Wingstop Inc . (NASDAQ:WING), the fast-casual restaurant franchisor specializing in chicken wings, has been flying high in recent quarters, but investors are questioning whether the company can maintain its altitude in the face of potential headwinds. As the company continues its ambitious expansion plans, both domestically and internationally, analysts are weighing the opportunities and risks that lie ahead.
Strong performance and raised guidance
Wingstop has delivered impressive results in recent quarters, with comparable store sales growth exceeding 20% in the third quarter of 2024. This strong performance has led the company to raise its guidance for the full year 2024, now expecting approximately 20% same-store sales growth, up from its previous projection of low-double-digit growth.
The company's success has been driven by several factors, including increased brand awareness, effective marketing strategies, and a growing digital presence. Digital sales now account for approximately 70% of total sales, enhancing customer engagement and driving frequency.
Expansion strategy and long-term potential
Wingstop's growth strategy centers on its franchised business model, which has proven successful in driving rapid expansion. The company has raised its long-term global store potential to over 10,000 locations, up from its previous target of 7,000+. This ambitious goal is supported by strong unit economics and consistent double-digit unit growth.
International expansion remains a key focus for Wingstop, with the company seeing significant opportunities in markets outside the United States. As of the end of 2023, Wingstop had 1,926 domestic units and 288 international units, indicating substantial room for growth in both markets.
Financial performance and projections
Analysts are generally optimistic about Wingstop's financial prospects. Goldman Sachs (NYSE:GS) projects a 7% same-store sales growth in 2025, which is higher than consensus estimates. The firm anticipates revenue growth of 37% in 2024 and 23.1% in 2025, with EBITDA growth projected at 41.9% in 2024 and 27.9% in 2025.
BTIG forecasts FY24E same-store sales growth of 20.9% and FY25E growth of 5.3%. The firm also projects FY24E EPS of $3.65 and FY25E EPS of $4.45.
Barclays (LON:BARC) estimates EPS for FY1 at 3.68 and FY2 at 4.55, with a market capitalization of approximately $8.47 billion as of their latest analysis.
Competitive landscape and market position
Wingstop operates in the highly competitive U.S. restaurant sector, particularly in the limited-service chicken category. However, the company has managed to differentiate itself through its focus on chicken wings, strong brand identity, and digital-first approach.
The company's recent partnership with the NBA is expected to further boost brand awareness and potentially drive sales growth. Additionally, Wingstop's menu innovations, such as the introduction of chicken tenders, are aimed at expanding its customer base and increasing market share.
Risks and challenges
Despite Wingstop's strong performance, the company faces several potential headwinds. Cost pressures, including wage inflation and food cost volatility, remain a concern for the industry as a whole. While Wingstop's whole bird strategy provides some insulation from spot inflation in food costs, the company is not entirely immune to these pressures.
Another risk factor is the potential for a slowdown in comparable store sales growth. As Wingstop faces tougher year-over-year comparisons, maintaining its current growth trajectory may become increasingly challenging.
Bear Case
Can Wingstop maintain its growth trajectory as it expands?
As Wingstop pursues aggressive expansion, particularly in international markets, there is a risk that the company may face challenges in maintaining its current growth rates. New store openings could potentially cannibalize sales from existing locations, and the company may encounter difficulties in replicating its success in diverse international markets with different consumer preferences and competitive landscapes.
Additionally, as the company grows, it may become more challenging to maintain the same level of operational efficiency and brand consistency across a larger network of franchised locations. This could potentially impact the company's ability to deliver consistent same-store sales growth and maintain its strong unit economics.
How will cost pressures impact profitability?
While Wingstop has implemented strategies to mitigate cost pressures, such as its whole bird strategy, the company is not immune to industry-wide challenges. Continued wage inflation and potential volatility in food costs could put pressure on margins, both for the company-owned stores and franchisees.
If these cost pressures persist or intensify, Wingstop may need to consider price increases, which could potentially impact customer traffic and sales volume. Balancing profitability with maintaining value for customers could become increasingly challenging in a competitive market environment.
Bull Case
What is the potential impact of Wingstop's digital initiatives?
Wingstop's strong digital presence, with digital sales accounting for approximately 70% of total sales, positions the company well for future growth. The digital-first approach allows for enhanced customer engagement, personalized marketing, and improved operational efficiency.
As the company continues to invest in its digital capabilities, there is potential for further improvements in customer frequency, average order value, and overall sales growth. The digital platform also provides valuable data insights that can be leveraged for menu innovation, targeted promotions, and optimized marketing strategies.
How can international expansion drive future growth?
Wingstop's raised target for global store potential to over 10,000 locations indicates significant room for international expansion. As the company enters new markets and builds brand awareness globally, there is potential for substantial revenue growth and increased market share.
International expansion also provides diversification benefits, reducing the company's reliance on the U.S. market. Successful adaptation of the Wingstop concept to local tastes and preferences in various international markets could unlock new growth opportunities and drive long-term value creation for shareholders.
SWOT Analysis
Strengths:
- Strong brand identity and customer loyalty
- Successful franchised business model
- High digital sales penetration
- Consistent same-store sales growth
Weaknesses:
- Exposure to commodity price fluctuations
- Reliance on chicken wings as primary menu item
- Potential vulnerability to changes in consumer preferences
Opportunities:
- Significant international expansion potential
- Menu innovation and diversification
- Further enhancement of digital capabilities
- Strategic partnerships (e.g., NBA) for brand awareness
Threats:
- Intense competition in the restaurant industry
- Economic downturns affecting consumer spending
- Regulatory changes impacting food industry
- Potential saturation in core markets
Analysts Targets
- Goldman Sachs (November 8, 2024): Buy rating with a price target of $377
- BTIG (October 31, 2024): Buy rating with a price target of $370
- Barclays (October 31, 2024): Overweight rating with a price target of $380
- Barclays (October 30, 2024): Overweight rating with a price target of $470
- BofA Global Research (September 12, 2024): Buy rating with a price target of $461
- BMO (TSX:BMO) Capital Markets (August 1, 2024): Market Perform rating with a price target of $360
- Barclays (August 1, 2024): Overweight rating with a price target of $425
- Barclays (July 31, 2024): Overweight rating with a price target of $418
In conclusion, Wingstop's strong recent performance and ambitious growth plans have positioned the company as a notable player in the restaurant industry. However, investors should carefully consider the potential risks and challenges as the company pursues its expansion strategy. The coming quarters will be crucial in determining whether Wingstop can maintain its momentum and deliver on its long-term growth potential.
This analysis is based on information available up to November 14, 2024.
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