Takeaway: WING is on our Best Idea List as a Long. This is the one restaurant to buy now because of its best in class returns and growth opportunity.

We will be hosting a Black Book presentation on Tuesday, March 17th at 2:00 pm ET to discuss our long thesis on WING.

POWERFUL GROWTH ALGO - The company’s 3-5 year growth plan looks to grow units at 10% and same-store sales in the MSD% range, up from the previously targeted LSD%.  The caveat to the bullish outlook was a warning from management about the potential for increased investments to help accelerate international expansion, which will likely pressure the earnings matrix in 2020. 

Invite | WING | The Best Business Model In Restaurants & The One To Buy In This Sell-Off - 3 10 20 WING1

FORTRESSING DONE RIGHT - WING is far from penetrating in the USA and has a significant opportunity at hand for new unit development, with incremental unit growth (fortressing the top 25 DMA’s) adding to same-store sales metric.  The company has room to triple its current footprint as they build out under-penetrated markets and build brand awareness.  In many ways, this is a reminder of the early days of SBUX, when incremental unit growth increased brand awareness and thus same-store sales.  

WING HAS IT ALL – Wingstop is a digitally enabled pop culture brand with a robust management team.  There is also room for continued digital expansion, something which stands at only 30% today. The analyst day was an impressive showing of the depth of the management team and is confident that they can execute on their strategy.

VALUATION – I had been reluctant to make WING a best Idea LONG because of its valuation.  With the recent pullback, the stock is currently trading at 38x NTM EV/EBITDA but deserves it as the company has industry-leading 4-wall unit economics, a highly franchised business model, and unit growth that is accretive to same-store sales.

THE WARNING - It’s impossible to know how bad same-store sales are going to be for WING during the COVID-19 scare.  On the positive side, 49% of Wingstop guests are 18-34 year-olds, a cohort less impacted, and 53% are women.  Importantly, 30% of the transactions are digital, which comes with a $5 increase in average check. The new web site/app in 2019 has increased conversion rate by +6% while driving a +$0.50 check increase.  We expect this to continue to grow in 2020 and 2021.  If you are bullish on WING, you are more concerned about the impact COVID-19 will have on the unit growth.  We argue that if the current sales pressures will have a limited impact on the existing pipeline, and the future site potential grows with more pressure on the marginal players in the industry.  Going into the COVID-19 scare, WING is one of the best positions companies in the industry.  As we get to the other side of this mess, we expect the Company to be in an even better position.    

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