WING - Wingstop's Wings Are Likely Clipped Given Elevated Investor Exuberance

2024-06-07 05:22:40 ET

Summary

• Wingstop reported strong Q1 FY24 earnings where revenue and earnings grew 34.1% and 45.3% YoY respectively, driven by strong growth in same-store sales and net new restaurant additions.
• As it grows its AUV, it is improving overall unit economics for its brand partners, leading to record new restaurant developments in its pipeline for FY24, coupled with expanding margins.
• Although the management raised its guidance for same-store sales to grow in the low double digits, there is excessive investor optimism baked in the valuation.
• Given the uncertain global macroeconomic landscape along with a weakening US labor market, I believe there is more downside than upside for the stock, making it a “sell”.

Introduction & Investment Thesis

Wingstop ( WING ) is the largest fast casual chicken-wings-focused restaurant chain in the world, which has outperformed the S&P 500 and Nasdaq 100 YTD. The company reported its Q1 FY24 earnings, where revenue and earnings grew 34.1% and 45.3% YoY, respectively, as it continued to expand its Average Unit Volume ("AUV") with growing same-store sales and opening net new locations to a total of 2279 locations worldwide. As the company continues to scale its brand awareness and better leverage its digital guest database to drive personalization efforts to acquire and retain its customers, it is also improving its overall unit economics, leading to a record number of new restaurants in development agreements in its pipeline from favorable franchise environments, while simultaneously expanding its margins from better supplier relations to minimize food cost volatility....

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