Wingstop Inc. Reports Fiscal Fourth Quarter and Fiscal Year 2015 Financial Results

DALLAS, March 03, 2016 (hospitalitybusinessnews.com) — Wingstop Inc. (NASDAQ:WING) today announced fiscal fourth quarter and fiscal year 2015 financial results for the period ended December 26, 2015 and annual guidance for fiscal year 2016.

Highlights for the Fiscal Fourth Quarter 2015 compared to the Fiscal Fourth Quarter 2014

  • Total revenue increased 14.0% to $20.6 million
  • System-wide restaurant count increased 18.7% to 845 worldwide locations
  • Domestic same store sales increased 5.9%
  • Net income increased to $3.8 million, or $0.13 per diluted share, compared to $1.5 million, or $0.06 per diluted share
  • Adjusted EBITDA*, a non-GAAP measure, increased 35.8% to $7.9 million
  • Adjusted net income*, a non-GAAP measure, increased 65.3% to $3.8 million
  • Adjusted earnings per pro-forma diluted share*, a non-GAAP measure, was $0.13, an increase of 62.5% from the prior year period


Highlights for the Fiscal Year 2015 compared to the Fiscal Year 2014:

  • Total revenue increased 15.6% to $78.0 million
  • 133 net openings in fiscal year 2015, an increase of 35.7% compared to 2014 net openings
  • Domestic same store sales increased 7.9%
  • Net income increased 12.5% to $10.1 million, or $0.36 per diluted share, compared to $9.0 million, or $0.34 per diluted share
  • Adjusted EBITDA*, a non-GAAP measure, increased 18.5% to $28.9 million
  • Adjusted net income*, a non-GAAP measure, increased 29.4% to $13.6 million
  • Adjusted earnings per pro-forma diluted share*, a non-GAAP measure, was $0.47, an increase of 27.0% from the prior year


* Adjusted EBITDA, adjusted net income and adjusted earnings per pro-forma diluted share are non-GAAP measures. Reconciliations of adjusted EBITDA, adjusted net income and adjusted pro-forma diluted EPS 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.”

President and Chief Executive Officer Charlie Morrison stated, “We delivered strong performance in 2015 by successfully executing on our growth strategy and exceeding our annual guidance across all key metrics. We grew our system-wide restaurant count by 19% with 133 net new store openings and posted our 12th consecutive year of positive same store sales with a 7.9% increase in domestic same store sales. This yielded a 15.6% increase in our top-line, which we then leveraged into even higher growth of 18.5% in adjusted EBITDA and 29.4% in adjusted net income. Let me thank our entire team, franchisees, and loyal fan base for their contributions to these achievements.”

Morrison concluded, “We firmly believe that Wingstop is a unique brand in a category of one, and we continue to make progress towards our full potential of an estimated 2,500 domestic restaurants. For 2016, we have outlined in our guidance another strong performance for system-wide store openings, domestic same store sales, and adjusted EBITDA, among other items. Our outlook reflects the attractive characteristics of a growth-oriented concept with appealing franchisor cash flow attributes.”

Key Operating Metrics for the Fiscal Fourth Quarter 2015 Compared to the Fiscal Fourth Quarter 2014

Thirteen Weeks Ended
December 26,
2015
December 27,
2014
Number of system-wide restaurants open at end of period 845 712
Number of domestic franchise restaurants open at end of period 767 652
Number of international franchise restaurants open at end of period 59 41
System-wide sales (in thousands) $ 217,582 $ 181,990
System-wide domestic same store sales growth 5.9 % 12.5 %
Adjusted EBITDA (in thousands) $ 7,895 $ 5,814


Fiscal Fourth Quarter 2015 Financial Results

Total revenue for the fiscal fourth quarter 2015 increased 14.0% to $20.6 million from $18.1 million in the fiscal fourth quarter last year.

  • Royalty revenue and franchise fees increased 16.7% to $12.5 million from $10.7 million in the fiscal fourth quarter last year. This was primarily due to a 19.2% increase in the number of franchised restaurants and domestic same store sales growth of 5.9%.
  • Company-owned restaurant sales increased $0.7 million to $8.0 million from $7.3 million in the fiscal fourth quarter last year. The increase was the result of company-owned domestic same store sales growth of 9.9%.

Cost of sales increased 6.2% to $5.6 million from $5.3 million in the prior fiscal year’s fourth quarter. As a percentage of company-owned restaurant sales, cost of sales decreased 240 basis points to 70.2% from 72.6%. The decrease was primarily driven by a 7% decrease in the commodity cost of bone-in chicken wings, coupled with sales leverage and operational efficiencies in both food and labor costs.

Selling, general & administrative expenses (SG&A) decreased to $7.7 million from $8.9 million in the prior fiscal year’s fourth quarter. The decrease in SG&A was primarily due to $1.2 million of expenses incurred in the prior fiscal year’s fourth quarter associated with our preparation to be a public company.

Net income increased 152.8% to $3.8 million, or $0.13 per diluted share, compared to net income of $1.5 million, or $0.06 per diluted share in the prior fiscal year’s fourth quarter.

Adjusted net income increased 65.3% to $3.8 million, or $0.13 per pro-forma diluted share, compared to $2.3 million, or $0.08 per pro-forma diluted share, in the prior fiscal year’s fourth quarter. A reconciliation between net income and adjusted net income as well as diluted shares to pro-forma diluted shares is included in the accompanying financial data.

Key Operating Metrics for the Fiscal Year 2015 Compared to the Fiscal Year 2014

Year Ended
December 26,
2015
December 27,
2014
Number of system-wide restaurants open at end of period 845 712
Number of domestic franchise restaurants open at end of period 767 652
Number of international franchise restaurants open at end of period 59 41
System-wide sales (in thousands) $ 821,248 $ 678,771
System-wide domestic same store sales growth 7.9 % 12.5 %
Adjusted EBITDA (in thousands) $ 28,879 $ 24,378


Fiscal Year 2015 Financial Results

Total revenue for fiscal year 2015 increased 15.6% to $78.0 million from $67.4 million in the last fiscal year.

  • Royalty revenue and franchise fees increased 22.8% to $46.7 million from $38.0 million in the prior fiscal year. This was primarily due to a 19.2% increase in the number of franchised restaurants and domestic same store sales growth of 7.9%.
  • Company-owned restaurant sales increased $1.9 million to $31.3 million from $29.4 million in the prior fiscal year. The increase was the result of company-owned domestic same store sales growth of 9.4%, which was partially offset by the refranchising of five company-owned restaurants during the first quarter of 2014.

Cost of sales increased 8.5% to $22.2 million from $20.5 million in the prior fiscal year. As a percentage of company-owned restaurant sales, cost of sales increased 140 basis points to 71.0% from 69.6%. The increase was primarily driven by a 17.1% increase in the commodity cost of bone-in chicken wings, which was partially offset by sales leverage and operational efficiencies in both food and labor costs.

SG&A increased to $33.4 million from $26.0 million in the prior fiscal year. The increase in SG&A was primarily due to a one-time fee of $3.3 million for the termination of a management agreement coupled with headcount additions and other recurring costs to support our growth.

Net income increased 12.5% to $10.1 million, or $0.36 per diluted share, compared to net income of $9.0 million, or $0.34 per diluted share in the prior fiscal year.

Adjusted net income increased 29.4% to $13.6 million, or $0.47 per pro-forma diluted share, compared to $10.5 million, or $0.37 per pro-forma diluted share, in the prior fiscal year. A reconciliation between net income and adjusted net income as well as diluted shares to pro-forma diluted shares is included in the accompanying financial data.

Restaurant Development

As of December 26, 2015, there were 845 Wingstop restaurants system-wide. This included 786 restaurants in the United States, of which 767 were franchised restaurants and 19 were company-owned. Our international footprint consisted of 59 franchised restaurants across six countries. During the fourth quarter, there were 40 system-wide Wingstop openings, including 31 domestic franchised and 9 international franchised locations.

Fiscal Year 2016 Financial Outlook

For the fiscal year ending December 31, 2016, we are providing the following financial outlook that is consistent with our long-term targets:

  • Total revenue between $88 million and $89 million, an increase of 13% to 14% from 2015
  • 125 to 135 net system-wide restaurant openings, representing approximately 15% unit growth. This includes one additional corporate restaurant that is expected to open in the second or third fiscal quarter of 2016
  • Domestic same store sales growth in the low single digits
  • SG&A expenses between $33 million and $34 million inclusive of approximately $1.3 million of stock based compensation expense, $0.9 million of expenses associated with our franchisee convention, $0.8 million of expenses associated with the 53rd week and $0.8 million of incremental on-going public company costs
  • Adjusted EBITDA of approximately $33 million, an increase of 14% from 2015
  • Adjusted earnings per pro-forma diluted share of approximately $0.55
  • Diluted share count of approximately 29 million shares
  • Included in the above amounts is the expected impact of the 53rd week of fiscal year 2016, which is approximately $1.4 million of revenue and $0.3 million of adjusted EBITDA


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 management fees and expense reimbursement, 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 plus management fees, transactions costs and non-cash gains and losses resulting from the disposal of assets, minus related adjustments to income tax expense.

Pro-forma diluted share count gives historical effect to the additional 2,150,000 shares of our common stock issued in the IPO as if all shares had been outstanding as of December 28, 2013.

Adjusted earnings per pro-forma diluted share is defined as adjusted net income divided by pro-forma diluted share count.

 

WINGSTOP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(amounts in thousands, except share and per share amounts)
December 26,
2015
December 27,
2014
Assets
Current assets
Cash and cash equivalents $ 10,690 $ 9,723
Accounts receivable, net 3,404 2,380
Prepaid expenses and other current assets 1,752 1,439
Advertising fund assets, restricted 3,774 3,170
Total current assets 19,620 16,712
Property and equipment, net 4,593 3,622
Goodwill 45,128 45,128
Trademarks 32,700 32,700
Customer relationships, net 18,296 19,668
Other non-current assets 805 997
Total assets $ 121,142 $ 118,827
Liabilities and stockholders’ deficit
Current liabilities
Accounts payable $ 1,360 $ 1,502
Other current liabilities 7,436 6,895
Current portion of debt 4,869
Advertising fund liabilities, restricted 3,774 3,170
Total current liabilities 12,570 16,436
Long-term debt, net of current 95,500 88,852
Deferred revenues, net of current 7,623 7,159
Deferred income tax liabilities, net 13,018 13,842
Other non-current liabilities 2,104 1,532
Total liabilities 130,815 127,821
Commitments and contingencies
Stockholders’ deficit
Common stock, $0.01 par value; 100,000,000 shares authorized; 28,581,182 and 26,101,755 shares issued and outstanding as of December 26, 2015 and December 27, 2014, respectively 286 261
Additional paid-in-capital 36,870 2,313
Accumulated deficit (46,829 ) (11,568 )
Total stockholders’ deficit (9,673 ) (8,994 )
Total liabilities and stockholders’ deficit $ 121,142 $ 118,827
WINGSTOP INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(amounts in thousands, except per share data)
Thirteen Weeks Ended
December 26,
2015
December 27,
2014
Revenue:
Royalty revenue and franchise fees $ 12,544 $ 10,745
Company-owned restaurant sales 8,033 7,312
Total revenue 20,577 18,057
Costs and expenses:
Cost of sales (1) 5,639 5,312
Selling, general and administrative 7,692 8,850
Depreciation and amortization 738 672
Total costs and expenses 14,069 14,834
Operating income 6,508 3,223
Interest expense, net 713 813
Other (income) expense, net 14 23
Income before income tax expense 5,781 2,387
Income tax expense 1,986 886
Net income $ 3,795 $ 1,501
Earnings per share
Basic $ 0.13 $ 0.06
Diluted $ 0.13 $ 0.06
Weighted average shares outstanding
Basic 28,581 26,018
Diluted 28,951 26,431
(1) exclusive of depreciation and amortization, shown separately
WINGSTOP INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(amounts in thousands, except per share data)
Year Ended
December 26,
2015
December 27,
2014
Revenue:
Royalty revenue and franchise fees $ 46,688 $ 38,032
Company-owned restaurant sales 31,281 29,417
Total revenue 77,969 67,449
Costs and expenses:
Cost of sales (1) 22,219 20,473
Selling, general and administrative 33,350 26,006
Depreciation and amortization 2,682 2,904
Total costs and expenses 58,251 49,383
Operating income 19,718 18,066
Interest expense, net 3,477 3,684
Other (income) expense, net 396 84
Income before income tax expense 15,845 14,298
Income tax expense 5,739 5,312
Net income $ 10,106 $ 8,986
Earnings per share
Basic $ 0.37 $ 0.35
Diluted $ 0.36 $ 0.34
Weighted average shares outstanding
Basic 27,497 25,846
Diluted 27,816 26,204
(1) exclusive of depreciation and amortization, shown separately
WINGSTOP INC. AND SUBSIDIARIES
Unaudited Supplemental Information
Thirteen Weeks Ended Year Ended
December 26,
2015
December 27,
2014
December 26,
2015
December 27,
2014
Domestic Franchised Activity:
Beginning of period 737 628 652 569
Openings 31 24 118 82
Closures (1 ) (3 ) (4 )
Refranchised (*) 5
Restaurants end of period 767 652 767 652
Domestic Company-Owned Activity:
Beginning of period 19 19 19 24
Openings
Closures
Refranchised (*) (5 )
Restaurants end of period 19 19 19 19
Total Domestic Restaurants 786 671 786 671
International Franchised Activity:
Beginning of period 51 31 41 21
Openings 9 9 24 20
Closures (1 ) 1 (6 )
Refranchised (*)
Restaurants end of period 59 41 59 41
Total System-wide Restaurants 845 712 845 712

(*) Restaurants sold by us to a franchisee

WINGSTOP INC. AND SUBSIDIARIES
Non-GAAP Financial Measures – EBITDA and Adjusted EBITDA
(Unaudited)
(in thousands)
Thirteen Weeks Ended Year Ended
December 26,
2015
December 27,
2014
December 26,
2015
December 27,
2014
Net income $ 3,795 $ 1,501 $ 10,106 $ 8,986
Interest expense, net 713 813 3,477 3,684
Income tax expense 1,986 886 5,739 5,312
Depreciation and amortization 738 672 2,682 2,904
EBITDA $ 7,232 $ 3,872 $ 22,004 $ 20,886
Additional adjustments:
Management fees (a) 111 237 449
Management agreement termination fee (b) 3,297
Transaction costs (c) 1,193 2,186 2,169
Gains and losses on disposal of assets (d) (86 )
Stock-based compensation expense (e) 663 638 1,155 960
Adjusted EBITDA $ 7,895 $ 5,814 $ 28,879 $ 24,378

(a) Includes management fees and other out-of-pocket expenses paid to Roark Capital Management, LLC.
(b) Represents a one-time fee paid in consideration for the termination of our management agreement with Roark Capital Management during the second quarter of 2015 in connection with our initial public offering. There are no further obligations related to management fees paid to Roark Capital Management.
(c) Represents costs and expenses related to refinancings of our credit agreement and our initial public offering; all transaction costs are included in SG&A with the exception of $172,000 that is included in Other (income) expense, net.
(d) Represents non-cash gains and losses resulting from disposal of company-owned restaurants and associated goodwill impairment.
(e) Includes non-cash, stock-based compensation.

WINGSTOP INC. AND SUBSIDIARIES
Non-GAAP Financial Measures – Adjusted Net Income,
Pro-forma Diluted Shares and Adjusted EPS
(Unaudited)
(in thousands, except per share data)
Thirteen Weeks Ended Year Ended
December 26,
2015
December 27,
2014
December 26,
2015
December 27,
2014
Numerator:
Net income $ 3,795 $ 1,501 $ 10,106 $ 8,986
Adjustments
Management fees (a) 111 237 449
Management agreement termination fee (b) 3,297
Transaction costs (c) 1,193 2,186 2,169
Gains and losses on disposal of assets (d) (86 )
Tax effect of adjustments (e) (509 ) (2,201 ) (987 )
Adjusted net income $ 3,795 $ 2,296 $ 13,625 $ 10,531
Denominator:
Weighted-average shares outstanding – diluted 28,951 26,431 27,816 26,204
Adjustments
Assumed issuance of shares in connection with the IPO (f) 2,150 981 2,150
Pro-forma weighted-average shares outstanding – diluted 28,951 28,581 28,797 28,354
Adjusted earnings per pro-forma diluted share $ 0.13 $ 0.08 $ 0.47 $ 0.37

(a) Includes management fees and other out-of-pocket expenses paid to Roark Capital Management, LLC.
(b) Represents a one-time fee paid in consideration for the termination of our management agreement with Roark Capital Management during the second quarter of 2015 in connection with our initial public offering. There are no further obligations related to management fees paid to Roark Capital Management.
(c) Represents costs and expenses related to refinancings of our credit agreement and our initial public offering; all transaction costs are included in SG&A with the exception of $172,000 that is included in Other (income) expense, net.
(d) Represents non-cash gains and losses resulting from disposal of company-owned restaurants and associated goodwill impairment.
(e) Represents the tax effect of the aforementioned adjustments to reflect corporate income taxes at assumed effective tax rate of 38.6% and 39.0% for the periods ended December 26, 2015 and December 27, 2014, respectively, which includes provisions for U.S. federal income taxes, and assumes the respective statutory rates for applicable state and local jurisdictions.
(f) Adjustment to give effect to shares issued in the Company’s initial public offering as if the shares were issued and outstanding as of December 28, 2013.

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