With the cost of dining out rising and uncertainty around the economy, Americans expect to curtail how much they dine out, according to the latest Consumer Confidence report.
But that may be good news for more affordable fast food takeout places, like Wingstop (NASDAQ:WING), which posted strong first-quarter earnings on Wednesday.
The chicken wing chain saw a 17% increase in revenue in the quarter to $171 million and a 16% jump in system-wide sales to $1.3 billion. While revenue fell slightly below analysts’ projections of $172 million, the numbers are still very strong in a challenging economic environment that saw the GDP shrink by 0.3% in Q1.
In addition, the fast food restaurant chain saw its net income spike 221% in the quarter, year over year, to $92.3 million, or $3.24 per share. That was aided by a net increase of $93.5 million in investment income to $93.8 million. The increase came from the sale of the company’s interest in Lemon Pepper Holdings in the U.K.
On an adjusted basis, earnings were 99 cents per share, up from 98 cents per share in Q1 of 2024. But it blew away estimates of 87 cents per share.
The results sent the stock price surging more than 12% on Wednesday to around $258 per share, making it one of the day’s top gainers.
Record Number of New Wingstops Open
The story of the quarter was the rapid growth of the chain. The company added a record 126 net new Wingstops in Q1, which is about twice as many as the same quarter a year ago. That boosted the number of restaurants worldwide to 2,689, up from 2,279 in the first quarter of 2024.
This resulted in royalty revenue and franchise fee revenue jumping 17% higher to $78.8 million, with most of the gains stemming from new franchise development.
That offset somewhat pedestrian same-store sales numbers. Overall domestic same-store sales rose just 0.5% compared to 6.2% in Q1 of 2024, while company-owned same-store sales increased 1.4% compared to a 6.2% spike in the same quarter a year ago. The slowdown reflects the weaker economy, as well as some impact from the California wildfires and storms in the Southeast.
For context, the company has franchise agreements in place for more than 2,600 of its restaurants and outright owns about 51 of them.
“Despite the challenging and unpredictable macro-environment, our first quarter results demonstrate the staying power of our strategies and resiliency in our model,” Michael Skipworth, president and CEO, said. “We opened a record 126 net new units in the first quarter, delivering 18% unit growth, nearly doubling the number of units opened during the first quarter last year.”
Same-Store Sales Guidance Lowered
The outlook suggests that a similar scenario could play out through the rest of fiscal 2025, as the macroeconomic environment presents challenges.
“Indicators we see in our business show pockets where the consumer has an elevated level of concern as they face the macroeconomic uncertainty,” Skipworth said on the earnings call. “That being said, we don’t believe what we are seeing is broad-based but rather concentrated among certain geographies which suggests to us more of a near-term issue.”
The economic landscape caused Wingstop to temper its projections for fiscal 2025, as it lowered its same-store sales guidance to 1% growth, from the previous guidance of low-to-mid single digits.
On the earnings call, CFO Alex Kalaida said the company expects to return to same-store sales growth in the third quarter. The company has had 21 straight years of same-store sales growth.
Better Performer Than Most of the Mag 7
The chain also plans to add more restaurants in 2025, opening up locations in five new international markets. Overall, they anticipate 410 to 435 new restaurants this year with a pipeline of more than 2,000 restaurant commitments. The long-term goal is 10,000 restaurants worldwide.
“Our pipeline remains strong as our brand partners are experiencing industry-leading returns. This growth is leading us to another record-breaking year of development and moving us along our path of becoming a top 10 global restaurant brand,” Skipworth said.
Thus, it boosted its global unit growth rate to 16% to 17% for the year, up from 14% to 15%.
Wingstop stock is down 8% year-to-date, even after Wednesday’s gain. But it has been a fantastic long-term investment, with a 24% annualized return over the past 10 years. That’s better than Microsoft (NASDAQ:MSFT), Meta (NASDAQ:META), Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOGL), and Amazon (NASDAQ:AMZN).
Analysts have set a median price target of $286 per share, which would be about a 10% gain for the stock. But it does remain overvalued with a P/E of 62, so heading into a shaky economy, that bears watching.