BROS: Robust Q3 Performance and Upward EBITDA Guidance Revision Reflects Lower G&A Spending
New store performance is likely the culprit for the new revenue guide, while lower G&A spending allows for better EBITDA performance. Still growing too fast!
The company reported a more robust than expected 2Q23 performance, with revenues and adjusted EBITDA surpassing FactSet expectations. The revenue reached $264.5 million against an estimated $258.3 million, and adjusted EBITDA hit $53.0 million, significantly higher than the estimated $40.4 million. Comparable store sales (comps) also outperformed estimates at 4.0% compared to the expected 1.5%. For the full-year (FY) guidance for December 2023, the company has reiterated its system of same-shop sales growth in the low single digits. It expects revenue at the lower end of the $950M to $1B range, aligning with FactSet's $956.8M estimate. Adjusted EBITDA is projected to be between $150M and $155M, an increase from the previous $135-140M guidance and above FactSet's $139.1M consensus. Capital expenditures are reaffirmed at $225 million to $250 million, consistent with FactSet's $236.9 million projection. The company plans to open at least 150 new shops in 2023, with at least 130 being company-operated.
3Q23 Performance Recap: Shop Openings: 39 new shops were opened across 11 states, including new entries into Kentucky and Alabama, bringing the total to 16 states. Sales Growth: System same-shop sales grew by 4%, with a 33% increase in revenue year-over-year. Adjusted EBITDA reached $53 million, nearly doubling from 3Q22.
Strategic Focus and Priorities and the Bull Case:
- People: Emphasized the importance of recruiting, developing, and retaining outstanding personnel with a robust pipeline of operator candidates.
- Shop Expansion: The strategy is driven by creating opportunities for people and opening profitable shops with strong leaders.
- Investments in Crew: Adjustments to shop manager pay structures and incentive programs to align with sales growth and customer service objectives.
- Development Challenges: Acknowledged difficulties such as elevated build costs and supply chain issues but remained confident in meeting the 2023 development target.
- Real Estate Strategy: A shift in strategy to widen initial reach in new markets, move towards build-to-suit leases, and develop new prototypes for efficient market penetration.
Financial Discipline and Growth:
- Margin Expansion: driven by pricing, operational improvements, and moderating SG&A growth, with significant margin expansion in new shops.
- SG&A Leverage: Revenue growth is expected to outpace SG&A spending growth as the company scales.
Customer Engagement and Marketing:
- Rewards Program: Continuation of the rewards program with a shift towards a more targeted approach using consumer insights.
- Promotions: success with the Fill-a-Tray program and other promotional activities to encourage trial and group visitation.
- Paid media: increased spending to bring in new customers and increase brand awareness, especially in new markets.
Future Outlook:
- Customer Engagement: With rewards members driving significant transactions, there's optimism about further accelerating this platform.
- Growth Trajectory: Consistent growth with a record revenue in Q3 and a path to over 4,000 shops.
- Profitability and Capitalization: Record adjusted EBITDA and a well-capitalized position to support the growth plan.
- People: A strong pipeline of operators and engaged teams within the shops, providing confidence in the company's future.
CAVA Robust 3Q23 Performance and Upward FY Guidance Revision Reflect Company's Strong Profitability TrENDS
CAVA, the fast-growing Mediterranean cuisine chain, reported a remarkable 3Q23 performance with a significant beat on adjusted EBITDA, coming in at $19.8M against the FactSet consensus of $13.1M. The company also saw revenue surpassing consensus figures and an impressive comparable store sales (comps) increase of 14.1%. Restaurant-level and adjusted EBITDA margins outperformed expectations by +330 basis points (bps) and +370 bps, respectively. However, the ending unit count for the quarter was slightly below consensus, with 290 units versus the expected 295. Looking ahead, CAVA has raised its FY23 outlook, with adjusted EBITDA now projected to be between $70.0M and $73.0M, exceeding its previous guidance and FactSet's $63.0M consensus. The company also increased its forecast for net new restaurant openings and comps while anticipating a higher restaurant-level margin (RLM).
More details to come
Wingstop Gears Up for Digital Transformation without OLO
This new technology means that WING is ending its relationship with OLO. Olo's relationship with Wingstop is expected to end by Q1 2024, but this is not seen as material to the business due to Olo's diversified customer base and high retention rates. That said, this is a bad sign for the future of OLO technology.
Summary: Wingstop Inc. is upgrading its service with the upcoming MyWingstop technology platform, aiming for a complete system rollout in 2Q24. The company's goal is to digitize 100% of all transactions, highlighting the platform's potential to enhance customer personalization and drive sales frequency. Wingstop's strategic initiatives, including developing the MyWingstop platform and focusing on digital sales, are positioning the company for a future of enhanced customer engagement and sustained growth. With a strong financial performance and a clear vision for international expansion, Wingstop is poised to maintain its category-of-one position in the fast-casual industry.
- MyWingstop Technology Platform: Designed to increase hyper-personalization for customers, aiming to improve conversion rates, retention, and visit frequency.
- Digital Sales Growth: Digital sales climbed to 66.9% in 3Q23, up from 62% last year. Wingstop's strategic goal is to digitize 100% of its transactions.
