Wingstop Inc. Reports Fiscal Fourth Quarter and Full Year 2018 Financial Results

February 27, 2019 4:05 PM

DALLAS, Feb. 27, 2019 (GLOBE NEWSWIRE) -- Wingstop Inc. (NASDAQ: WING) today announced financial results for the fiscal fourth quarter and fiscal year ended December 29, 2018.

Highlights for the fiscal fourth quarter 2018 compared to the fiscal fourth quarter 2017*:

Highlights for the fiscal year 2018 compared to the fiscal year 2017*:

* In the first quarter of 2018, the Company adopted Accounting Standards Update No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers (Topic 606), which changed the timing of recognition of initial franchise fees, development fees, territory fees for our international business, and renewal and transfer fees, as well as the reporting of advertising fund contributions and related expenditures. See the “Adoption of New Accounting Guidance” section below for additional information. Amounts presented for the fiscal fourth quarter and fiscal year ended December 30, 2017 have been adjusted to reflect the adoption of ASU 2014-09.

** Adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share are non-GAAP measures. Reconciliations of adjusted EBITDA, adjusted net income, and adjusted earnings per diluted share to the most directly comparable financial measures presented in accordance with GAAP are set forth in the schedules accompanying this release. See “Non-GAAP Financial Measures.”

“Driven by our vision to become a top 10 global restaurant brand and our mission to serve the world flavor, we are pleased to report another year of strong growth across all key metrics. Additionally, 2018 marked another year where we continued to demonstrate our dedication to returning capital to shareholders by returning over $192 million in dividends,” stated Charlie Morrison, Chairman and Chief Executive Officer. “We remain focused on our strategic long-term growth drivers of national advertising, digital innovation, delivery and unit expansion, and we believe we are executing against a strategy that will continue to deliver strong same store sales growth, best-in-class unit economics and strong shareholder returns in 2019 and the years to come.”

Key operating metrics for the fiscal fourth quarter 2018 compared to the fiscal fourth quarter 2017

Fiscal Quarter Ended
December 29, 2018 December 30, 2017
Number of system-wide restaurants open at end of period1,252 1,133
Number of domestic franchise restaurants open at end of period1,095 1,004
Number of international franchise restaurants open at end of period128 106
System-wide sales (in thousands)$327,715 $284,980
System-wide domestic same store sales growth6.0% 5.2%
Net income (in thousands)$2,419 $8,072
Adjusted net income (in thousands)$4,295 $4,425
Adjusted EBITDA (in thousands)$12,500 $10,392

Fiscal fourth quarter 2018 financial results

Total revenue for the fiscal fourth quarter 2018 increased 15.1% to $40.5 million from $35.2 million in the fiscal fourth quarter last year.

Cost of sales increased to $8.9 million from $7.5 million in the fiscal fourth quarter of prior year. As a percentage of company-owned restaurant sales, cost of sales decreased to 71.0% from 74.5%. The decrease was driven primarily by a 16.7% decrease in the cost of bone-in chicken wings as compared to the prior year period, as well as our ability to leverage costs due to the 4.6% increase in company-owned restaurant same store sales.

Advertising expenses increased $0.5 million to $8.4 million from $7.9 million in the fiscal fourth quarter of prior year. Advertising expenses are recognized at the same time the related revenue is recognized, which does not necessarily correlate to the actual timing of the related advertising spend.

Selling, general & administrative expenses (“SG&A”) increased 28.5% to $13.4 million compared to $10.4 million in the fiscal fourth quarter of prior year. The increase in SG&A expense was primarily due to nonrecurring costs of $1.0 million related to the securitization financing facility and subsequent special dividend payout, which occurred in the fiscal fourth quarter 2018. The remaining increase is primarily due to an increase of $0.8 million in stock based compensation and an increase in payroll and benefit expenses related to planned headcount additions, as compared to the prior year period.

Interest expense increased $2.3 million to $3.5 million from $1.2 million in the fiscal fourth quarter of prior year. This increase is due to an increase in the principal amount of indebtedness we had outstanding.

Income tax expense increased $2.1 million to $1.3 million from a benefit of $0.8 million in the fiscal fourth quarter of prior year. This increase is due to a one-time benefit in the fourth quarter of 2017 of $3.6 million as a result of the enactment of the Tax Cuts and Jobs Act.

Net income was $2.4 million, or $0.08 per diluted share, compared to net income of $8.1 million, or $0.27 per diluted share, in the fiscal fourth quarter of prior year.

Adjusted net income of $4.3 million, or $0.15 per diluted share, was comparable to the prior year period. Reconciliations between net income and adjusted net income and between net income per diluted share and adjusted net income per diluted share are included in the accompanying financial schedules.

Key Operating Metrics for the fiscal year 2018 compared to the fiscal year 2017

Fiscal Year Ended
December 29, 2018 December 30, 2017
Number of system-wide restaurants open at end of period1,252 1,133
Number of domestic franchise restaurants open at end of period1,095 1,004
Number of international franchise restaurants open at end of period128 106
System-wide sales (in millions)$1,261 $1,087
System-wide domestic same store sales growth6.5% 2.6%
Net income (in thousands)$21,719 $23,940
Adjusted net income (in thousands)$24,720 $20,293
Adjusted EBITDA (in thousands)$48,986 $39,100

Fiscal year 2018 financial results

Total revenue for fiscal year 2018 increased 14.9% to $153.2 million from $133.3 million in the prior fiscal year.

Cost of sales increased 11.5% to $32.1 million from $28.7 million in the prior fiscal year. As a percentage of company-owned restaurant sales, cost of sales decreased 900 basis points to 68.5% from 77.5%. The decrease was driven primarily by a 20.6% decrease in the cost of bone-in chicken wings as compared to the prior fiscal year as well as our ability to leverage costs due to the 6.2% increase in company-owned restaurant same store sales.

Advertising expenses increased $1.3 million to $33.7 million from $32.4 million in the prior fiscal year. Advertising expenses are recognized at the same time the related revenue is recognized, which does not necessarily correlate to the actual timing of the related advertising spend.

SG&A increased 27.7% to $44.6 million from $34.9 million in the prior fiscal year. The increase in SG&A expense was primarily due to nonrecurring costs of $2.4 million related to our two debt refinancings and payment of special dividends during fiscal year 2018. Also contributing to the increase in SG&A was an increase of $1.9 million in stock based compensation, as well as increases in payroll and benefits expenses associated with planned headcount additions.

Interest expense increased $5.0 million to $10.1 million from $5.1 million in the prior fiscal year. This increase is due to an increase in the principal amount of indebtedness we had outstanding.

Income tax expense increased $0.4 million to $5.2 million from $4.8 million in the prior fiscal year. This increase is due to a one-time benefit recognized in the fourth quarter of 2017 of $3.6 million as a result of the enactment of the Tax Cuts and Jobs Act. This was offset by a reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018.

Net income was $21.7 million, or $0.73 per diluted share, compared to net income of $23.9 million, or $0.82 per diluted share in the prior fiscal year.

Adjusted net income increased 21.8% to $24.7 million, or $0.84 per diluted share, compared to $20.3 million, or $0.69 per diluted share, in the prior fiscal year. Reconciliations between net income and adjusted net income and between net income per diluted share and adjusted net income per diluted share are included in the accompanying financial schedules.

Adoption of New Accounting Guidance

The Company adopted ASU 2014-09 in the first quarter of 2018, using the full retrospective transition method, which resulted in adjusting each prior reporting period presented and recording a cumulative effect adjustment as of the first day of 2016. The adoption changed the timing of recognition of initial franchise fees, development fees, territory fees for our international business, and renewal and transfer fees, as well as the reporting of advertising fund contributions and related expenditures.

Restaurant Development

As of December 29, 2018, there were 1,252 Wingstop restaurants system-wide. This included 1,124 restaurants in the United States, of which 1,095 were franchised restaurants and 29 were company-owned. Our international presence consisted of 128 franchised restaurants across nine countries. During the fiscal fourth quarter 2018, there were 37 net system-wide Wingstop restaurants opened.

Quarterly Dividend

In recognition of the Company’s strong cash flow generation, confidence in the business, and commitment to returning value to stockholders, our Board of Directors has authorized and declared a quarterly dividend of $0.09 per share of common stock, totaling approximately $2.7 million. This dividend will be paid on March 27, 2019 to stockholders of record as of March 13, 2019.

Refinancing

During the fiscal fourth quarter of 2018, the Company completed its previously announced securitization financing with the placement by its special purpose subsidiary (the “Issuer”) of $320 million of a new series of securitized notes (the “Class A-2 Notes”). The Class A-2 Notes are subject to 1% annual amortization, bear interest at a rate of 4.97% per annum, and have an anticipated repayment date of December 2023. Interest and principal payments on the Class A-2 Notes are payable on a quarterly basis. In addition to the Class A-2 Notes, the Issuer also entered into a variable funding note facility, which will allow the Issuer to borrow up to $20 million as needed on a revolving basis.

Financial Outlook

The Company is reiterating its long-term targets of:

Additionally, the Company is providing an update on certain items specific to the fiscal year ending December 28, 2019:

The following definitions apply to these terms as used in this release:

Same store sales reflects the change in year-over-year sales for the comparable restaurant base. We define the comparable restaurant base to include those restaurants open for at least 52 full weeks. This measure highlights the performance of existing restaurants, while excluding the impact of new restaurant openings and closures.

System-wide sales represents net sales for all of our company-owned and franchised restaurants, as reported by franchisees.

Adjusted EBITDA is defined as net income before interest expense, net, income tax expense, and depreciation and amortization (EBITDA) further adjusted for transaction costs, gains and losses on the disposal of assets, and stock-based compensation expense. We caution investors that amounts presented in accordance with our definitions of EBITDA and Adjusted EBITDA may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate EBITDA and Adjusted EBITDA in the same manner.

Adjusted net income is defined as net income adjusted for transaction costs related to our debt refinancings and securitization and related tax adjustments.

Adjusted net income per diluted share is defined as adjusted net income divided by weighted average diluted share count.

Conference Call and Webcast

Chairman and Chief Executive Officer, Charlie Morrison, and Chief Financial Officer, Michael Skipworth, will host a conference call today to discuss the fiscal fourth quarter and fiscal year 2018 financial results at 4:30 PM Eastern Time.

The conference call can be accessed live by dialing 201-689-8562. A replay will be available two hours after the call and can be accessed by dialing 412-317-6671; the passcode is 13687555. The replay will be available through Wednesday, March 6, 2019.

The conference call will also be webcast live and later archived on the investor relations section of Wingstop’s corporate website at ir.wingstop.com under the ‘News & Events’ section.

About Wingstop

Founded in 1994 and headquartered in Dallas, Texas, Wingstop Inc. (NASDAQ: WING) operates and franchises more than 1,200 locations across the United States and nine other countries around the world. The Wing Experts’ menu features classic and boneless wings with 11 bold, distinctive flavors including Original Hot, Cajun, Atomic, Mild, Lemon Pepper, Hawaiian, Garlic Parmesan, Hickory Smoked BBQ, Louisiana Rub, Spicy Korean Q, and Mango Habanero. Wingstop’s wings are always cooked to order, hand-sauced and tossed and served with our fresh-cut, seasoned fries and made-from-scratch Ranch and Bleu Cheese dips. The Company has grown its domestic same store sales for 15 consecutive years, has been ranked #3 on the “Top 100 Fastest Growing Restaurant Chains” by Nation’s Restaurant News (2016), was ranked #7 on the “Top 40 Fast Casual Chains” by Restaurant Business (2016), and was named “Best Franchise Deal in North America” by QSR magazine (2014). For more information visit www.wingstop.com or www.wingstopfranchise.com. Follow us on facebook.com/Wingstop and Twitter @Wingstop.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use non-GAAP financial measures including those indicated above. By providing non-GAAP financial measures, together with a reconciliation to the most comparable GAAP measure, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. These measures are not intended to be considered in isolation or as substitutes for, or superior to, financial measures prepared and presented in accordance with GAAP. The non-GAAP measures used in this press release may be different from the measures used by other companies. A reconciliation of each measure to the most directly comparable GAAP measure is available in this news release. In addition, the Current Report on Form 8-K furnished to the SEC concurrent with the issuance of this press release includes a more detailed description of each of these non-GAAP financial measures, together with a discussion of the usefulness and purpose of such measures.

Forward-looking Information

Certain statements contained in this news release, as well as other information provided from time to time by Wingstop Inc. or its employees, may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “guidance,” “anticipate,” “estimate,” “expect,” “forecast,” “outlook,” “target,” “project,” “plan,” “intend,” “believe,” “confident,” “may,” “should,” “can have,” “will,” “likely,” “future” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. Examples of forward-looking statements in this news release include our fiscal year 2018 outlook for system-wide unit growth, domestic same store sales growth, SG&A expenses, interest expense, estimated effective tax rate, and our diluted share count, as well as our anticipated potential domestic restaurant expansion opportunity, positioning to make progress towards domestic restaurant potential, and progress toward our goal of becoming a top 10 global restaurant brand.

Any such forward-looking statements are not guarantees of performance or results and involve risks, uncertainties (some of which are beyond the Company’s control), and assumptions. Although we believe any forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results and cause them to differ materially from those anticipated in any forward-looking statements. Please refer to the risk factors discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q, which can be found at the SEC’s website www.sec.gov. The discussion of these risks is specifically incorporated by reference into this news release.

Any forward-looking statement made by Wingstop Inc. in this press release speaks only as of the date on which it is made. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

Media ContactBrian Bell972-707-3956bbell@wingstop.com

Investor ContactTed McHugh and Lauren TarolaEdelman Financial Communications917-530-7792WingstopFinComm@edible-inc.com

WINGSTOP INC. AND SUBSIDIARIESConsolidated Balance Sheets(amounts in thousands, except share and per share data)
December 29, 2018 December 30, 2017
Assets
Current assets
Cash and cash equivalents$12,493 $4,063
Restricted cash4,462
Accounts receivable, net5,764 4,567
Prepaid expenses and other current assets2,056 4,334
Advertising fund assets, restricted5,131 2,944
Total current assets29,906 15,908
Property and equipment, net8,338 5,826
Goodwill49,655 46,557
Trademarks32,700 32,700
Customer relationships, net14,233 15,567
Other non-current assets4,917 3,278
Total assets$139,749 $119,836
Liabilities and stockholders' deficit
Current liabilities
Accounts payable$2,750 $1,752
Other current liabilities16,201 10,929
Current portion of debt2,400 3,500
Advertising fund liabilities5,131 2,944
Total current liabilities26,482 19,125
Long-term debt, net309,374 129,841
Deferred revenues, net of current21,885 21,226
Deferred income tax liabilities, net4,866 5,920
Other non-current liabilities1,972 2,142
Total liabilities364,579 178,254
Commitments and contingencies
Stockholders' deficit
Common stock, $0.01 par value; 100,000,000 shares authorized; 29,296,939 and 29,092,669 shares issued and outstanding as of December 29, 2018 and December 30, 2017, respectively293 291
Additional paid-in-capital1,036 262
Accumulated deficit(226,159) (58,971)
Total stockholders' deficit(224,830) (58,418)
Total liabilities and stockholders' deficit$139,749 $119,836

WINGSTOP INC. AND SUBSIDIARIESConsolidated Statements of Operations(amounts in thousands, except per share data)
Thirteen Weeks Ended Year Ended
December 29, 2018 December 30, 2017 December 29, 2018 December 30, 2017
(Unaudited) (Unaudited)
Revenue:
Royalty revenue, franchise fees and other$19,086 $17,341 $71,858 $66,076
Advertising fees and related income8,910 7,861 34,484 30,174
Company-owned restaurant sales12,513 10,006 46,839 37,069
Total revenue40,509 35,208 153,181 133,319
Costs and expenses:
Cost of sales (1)8,881 7,455 32,063 28,745
Advertising expenses8,416 7,905 33,699 32,427
Selling, general and administrative13,383 10,413 44,579 34,898
Depreciation and amortization1,150 969 4,313 3,376
Total costs and expenses31,830 26,742 114,654 99,446
Operating income8,679 8,466 38,527 33,873
Interest expense, net3,500 1,223 10,123 5,131
Other expense, net1,477 1,477
Income before income tax expense3,702 7,243 26,927 28,742
Income tax expense1,283 (829) 5,208 4,802
Net income$2,419 $8,072 $21,719 $23,940
Earnings per share
Basic$0.08 $0.28 $0.74 $0.82
Diluted$0.08 $0.27 $0.73 $0.82
Weighted average shares outstanding
Basic29,296 29,094 29,231 29,025
Diluted29,620 29,459 29,587 29,424
Dividends per share$3.14 $0.07 $6.54 $0.14

(1) Cost of sales excludes depreciation and amortization, which are presented separately, and includes advertising expenses

WINGSTOP INC. AND SUBSIDIARIESUnaudited Supplemental InformationCost of Sales Margin Analysis(amounts in thousands)
Thirteen Weeks Ended
December 29,2018 As a % ofcompany-ownedrestaurantsales December 30,2017 As a % ofcompany-ownedrestaurantsales
Cost of sales:
Food, beverage and packaging costs$4,233 33.8% $3,808 38.1%
Labor costs2,938 23.5% 2,343 23.4%
Other restaurant operating expenses2,033 16.2% 1,572 15.7%
Vendor rebates(323) (2.6)% (268) (2.7)%
Total cost of sales$8,881 71.0% $7,455 74.5%

Fiscal Year Ended
December 29,2018 As a % ofcompany-ownedrestaurantsales December 30,2017 As a % ofcompany-ownedrestaurantsales
Cost of sales:
Food, beverage and packaging costs$15,540 33.2% $14,810 40.0%
Labor costs10,493 22.4% 8,878 23.9%
Other restaurant operating expenses7,223 15.4% 6,004 16.2%
Vendor rebates(1,193) (2.5)% (947) (2.6)%
Total cost of sales$32,063 68.5% $28,745 77.5%

WINGSTOP INC. AND SUBSIDIARIESUnaudited Supplemental InformationRestaurant Count
Thirteen Weeks Ended Fiscal Year Ended
December 29, 2018 December 30, 2017 December 29, 2018 December 30, 2017
Domestic Franchised Activity:
Beginning of period1,059 971 1,004 901
Openings41 36 105 115
Closures(2) (3) (8) (10)
Acquired by Company(3) (6) (2)
Restaurants end of period1,095 1,004 1,095 1,004
Domestic Company-Owned Activity:
Beginning of period26 23 23 21
Openings
Closures
Acquired from franchisees3 6 2
Restaurants end of period29 23 29 23
Total Domestic Restaurants1,124 1,027 1,124 1,027
International Franchised Activity:
Beginning of period130 94 106 76
Openings10 12 34 32
Closures(12) (12) (2)
Restaurants end of period128 106 128 106
Total System-wide Restaurants1,252 1,133 1,252 1,133

WINGSTOP INC. AND SUBSIDIARIESNon-GAAP Financial Measures - EBITDA and Adjusted EBITDA(Unaudited)(amounts in thousands)
Thirteen Weeks Ended Fiscal Year Ended
December 29, 2018 December 30, 2017 December 29, 2018 December 30, 2017
Net income$2,419 $8,072 $21,719 $23,940
Interest expense, net3,500 1,223 10,123 5,131
Income tax expense1,283 (829) 5,208 4,802
Depreciation and amortization1,150 969 4,313 3,376
EBITDA$8,352 $9,435 $41,363 $37,249
Additional adjustments:
Transaction costs (a)2,436 3,898
Stock-based compensation expense (b)1,712 957 3,725 1,851
Adjusted EBITDA$12,500 $10,392 $48,986 $39,100

(a)Represents costs and expenses related to the refinancing of our credit agreement and our public offerings; all transaction costs are included in SG&A with the exception of $1.5 million that is included in Other expense, net during the fiscal fourth quarter and fiscal year ended December 29, 2018.
(b)Includes non-cash, stock-based compensation.

WINGSTOP INC. AND SUBSIDIARIESNon-GAAP Financial Measures - Adjusted Net Income and Adjusted EPS(Unaudited)(amounts in thousands, except per share data)
Thirteen Weeks Ended Fiscal Year Ended
December 29, 2018 December 30, 2017 December 29, 2018 December 30, 2017
Numerator:
Net income$2,419 $8,072 $21,719 $23,940
Adjustments
Transaction costs (a)2,436 3,898
Tax effect of adjustments (b)(560) (897)
Impact of tax reform (c) (3,647) (3,647)
Adjusted net income$4,295 $4,425 $24,720 $20,293
Denominator:
Weighted-average shares outstanding - diluted29,620 29,459 29,587 29,424
Adjusted earnings per diluted share$0.15 $0.15 $0.84 $0.69

(a)Represents costs and expenses related to the refinancing of our credit agreement and our public offerings; all transaction costs are included in SG&A with the exception of $1.5 million that is included in Other expense, net during the fiscal fourth quarter and fiscal year ended December 29, 2018.
(b)Represents the tax effect of the aforementioned adjustments to reflect corporate income taxes at an assumed effective tax rate of 23% for the periods ended December 29, 2018, which includes provisions for U.S. federal income taxes, and assumes the respective statutory rates for applicable state and local jurisdictions.
(c)Net tax benefit due to the enactment of the Tax Act during the fiscal quarter and fiscal year ended December 30, 2017, consisting primarily of the re-measurement of deferred tax liabilities using the lower enacted corporate tax rate.

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Source: Wingstop Restaurants, Inc.

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