Wingstop(WING) - 2022 Q4 - Annual Report

Part I Business Wingstop is a highly franchised fast-casual chicken wing chain with over 1,950 global locations, aiming to be a Top 10 Global Restaurant Brand through growth and digital sales - Wingstop is the world's largest fast-casual chicken wings-focused restaurant chain, with over 1,950 locations worldwide as of year-end 2022[21] - The company operates on an asset-light, highly-franchised business model, with approximately 98% of its restaurants owned and operated by independent franchisees[22] - Wingstop's vision is to become a Top 10 Global Restaurant Brand, targeting over 4,000 domestic and 3,000 international restaurants[25] - Digital sales account for over 60% of total sales, supported by CRM and a proprietary digital platform[27] Domestic Restaurant Unit Economics (FY 2022) | Metric | Value (USD) | | :--- | :--- | | Average Unit Volume (AUV) | ~$1.6 million | | Average Estimated Initial Investment | ~$440,000 (excluding real estate) | | Target Year 2 Unlevered Cash-on-Cash Return | ~50%+ | - As of December 31, 2022, Wingstop had 238 international franchised restaurants across eight countries[33] Risk Factors The company faces significant risks including franchisee reliance, growth execution, food safety, supply chain disruptions, chicken wing price volatility, competition, and cybersecurity - Growth strategy is substantially dependent on new restaurant development by franchisees and their ability to secure financing, as Wingstop does not provide direct financing[63][64] - A substantial portion of revenue comes from royalties from franchised restaurants (98% of the system), making performance reliant on franchisee operational success and financial stability[66] - The company is susceptible to volatility in food costs, especially for bone-in chicken wings, which have no established fixed-price markets, experiencing substantial inflation in 2021 and significant deflation in 2022[75] - All domestic restaurants are sourced through a single distributor, Performance Food Group (PFG), creating a dependency risk for the entire supply chain[83][44] - Significant geographic concentration exists, with 57% of domestic restaurants located in Texas, California, Illinois, and Florida, making the business susceptible to regional economic and environmental events[108] - The company faces cybersecurity risks due to reliance on technology for digital sales, payment processing, and data storage, where a breach could lead to data loss, operational disruption, and reputational damage[86][87][88] - The terms of the company's securitized debt include restrictive covenants, such as maintaining a specified debt service coverage ratio, where a breach could result in a rapid amortization event or default[128][129] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[141] Properties Wingstop owns its 78,000 sq ft corporate headquarters in Addison, Texas, with company-owned restaurants in leased 1,700 sq ft facilities - The company owns its corporate headquarters and global support center, a 78,000 square foot office building in Addison, Texas[142] - All company-owned restaurants are located in leased facilities, with a typical restaurant occupying approximately 1,700 square feet[143][144] Legal Proceedings The company is involved in various ordinary course legal actions, none expected to materially affect its business or financial condition - The company is not party to any pending legal proceedings expected to have a material adverse effect on its business, financial condition, or results of operations[145] Mine Safety Disclosures This item is not applicable to the company - Not applicable[146] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Wingstop's common stock trades on NASDAQ under 'WING', with no Q4 2022 equity repurchases and a $0.19 per share quarterly dividend declared in February 2023 - The company's common stock trades on the NASDAQ Global Select Market under the symbol 'WING'[149] - No equity securities were repurchased during the fourth quarter of the fiscal year ended December 31, 2022[151] - On February 21, 2023, the board of directors declared a quarterly dividend of $0.19 per share of common stock, payable on March 31, 2023[154] Reserved This section is intentionally left blank Management's Discussion and Analysis of Financial Condition and Results of Operations In FY2022, Wingstop achieved significant growth with $2.7 billion system-wide sales and $357.5 million total revenue, driven by new openings, same-store sales, and lower chicken wing costs Fiscal Year 2022 Performance Highlights | Metric | FY 2022 (USD) | Change vs. FY 2021 (%) | | :--- | :--- | :--- | | System-wide Sales | $2.7 billion | +16.8% | | Total Revenue | $357.5 million | +26.6% | | Net Income | $52.9 million | +24.1% | | Adjusted EBITDA | $108.8 million | +23.1% | | Domestic Same Store Sales Growth | 3.4% | - | | System-wide Restaurant Count | 1,959 | +13.2% (228 net openings) | | Domestic AUV | $1.6 million | - | Restaurant Count Growth (2021-2022) | Restaurant Type | End of 2021 (Count) | End of 2022 (Count) | | :--- | :--- | :--- | | Domestic Franchised | 1,498 | 1,678 | | Domestic Company-Owned | 36 | 43 | | International Franchised | 197 | 238 | | Total System-wide | 1,731 | 1,959 | - The increase in total revenue was driven by 221 net franchise restaurant openings, 3.4% domestic same-store sales growth, and an increase in the national advertising fund contribution rate from 4% to 5%[179][180] - Cost of sales as a percentage of company-owned restaurant sales decreased from 81.7% to 79.3%, primarily due to a 26.9% decrease in the cost of bone-in chicken wings[182][184] - Net cash from operating activities increased to $76.2 million in FY2022 from $48.9 million in FY2021, driven by higher operating income and changes in Ad Fund cash flows[196][197] - In March 2022, the company completed a securitized financing transaction, issuing $250 million in new notes and establishing a new $200 million variable funding facility, with proceeds used for a special dividend of $119.5 million, fees, and general corporate purposes[199][200] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are commodity price fluctuations, especially for bone-in chicken wings, and interest rate changes, though its debt is predominantly fixed-rate - The company is exposed to commodity price risk, especially for bone-in chicken wings, which have no established fixed-price markets; a hypothetical 10% increase in wing costs in FY2022 would have increased cost of sales by approximately $1.5 million[208] - Interest rate risk is largely mitigated by a predominantly fixed-rate debt structure; however, the company is exposed to interest rate increases on its $200 million variable funding note facility, which had no outstanding borrowings as of December 31, 2022[209] Financial Statements and Supplementary Data This section presents Wingstop's audited consolidated financial statements for FY2022, including Balance Sheets, Income, Stockholders' Deficit, and Cash Flow Statements, with KPMG LLP's audit report Report of Independent Registered Public Accounting Firm KPMG LLP issued unqualified opinions on Wingstop's FY2022 consolidated financial statements and internal controls, noting a critical audit matter for franchisee-reported revenue - KPMG LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2022[221][256] - A critical audit matter was identified regarding the sufficiency of audit evidence for royalty revenue and advertising fees, as this revenue is derived from sales data reported by franchisees[259][261] Consolidated Balance Sheets As of December 31, 2022, Wingstop's total assets increased to $424.2 million, liabilities to $815.1 million due to debt, resulting in a $390.9 million stockholders' deficit Consolidated Balance Sheet Data (in thousands USD) | Account | Dec 31, 2022 | Dec 25, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $184,496 | $48,583 | | Total Assets | $424,190 | $249,203 | | Long-term debt, net | $706,846 | $469,394 | | Total Liabilities | $815,051 | $558,728 | | Total stockholders' deficit | $(390,861) | $(309,525) | Consolidated Statements of Comprehensive Income For FY2022, Wingstop's total revenue grew to $357.5 million, operating income increased to $91.9 million, and net income reached $52.9 million, or $1.77 per diluted share Consolidated Income Statement Highlights (in thousands USD, except per share data) | Metric | FY 2022 (USD) | FY 2021 (USD) | | :--- | :--- | :--- | | Total Revenue | $357,521 | $282,502 | | Operating Income | $91,933 | $73,756 | | Net Income | $52,947 | $42,658 | | Diluted Earnings Per Share | $1.77 | $1.42 | Consolidated Statements of Cash Flows In FY2022, net cash from operating activities was $76.2 million, investing used $28.7 million, and financing provided $103.3 million, increasing cash and equivalents by $150.8 million Summary of Cash Flows (in thousands USD) | Activity | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $76,238 | $48,878 | | Net cash used in investing activities | $(28,683) | $(29,853) | | Net cash provided by (used in) financing activities | $103,254 | $(23,389) | | Net change in cash, cash equivalents and restricted cash | $150,809 | $(4,364) | Notes to Consolidated Financial Statements The notes detail accounting policies and financial data, including revenue disaggregation, securitized debt, lease obligations, stock-based compensation, the $250 million new debt issuance, and $4.00 per share special dividend - The company's fiscal year 2022 consisted of 53 weeks, while 2021 and 2020 each consisted of 52 weeks[278] - In fiscal year 2022, the company paid a special dividend of $4.00 per share ($119.5 million total) and regular dividends totaling $0.72 per share ($21.5 million total)[310][312] - On March 9, 2022, the company issued $250 million of Series 2022-1 3.734% Fixed Rate Senior Secured Notes, Class A-2, and entered into a new $200 million variable funding note facility[330] - The company acquired 3 restaurants from franchisees for a total purchase price of $7.8 million during fiscal year 2022[357][358] Disaggregation of Revenue (in thousands USD) | Revenue Source | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Royalty revenue | $142,900 | $119,396 | | Advertising fees | $119,011 | $81,529 | | Franchise fees | $4,357 | $4,020 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on any matter of accounting principles, practices, or financial statement disclosure - None[211] Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with KPMG LLP issuing an unqualified attestation report - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[213] - Management assessed internal control over financial reporting as effective as of December 31, 2022, based on the COSO framework (2013)[217] - KPMG LLP, the independent registered public accounting firm, issued an unqualified attestation report on the effectiveness of the company's internal control over financial reporting[218][221] Other Information There is no other information to report in this section - None[228] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[230] Part III Directors, Executive Compensation, Security Ownership, and Other Matters Information for Items 10-14, covering directors, executive compensation, security ownership, related transactions, and accountant fees, is incorporated by reference from the 2023 Proxy Statement - Information for Item 10 (Directors, Executive Officers and Corporate Governance) will be included in the 2023 Proxy Statement and is incorporated by reference[233] - Information for Item 11 (Executive Compensation) will be included in the 2023 Proxy Statement and is incorporated by reference[234] - Information for Items 12, 13, and 14 will be included in the 2023 Proxy Statement and is incorporated by reference[235][236][237] Part IV Exhibits and Financial Statement Schedules This section lists exhibits filed with or incorporated by reference into the Form 10-K, including governance documents, debt agreements, and compensation plans, with no financial statement schedules - This section provides a list of exhibits filed as part of the report, including the Amended and Restated Certificate of Incorporation, debt agreements, and various compensation plans[240][242] Form 10-K Summary The company did not provide a Form 10-K summary - None[245]