Wingstop(WING) - 2023 Q4 - Annual Report

PART I Business Wingstop is the largest fast-casual chicken wing chain, operating a highly-franchised model with over 2,200 global locations, aiming to be a Top 10 Global Restaurant Brand - Wingstop is the largest fast-casual chicken wing chain with over 2,200 locations worldwide, operating a primarily franchised model where approximately 98% of restaurants are independently owned[21][22] - The company's vision is to become a Top 10 Global Restaurant Brand, with a long-term goal of expanding to over 4,000 restaurants in the U.S. and over 3,000 internationally[25] Key Restaurant Operating Metrics (FY 2023) | Metric | Value | | :--- | :--- | | Domestic Average Unit Volume (AUV) | ~$1.8 million | | Average Initial Investment (Franchisee) | ~$480,000 | | Target Year 2 Unlevered Cash-on-Cash Return | ~70%+ | | Digital Sales Percentage | >60% | - Franchisees are required to pay a 6% royalty on gross sales and contribute 5% of gross sales to the national advertising fund, increasing to 5.3% in Q2 2024[40] - Chicken is the largest product cost, representing approximately 53.3% of all purchases for FY2023, with all U.S. food and packaging supplied through a single distributor[43][44] Risk Factors Key risks include franchisee dependency, intense competition, volatile food costs, food safety, cybersecurity threats, reliance on a single distributor, and legal complexities - The company's growth strategy relies substantially on new restaurant development by franchisees, dependent on their ability to access financing[65][66] - Profitability is highly susceptible to volatility in food costs, especially for bone-in chicken wings, which lack established fixed-price markets[82] - Significant cybersecurity risks exist due to reliance on technology and personal information collection, potentially leading to data loss, operational disruption, and reputational damage[85][86] - Digital sales accounted for 67.0% of domestic sales in Q4 2023, creating significant dependence on the reliability of digital commerce platforms and third-party delivery apps[95] - A significant geographic concentration exists, with 56% of domestic restaurants in Texas (23%), California (20%), Florida (7%), and Illinois (6%), exposing the company to regional risks[112] - Restrictive covenants in the company's securitized debt facility, such as a debt service coverage ratio, could trigger a default or rapid amortization event if breached[132][133] Unresolved Staff Comments The company has no unresolved staff comments from the Securities and Exchange Commission - None[144] Cybersecurity Wingstop's cybersecurity program follows the NIST framework, overseen by the Board's Technology Committee, with no material incidents reported - The company's cybersecurity program is guided by the National Institute of Standards and Technology (NIST) Cyber Security Framework, including security policies, risk assessments, and a third-party risk management program[145][148] - Oversight is provided by the Technology Committee of the Board, consisting of five independent directors, in conjunction with the Audit Committee[151] - As of the report date, the company is unaware of any cybersecurity incidents materially affecting its business, operations, or financial condition[150] Properties Wingstop owns its 78,000 sq ft headquarters; all 2,214 system restaurants operate in leased facilities averaging 1,700 sq ft - The company owns its 78,000 square foot corporate headquarters and global support center in Addison, Texas[154] - All company-owned restaurants are in leased properties, typically under five- to ten-year leases, with an average size of approximately 1,700 square feet[155][156] Legal Proceedings The company is involved in ordinary course legal actions, none of which are expected to materially affect its financials - The company is involved in various claims and legal actions in the ordinary course of business, but none are expected to have a material adverse effect on its financials[157] Mine Safety Disclosures This item is not applicable to the company - Not applicable[158] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Wingstop's common stock trades on NASDAQ, declared a $0.22 per share dividend, and repurchased $125.0 million under a $250.0 million program - On February 20, 2024, the company's board declared a quarterly dividend of $0.22 per share[162] - In August 2023, the Board approved a $250.0 million share repurchase program, with $125.0 million remaining available as of December 30, 2023[165] - The company executed a $125.0 million Accelerated Share Repurchase (ASR) agreement, concluding on December 21, 2023, repurchasing and retiring 645,952 shares at an average price of $193.51[166] Management's Discussion and Analysis of Financial Condition and Results of Operations FY2023 saw 27.1% system-wide sales growth to $3.5 billion, 28.7% revenue increase to $460.1 million, and 32.5% net income growth to $70.2 million, driven by unit expansion and same-store sales Fiscal Year 2023 Performance Highlights (vs. FY 2022) | Metric | FY 2023 | FY 2022 | % Change | | :--- | :--- | :--- | :--- | | System-wide Sales | $3.5 billion | $2.7 billion | +27.1% | | Total Revenue | $460.1 million | $357.5 million | +28.7% | | Net Income | $70.2 million | $52.9 million | +32.5% | | Adjusted EBITDA | $146.5 million | $107.6 million | +36.1% | | Domestic Same Store Sales | 18.3% | 3.4% | +14.9 p.p. | | System-wide Restaurants | 2,214 | 1,959 | +13.0% | - Total revenue increased by $102.5 million (28.7%), primarily due to a $48.5 million increase in royalty and franchise fees and a $38.1 million increase in advertising fees, reflecting strong sales growth and unit expansion[190][191][192] - Cost of sales for company-owned restaurants decreased as a percentage of sales to 73.7% from 79.3% in the prior year, mainly due to a 27.1% decrease in bone-in chicken wing costs[193] - Selling, general and administrative (SG&A) expenses increased by $29.8 million (44.5%) to $96.9 million, driven by higher incentive compensation, consulting fees, and increased headcount[197] Cash Flow Summary (in thousands) | Activity | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Net cash from Operating activities | $121,601 | $76,238 | | Net cash used in Investing activities | ($52,153) | ($28,683) | | Net cash (used in) from Financing activities | ($155,487) | $103,254 | Quantitative and Qualitative Disclosures About Market Risk The company faces commodity price risk from volatile bone-in chicken wing costs, with interest rate risk mitigated by fixed-rate debt - The company is exposed to commodity price risk, especially for bone-in chicken wings, which lack established fixed-price markets and accounted for 16.8% of company-owned restaurant cost of sales in FY2023[221] - A hypothetical 10% increase in bone-in chicken wing costs in FY2023 would have increased company-owned restaurant cost of sales by approximately $1.2 million[221] - The company's long-term debt is predominantly fixed-rate, reducing exposure to interest rate increases, with no outstanding borrowings on the 2022 Variable Funding Notes as of December 30, 2023[222] Financial Statements and Supplementary Data This section directs readers to the consolidated financial statements and supplementary data starting on page F-1 - This item directs the reader to the company's financial statements, which begin on page F-1 of the filing[223] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding financial disclosure - None[224] Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective, affirmed by an unqualified auditor opinion - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 30, 2023[226] - Management's assessment, based on the COSO framework, concluded that the company's internal control over financial reporting was effective as of December 30, 2023[229] - The independent auditor, KPMG LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[230][232] Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during Q4 2023 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the fourth quarter ended December 30, 2023[239] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement - Information for this item is incorporated by reference from the 2024 Annual Meeting of Stockholders Proxy Statement[243] Executive Compensation Executive compensation information is incorporated by reference from the 2024 Annual Meeting of Stockholders Proxy Statement - Information for this item is incorporated by reference from the 2024 Annual Meeting of Stockholders Proxy Statement[244] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the 2024 Annual Meeting of Stockholders Proxy Statement - Information for this item is incorporated by reference from the 2024 Annual Meeting of Stockholders Proxy Statement[245] Certain Relationships and Related Transactions, and Director Independence Related party transactions and director independence information is incorporated by reference from the 2024 Proxy Statement - Information for this item is incorporated by reference from the 2024 Annual Meeting of Stockholders Proxy Statement[246] Principal Accountant Fees and Services Principal accountant fees and services information is incorporated by reference from the 2024 Proxy Statement - Information for this item is incorporated by reference from the 2024 Annual Meeting of Stockholders Proxy Statement[247] PART IV Exhibits and Financial Statement Schedules This section references the Index to Financial Statements on page F-1 and lists all filed or incorporated exhibits - This item refers to the Index to Financial Statements on page F-1 and lists all exhibits filed with the report[250][251] Form 10-K Summary The company indicates that no Form 10-K summary is provided - None[255]