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Wingstop-Q4-Deflation-Ad-Fund.jpg Wingstop Inc.
Wingstop Inc. in Q4 holds the line on price increases amid poultry delfation and looks to its growing ad fund to build brand awareness.

Deflation helps Wingstop post strong Q4 earnings

Brand holds the line on price increases and looks to ad fund to build awareness.

Wingstop Inc. benefited from poultry deflation in 2022, leading it to hold the line on prices and increase its advertising fund to build awareness of the brand, executives said Wednesday.

The Dallas-based brand. said domestic same-store sales rose 8.7% in the Dec. 31-ended fourth quarter, much of it due to decreasing poultry prices in the last half of the year.

“We benefited from meaningful deflation in 2022, so we did not have to take price in fact in the fourth quarter,” said Michael Skipworth, Wingstop CEO and president, in a fourth-quarter earnings call.

“Our same-store sales growth was 8.7% driven entirely by transaction growth, which speaks to the unique sales leverage we have at Wingstop,” he said. The top-line sales growth and deflation “further strengthened our unit economic model,” Skipworth said, which helped the company open 228 net new units globally, representing a 13.2% growth rate.

Skipworth said a combination of leading indicators and progress against its supply-chain strategy “suggest a favorable commodity backdrop to continue through 2023 at an average unit volume of $1.6 million and an initial investment in the mid-$400,000 range.” Franchisees were seeing that translate into a two-year payback, he said. The company is targeting AUVs of $2 million or more.

With increased sales, Wingstop saw its advertising fund grow more than 40% in 2022.

“We made good progress but still have a lot of runway in front of us as we look ahead into 2023 with the growth in system sales,” Skipworth said. “The continued growth in our ad fund will help us further build awareness and acquire new guests into the brand.” In the second quarter, Wingstop increased the national ad fund contribution rate from 4% to 5% and increased advertising fees $13.5 million.

In the second half of 2022, Wingstop deployed a “strategy of having an always-on national media message and 2023 will mark our first full year of this always-on strategy,” Skipworth noted. “Wingstop will continue to show up in live sports such as NFL and NBA games, and ,consistent with prior years, we'll over index our investment in streaming digital and social channels to maximize our presence nationally.”

The brand’s digital channels reached 63.2% of sales in 2022, an increase of 1.9% to the prior fiscal fourth quarter, the company said.

Skipworth said on sales lever that Wingstop has deployed is menu innovation, including new flavors like hot honey and Carolina barbecue, as well as new products, such as the chicken sandwich launched systemwide in mid-2022.

The company also expanded its DoorDash third-party delivery platform to include Uber Eats. Skipworth said the DoorDash and Uber Eats marketplaces are additional avenues for the brand to build awareness and capture incremental occasions.

Skipworth said the U.S. consumer in the fourth quarter, according to both external and internal data, was still navigating a “tough” landscape.

He said Wingstop was positioned as a “an indulgent occasion,” which helped the brand and hadn’t had a marked impact on sales. Lower-income consumers “have a tendency, if they are going to pull back on dining-out occasions, they typically first target their more high frequency occasions” or the four to five times a week heavy QSR occasons.

“Then they almost find themselves in a situation where they feel like they they've saved money throughout the month and they deserve to reward themselves,” Skipworth said.

Skipworth said the company in 2022 had looked at opportunities to vertically integrate its supply chain with the possibility of investing in a poultry facility but it has devoted efforts to less capital-intensive parts of its strategy, moving away from spot-market purchases.

Development abroad will continue to be part of Winstop’s growth, executives said.

“In the last six months,” Skipworth notes, “we've launched two new international markets Canada and [South] Korea. I've had the opportunity to visit both markets for their openings, and I could not be more excited for the potential for Wingstop.

The United Kingdom market is the playbook, he added, where the company now has 28 units and average unit volumes above $2 million. Consumers there tend to be higher income than in other markets and open to the delivery channel.

For the fourth quarter ended Dec. 31, Wingstop’s net income rose to $17.6 million, or 59 cents a share, from $6.9 million, or 23 cents a share, in the same period last year. Revenues rose 45.6% to $104.9 million from $72 million in the prior-year quarter.

As of Dec. 31, Wingstop had 1,678 restaurants, up from 1,498 units at the end of 2021. Of those, the company owned and operated 43 restaurants. The company expects to open 240 new restaurants in 2023, executives said.

Contact Ron Ruggless at [email protected]

Follow him on Twitter: @RonRuggless

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