself the 4% mix you referenced earlier that's just a sandwich not any bundle along with that, one? And then two, you talked about it being incremental to the business are you -- did you see it in new customers in test, or was higher frequency of existing customers across some of these non-core or at least lower frequency dayparts?

[Michael Skipworth, President & Chief Executive Officer]

Yeah Jon, we're pretty excited about what we saw in the market test. And as we went into it our hypothesis was that it would mix nicely at that kind of 4% target. We believe it would bring in new guests. And we believed it would mix very nicely over the lunch day part. And that is what we saw in the test.

Basically that market test validated our hypothesis that we brought in a lot of new guests. We saw really nice daypart mix during launch and the mix levels came in right where we expected. And we didn't see -- and in that mix level we're not including the total if you will basket that included other menu items or other bundles that's the chicken sandwich.

[Jon Tower, Citi]

Great. And there was no marketing support behind that correct?

[Michael Skipworth, President & Chief Executive Officer]

No. We -- like you would normally approach a market test for something like this you make your best effort to replicate in those local markets which you're able to do at a national level. It's never quite the same. And you still don't -- you somewhat don't get the benefit of that national halo you get from a national campaign. But we did support it with marketing that we think is somewhat indicative of what we'll be able to do when we launch it nationally at the 1st of September.

[Jon Tower, Citi]

Great. Thank you.

[Operator]

The next question comes from Dennis Geiger with UBS. Please go ahead.

[Dennis Geiger, UBS]

Thank you. Michael, you've got a compelling second half suite of catalysts that you've just outlined. So I'm just wondering if you could speak a bit to what you believe of that group of catalyst could be the most impactful from a traffic-driving perspective, as we look over the coming quarters as you think about the sandwich, Uber, the promotions, the advertising, maybe something else. Just wondering how you kind of would frame that up perhaps if you have any thoughts to share.

[Michael Skipworth, President & Chief Executive Officer]

Yeah. We -- it's a good question. And it's one that, a few -- a lot of these things work in concert, right? And it's all around just continuing to drive the business for the long-term. And again, these are levers that we've known we've had for a while, but we've been a brand that has been thoughtful about when to pull them.

And so we know that each of these levers will bring in transaction growth. Obviously, when we think about as an example our incremental ad spend that we have in the back half of the year an increase of 35% over the last year. But it's not just that increase. It's the change in the strategy as well that we've talked about.

Having this additional 1% that we can consolidate now has allowed us to go from those two flights where we were on for about 12 weeks, in the first half of the year and about 12 weeks in the back half of the year. We're now -- we now have this always-on presence. But in addition to that we now have the dollars and investment level that we can lean into more premium placement.

So I think you'll see us show up in a much bigger way this fall on NFL as an example. And so all of that muscle and firepower is going to work to support the chicken sandwich as an example. So those work in concert with one another.

And so I don't think there's one that I would call out that's necessarily bigger or we're more excited about. But really the -- all of these working in concert, as well as that proven playbook around leaning into value and retaining our existing value-focused customers give us confidence in the back half of the year. And we do feel like we're in a really unique spot when you think about not having to take price right now necessarily. We have these unique levers to pull to bring in new guests as well as retain our existing guests in that indulgent occasion.

But then all of this against the backdrop we're experiencing meaningful deflation. It really puts us in a spot that I think really highlights the unique Wingstop story, the long-term growth story we have here as a brand. And so -- you said it well we're pretty excited about the back half of the year.

[Dennis Geiger, UBS]

I appreciate that. And a quick follow-up if I may. Just as you think about or as we think about delivery broadly, what have you seen there, or what did you see through the quarter? Did the mix changed at all the way that it trended? Any shift maybe especially before the launch of Uber Eats. Just kind of curious what you saw and maybe how you're thinking about delivery mix going forward. Let's just say put Uber Eats aside as we think about maybe pressure on the consumer? And does that change the appetite for delivery in your mind going forward at all? Thank you.

[Michael Skipworth, President & Chief Executive Officer]

Yeah. No, obviously, we have had over the years and we'll continue to have a strong partnership with DoorDash. And as we look at our delivery mix through the second quarter as an example, we didn't really see that mix change throughout the quarter. And so we didn't see a pullback on that channel or anything like that. And I think it really just speaks to the value proposition that we inherently have in our menu in our brand, how guests engage with us as an indulgent occasion and then obviously leading in the various strategic ways that we can with our partnership with DoorDash.

[Dennis Geiger, UBS]

Thank you very much.

[Operator]

The next question comes from Brian Mullan with Deutsche Bank. Please go ahead.

[Brian Mullan, Deutsche Bank]

Hey thanks. Just sticking to the Uber Eats, DoorDash topic maybe a little different way. In your internal planning do you expect to see any kind of impact to transactions with your existing partner as a result of joining Uber Eats? I understand your -- you expect the net impact for Wingstop to be an overall positive sales lift. Just curious about the dynamic with the existing partner though are there any benefits or perks you might lose whether that be marketplace placement or anything of that nature?

[Michael Skipworth, President & Chief Executive Officer]

No. I think with any partner one of the things that's really important to us at Wingstop is really investing in those relationships. And we don't just view them as suppliers or partners. We view them as strategic partners and we have a long-standing strong relationship with DoorDash and we're building the same with Uber Eats. And so -- we'll continue to lean in that and find ways that we can grow together and that's mutually beneficial. As it relates to adding Uber Eats and again it's early, but what we've seen so far is we really haven't seen an impact to the existing DoorDash business.

[Alex Kaleida, Senior Vice President & Chief Financial Officer]

And I would just add that one observation we've had as you've seen with other DSPs over the years as they've done a better job of driving retention among their guests, building more loyalty within the platform. And so I think that's something that's changed that gives us the confidence of the incrementality of additional DSP.

[Brian Mullan, Deutsche Bank]

Okay. Thanks. And a follow-up just a question on international development. The launch of South Korea next year. Just wondering, could you give a sense of your expected or your targeted AUVs in that market even just directionally, do those look something like the US and the UK, or would this be one of those international markets may be lower cost to build lower AUVs? Just any color would be great.

[Michael Skipworth, President & Chief Executive Officer]

Yeah. No I think South Korea is a great example of how we are profiling the markets where we want to grow. We're not going around planting our flag everywhere, but we're being very targeted on markets that fit our strategy, which are markets that have allowed us to afford that premium positioning with our menu.

It allows us to lean into off-premise. We want lean into a digitally savvy consumer and South Korea fits that profile. So we fully expect it be a market that fits our long-term strategy around international development, which would be much more consistent to what we see in the US from an AUV perspective, what we -- the success we've found in the UK. Or even if we look at the early results in Canada, which again is one restaurant, but is coming out of the gate really strong and meeting our expectations there.

In fact, I had the opportunity, as I mentioned in my prepared remarks of being at the grand opening there and it was pretty incredible to see a line outside the restaurant around the block waiting for the doors to open. And I might mention that it was raining. And the excitement for the brand, the Canadian consumer who I think is going to resonate quite well with Wingstop was there and showed up strong. So we're really excited about, how the brand is showing up in these strategic markets and the opportunity we have in front of us.

[Brian Mullan, Deutsche Bank]

Thank you.

[Operator]

The next question comes from Jeff Farmer with Gordon Haskett. Please go ahead.

[Jeff Farmer, Gordon Haskett]

Great. Thanks. Just wanted to drill down on your customer base for a second. So in your research to better understand demand. Have you learned anything about the relationship between things like gas prices jumping to record levels or seeing record food at home inflation? Do any of those things in terms of your research have a greater or less impact on your customer traffic?

[Michael Skipworth, President & Chief Executive Officer]

Yeah. It's a good question. And we've looked at the data a lot of different ways -- we've done a lot of consumer research. We've done focus groups and what we've seen and it aligns with what we've seen in past cycles is you do see a little bit of what feels like in our brand a little bit of a knee-jerk reaction when the consumers hit with something like record gas prices at the pump. But then we see it start to normalize. And I think that's what we saw in the second quarter as we saw that cadence improve. And it's really, how consumers engage with our brand, three times a quarter, once a month, they view it as a special occasion an indulgent occasion. But yet one that in their mind as long as we're presenting them with value, it's an occasion that we've demonstrated an ability to retain. And so, I wouldn't really say we've seen anything that would -- that we could kind of extract out of the data and the research that I would call out that's a higher correlation or influences a certain group differently than the other.

[Jeff Farmer, Gordon Haskett]

All right. And just as a follow-up a lot of questions about Uber today, but I am curious about a couple of things. So the first would be anything that you consider sort of a new or surprising learning something that sort of caught you offguard? And then -- you're going to get this question eventually, but now that you've got the two providers anything sort of preventing you from moving to a third and what the benefit of that third partner potentially could be?

[Michael Skipworth, President & Chief Executive Officer]

Yeah. I wouldn't say there's anything that surprised us. Obviously, we have a lot of experience under our belt with delivery. We've had a lot of conversations around a national launch with Uber. We've had them in a subset of our restaurants for a period of time a small subset. So we had experience with them. We had the data integration in place. And so we kind of knew what to watch out. And so I wouldn't say anything really surprised us here, as it relates to adding Uber to the base.

And obviously, we know that there is an opportunity to expand the base further than that. But as we sit here today I don't think we have any immediate plans to do that. We're again excited about this lever and the confidence around this being the right time for us to pull this lever as a brand. And then we think about the other growth drivers that we have for the back half of the year, which again gives us a lot of confidence going into finishing out this year with strength and delivering on our commitment of low single-digit same-store sales growth.

[Jeff Farmer, Gordon Haskett]

Thank you.

[Michael Skipworth, President & Chief Executive Officer]

You're welcome.

[Operator]

This concludes our question-and-answer session and today's Wingstop Inc. Fiscal Second Quarter 2022 Earnings Conference Call. Thank you for attending today's presentation. You may now disconnect.