Wingstop Inc. Reports Fiscal Fourth Quarter 2016 Financial Results

DALLAS, March 02, 2017 (hospitalitybusinessnews.com) — Wingstop Inc. today announced fiscal fourth quarter and fiscal year 2016 financial results for the period ended December 31, 2016 and annual guidance for fiscal year 2017.

Highlights for the Fiscal Fourth Quarter 2016 compared to the Fiscal Fourth Quarter 2015

  • Total revenue increased 20.3% to $24.8 million
  • System-wide restaurant count increased 18.1% to 998 worldwide locations
  • Domestic same store sales increased 1.0%
  • Net income increased to $4.3 million, or $0.15 per diluted share, compared to $3.8 million, or $0.13 per diluted share
  • Adjusted EBITDA*, a non-GAAP measure, increased 27.1% to $10.0 million
  • Adjusted net income*, a non-GAAP measure, increased 15.5% to $4.4 million
  • Adjusted earnings per pro-forma diluted share*, a non-GAAP measure, increased 15.4% to $0.15 from the prior fiscal year

Highlights for the Fiscal Year 2016 compared to the Fiscal Year 2015

  • Total revenue increased 17.2% to $91.4 million
  • 153 net openings in fiscal year 2016, an increase of 15.0% compared to 133 net openings in fiscal year 2015
  • Domestic same store sales increased 3.2%
  • Net income increased to $15.4 million, or $0.53 per diluted share, compared to $10.1 million, or $0.36 per diluted share
  • Adjusted EBITDA*, a non-GAAP measure, increased 23.2% to $35.6 million
  • Adjusted net income*, a non-GAAP measure, increased 24.2% to $16.9 million
  • Adjusted earnings per pro-forma diluted share*, a non-GAAP measure, increased 23.4% to $0.58 from the prior fiscal 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 earnings per pro-forma 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.”

President and Chief Executive Officer Charlie Morrison stated, “2016 was an incredibly productive year at Wingstop as we executed on our key strategic and financial objectives and delivered exceptionally strong results for our shareholders.  Our system-wide restaurant count grew 18.1% including 153 net new store openings, and we ended the year with 998 restaurants worldwide.  We have now passed the 1,000 restaurant milestone, reflecting yet another step toward our goal of 2,500+ domestic restaurants and living out our mission to Serve the World Flavor.”

Morrison continued, “2016 marks our 13th consecutive year of positive same-store sales growth and another record number of unit openings, delivering 23.2% and 24.2% increases in adjusted EBITDA and adjusted net income, respectively.”

Morrison concluded, “We are excited about 2017. We recently launched national advertising, which is expected to provide us with more reach and frequency in existing media markets and first-time coverage for smaller and newer markets where we did not previously leverage TV and radio.  We believe national advertising and growth in our online channels will position us well.”

Key Operating Metrics for the Fiscal Fourth Quarter 2016 Compared to the Fiscal Fourth Quarter 2015

Fiscal Quarter Ended
December 31, 2016 December 26, 2015
Number of system-wide restaurants open at end of period 998 845
Number of domestic franchise restaurants open at end of period 901 767
Number of international franchise restaurants open at end of period 76 59
System-wide sales (in thousands) $ 265,175 $ 217,582
System-wide domestic same store sales growth 1.0 % 5.9 %
Net income (in thousands) $ 4,312 $ 3,795
Adjusted EBITDA (in thousands) $ 10,031 $ 7,895

Fiscal Fourth Quarter 2016 Financial Results

Total revenue for the fiscal fourth quarter 2016 increased 20.3% to $24.8 million from $20.6 million in the fiscal fourth quarter last year.

  • Royalty revenue and franchise fees increased $3.1 million to $15.6 million from $12.5 million in the fiscal fourth quarter last year. This was primarily due to a 18.3% increase in the number of franchised restaurants,  domestic same store sales growth of 1.0%, and approximately $0.9 million of additional revenue from the 53rd week.
  • Company-owned restaurant sales increased $1.1 million to $9.1 million from $8.0 million in the fiscal fourth quarter last year. The increase was the result of company-owned domestic same store sales growth of 1.0%, the opening of two company-owned restaurants in the Dallas area during the second and fourth fiscal quarters of 2016 and approximately $0.6 million of additional revenue from the 53rd week.

Cost of sales increased 23.4% to $7.0 million from $5.6 million in the prior fiscal year’s fourth quarter. As a percentage of company-owned restaurant sales, cost of sales increased 590 basis points to 76.1% from 70.2%. The increase was driven primarily by a 13.1% increase in commodities rates for bone-in chicken wings as compared to the prior year period, an increase in the average size of chicken wings, and an increase in labor as we make investments in roster sizes and staffing to support the continued top line growth in our company-owned restaurants, and increases related to pre-opening expenses and the ramp up of one company-owned restaurant that opened during the fourth fiscal quarter of 2016 as it achieves normal efficiency.

Selling, general & administrative expenses (SG&A) increased 13.4% to $8.7 million compared to $7.7 million in the prior fiscal year’s fourth quarter. The increase in SG&A expense is primarily due to headcount additions to support our continued growth, non-recurring professional fees of $0.1 million incurred in the current fiscal fourth quarter related to our secondary offering, and estimated incremental costs associated with the 53rd week of $0.6 million.

Net income increased to $4.3 million, or $0.15 per diluted share, compared to net income of $3.8 million, or $0.13 per diluted share in the prior fiscal year’s fourth quarter. The impact of the 53rd week on net income was $0.2 million.

Adjusted net income increased 15.5% to $4.4 million, or $0.15 per pro-forma diluted share, compared to $3.8 million, or $0.13 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 2016 Compared to the Fiscal Year 2015

Fiscal Year Ended
December 31, 2016 December 26, 2015
Number of system-wide restaurants open at end of period 998 845
Number of domestic franchise restaurants open at end of period 901 767
Number of international franchise restaurants open at end of period 76 59
System-wide sales (in thousands) $ 972,270 $ 821,248
System-wide domestic same store sales growth 3.2 % 7.9 %
Net income (in thousands) $ 15,434 $ 10,106
Adjusted EBITDA (in thousands) $ 35,576 $ 28,879

Fiscal Year 2016 Financial Results

Total revenue for fiscal year 2016 increased 17.2% to $91.4 million from $78.0 million in the prior fiscal year.

  • Royalty revenue and franchise fees increased $10.4 million to $57.1 million from $46.7 million in the prior fiscal year. This was primarily due to a 18.3% increase in the number of franchised restaurants and domestic same store sales growth of 3.2%. Also contributing to the increase is $1.1 million of contributions received from vendors for the franchisee convention. The convention is held every 18 months, and there was no convention in 2015.
  • Company-owned restaurant sales increased $3.0 million to $34.3 million from $31.3 million in the prior fiscal year. The increase was the result of company-owned domestic same store sales growth of 5.4% and the opening of two company-owned restaurants in the Dallas area during 2016.

Cost of sales increased 13.9% to $25.3 million from $22.2 million in the prior fiscal year. As a percentage of company-owned restaurant sales, cost of sales increased 280 basis points to 73.8% from 71.0%. The increase was driven primarily by a 4.4% increase in commodities rates for bone-in chicken wings as compared to the prior fiscal year, an increase in the average size of chicken wings, an increase in labor as we make investments in roster sizes and staffing to support the continued top line growth in our company-owned restaurants, and increases related to pre-opening expenses and the ramp up of two company-owned restaurants that opened during 2016 as they achieve normal efficiency.

SG&A increased 1.5% to $33.8 million compared to $33.4 million in the prior fiscal year. The increase is primarily due to $1.1 million in expenses related to the franchisee convention, which occurs every 18 months and did not occur in 2015, expenses related to the 53rd week, and increases related to headcount additions and other recurring costs associated with being a public company incurred in the current fiscal year. SG&A expense in the prior fiscal year included a one-time fee of $3.3 million, paid in consideration for the termination of our management agreement with Roark Capital Management.

Net income increased to $15.4 million, or $0.53 per diluted share, compared to net income of $10.1 million, or $0.36 per diluted share in the prior fiscal year.

Adjusted net income increased 24.2% to $16.9 million, or $0.58 per pro-forma diluted share, compared to $13.6 million, or $0.47 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 31, 2016, there were 998 Wingstop restaurants system-wide. This included 922 restaurants in the United States, of which 901 were franchised restaurants and 21 were company-owned. Our international presence consisted of 76 franchised restaurants across five countries. During the fiscal fourth quarter 2016, there were 49 net system-wide Wingstop openings, including nine international franchised locations.

Fiscal Year 2017 Financial Outlook

For the fiscal year ending December 30, 2017, we are providing the following financial outlook, which is consistent with our long-term guidance:

  • System wide unit growth of approximately 13% to 15%
  • Low single digit domestic same store sales growth
  • SG&A expenses of between $34 million and $35 million
  • Net income between $18.5 million and $18.8 million
  • Fully diluted EPS growth of 8% – 10%, which reflects 29.3 million diluted shares outstanding, over 2016 adjusted earnings per diluted share of $0.58
  • Adjusted EBITDA growth of 13% – 15%
Fiscal Year Ended
December 30, 2017
(in millions)
Low High
Net income $ 18.5 $ 18.8
Interest expense, net 5.6 5.6
Income tax expense 11.1 11.3
Depreciation and amortization 3.3 3.3
EBITDA $ 38.5 $ 39.0
Additional adjustments:
Stock-based compensation expense (a) 1.6 1.8
Adjusted EBITDA $ 40.1 $ 40.8
(a) Estimated non-cash, stock-based compensation.

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, management agreement termination fees, 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.

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
(amounts in thousands, except share and per share amounts)
December 31,
2016
December 26,
2015
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 3,750 $ 10,690
Accounts receivable, net 3,199 3,404
Prepaid expenses and other current assets 1,634 1,752
Advertising fund assets, restricted 2,533 3,774
Total current assets 11,116 19,620
Property and equipment, net 4,999 4,593
Goodwill 45,128 45,128
Trademarks 32,700 32,700
Customer relationships, net 16,914 18,296
Other non-current assets 943 313
Total assets $ 111,800 $ 120,650
Liabilities and stockholders’ deficit
Current liabilities
Accounts payable $ 1,458 $ 1,252
Other current liabilities 9,241 7,544
Current portion of debt 3,500
Advertising fund liabilities, restricted 2,533 3,774
Total current liabilities 16,732 12,570
Long-term debt, net 147,217 95,008
Deferred revenues, net of current 7,868 7,623
Deferred income tax liabilities, net 12,304 13,018
Other non-current liabilities 2,307 2,104
Total liabilities 186,428 130,323
Commitments and contingencies
Stockholders’ deficit
Common stock, $0.01 par value; 100,000,000 shares authorized; 28,747,392 and 28,581,182 shares issued and outstanding as of December 31, 2016 and December 26, 2015, respectively 287 286
Additional paid-in-capital 1,194 36,870
Accumulated deficit (76,109 ) (46,829 )
Total stockholders’ deficit (74,628 ) (9,673 )
Total liabilities and stockholders’ deficit $ 111,800 $ 120,650
WINGSTOP INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(amounts in thousands, except per share data)
Fiscal Quarter Ended
December 31,
2016
December 26,
2015
Revenue:
Royalty revenue and franchise fees $ 15,608 $ 12,544
Company-owned restaurant sales 9,144 8,033
Total revenue 24,752 20,577
Costs and expenses:
Cost of sales (1) 6,956 5,639
Selling, general and administrative 8,720 7,692
Depreciation and amortization 821 738
Total costs and expenses 16,497 14,069
Operating income 8,255 6,508
Interest expense, net 1,538 713
Other expense, net 14
Income before income tax expense 6,717 5,781
Income tax expense 2,405 1,986
Net income $ 4,312 $ 3,795
Earnings per share
Basic $ 0.15 $ 0.13
Diluted $ 0.15 $ 0.13
Weighted average shares outstanding
Basic 28,745 28,581
Diluted 29,114 28,951
(1) exclusive of depreciation and amortization, shown separately
WINGSTOP INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(amounts in thousands, except per share data)
Fiscal Year Ended
December 31,
2016
December 26,
2015
Revenue:
Royalty revenue and franchise fees $ 57,071 $ 46,688
Company-owned restaurant sales 34,288 31,281
Total revenue 91,359 77,969
Costs and expenses:
Cost of sales (1) 25,308 22,219
Selling, general and administrative 33,840 33,350
Depreciation and amortization 3,008 2,682
Total costs and expenses 62,156 58,251
Operating income 29,203 19,718
Interest expense, net 4,396 3,477
Other expense, net 254 396
Income before income tax expense 24,553 15,845
Income tax expense 9,119 5,739
Net income $ 15,434 $ 10,106
Earnings per share
Basic $ 0.54 $ 0.37
Diluted $ 0.53 $ 0.36
Weighted average shares outstanding
Basic 28,637 27,497
Diluted 28,983 27,816
(1) exclusive of depreciation and amortization, shown separately
WINGSTOP INC. AND SUBSIDIARIES
Unaudited Supplemental Information
Fiscal Quarter Ended Fiscal Year Ended
December 31,
2016
December 26,
2015
December 31,
2016
December 26,
2015
Domestic Franchised Activity:
Beginning of period 862 737 767 652
Openings 41 31 137 118
Closures (2 ) (1 ) (3 ) (3 )
Restaurants end of period 901 767 901 767
Domestic Company-Owned Activity:
Beginning of period 20 19 19 19
Openings 1 2
Closures
Restaurants end of period 21 19 21 19
Total Domestic Restaurants 922 786 922 786
International Franchised Activity:
Beginning of period 67 51 59 41
Openings 9 9 20 24
Closures (1 ) (3 ) (6 )
Restaurants end of period 76 59 76 59
Total System-wide Restaurants 998 845 998 845
WINGSTOP INC. AND SUBSIDIARIES
Non-GAAP Financial Measures – EBITDA and Adjusted EBITDA
(Unaudited)
(in thousands)
Fiscal Quarter Ended Fiscal Year Ended
December 31,
2016
December 26,
2015
December 31,
2016
December 26,
2015
Net income $ 4,312 $ 3,795 $ 15,434 $ 10,106
Interest expense, net 1,538 713 4,396 3,477
Income tax expense 2,405 1,986 9,119 5,739
Depreciation and amortization 821 738 3,008 2,682
EBITDA $ 9,076 $ 7,232 $ 31,957 $ 22,004
Additional adjustments:
Management fees (a) 237
Management agreement termination fee (b) 3,297
Transaction costs (c) 116 2,388 2,186
Stock-based compensation expense (d) 839 663 1,231 1,155
Adjusted EBITDA $ 10,031 $ 7,895 $ 35,576 $ 28,879
(a) Includes management fees and other out-of-pocket expenses paid to Roark Capital Management, LLC.
(b) Represents a one-time fee of $3.3 million that was 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 public offerings; all transaction costs are included in SG&A with the exception of $215,000 that is included in Other expense, net during the year ended December 31, 2016 and $172,000 during the year ended December 26, 2015.
(d) 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)
Fiscal Quarter Ended Fiscal Year Ended
December 31,
2016
December 26,
2015
December 31,
2016
December 26,
2015
Numerator:
Net income $ 4,312 $ 3,795 $ 15,434 $ 10,106
Adjustments
Management fees (a) 237
Management agreement termination fee (b) 3,297
Transaction costs (c) 116 2,388 2,186
Tax effect of adjustments (d) (44 ) (896 ) (2,201 )
Adjusted net income $ 4,384 $ 3,795 $ 16,926 $ 13,625
Denominator:
Weighted-average shares outstanding – diluted 29,114 28,951 28,983 27,816
Adjustments
Assumed issuance of shares in connection with the IPO (e) 981
Pro-forma weighted-average shares outstanding – diluted 29,114 28,951 28,983 28,797
Adjusted earnings per pro-forma diluted share $ 0.15 $ 0.13 $ 0.58 $ 0.47
(a) Includes management fees and other out-of-pocket expenses paid to Roark Capital Management, LLC.
(b) Represents a one-time fee of $3.3 million that was 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 public offerings; all transaction costs are included in SG&A with the exception of $215,000 that is included in Other expense, net during the year ended December 31, 2016 and $172,000 during the year ended December 26, 2015.
(d) Represents the tax effect of the aforementioned adjustments to reflect corporate income taxes at assumed effective tax rates of  37.5% and 38.6% for the periods ended December 31, 2016 and December 26, 2015, respectively, which includes provisions for U.S. federal income taxes, and assumes the respective statutory rates for applicable state and local jurisdictions.
(e) 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 27, 2014.
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