Wingstop (WING) Shares Down on Q4 Revenue & Earnings Miss

Shares of Wingstop, Inc. WING declined more than 4% in after-hours trading on Feb 27, after the company reported fourth-quarter 2018 results. The company missed earnings and revenue estimates in the quarter. This may have disappointed investors.

Earnings & Revenue Discussion

Wingstop’s adjusted earnings of 15 cents per share missed the Zacks Consensus Estimate of 17 cents and remained flat year over year.

Revenues of $40.5 million also missed the Zacks Consensus Estimate of $41 million but increased 15.1% from the prior-year quarter. This improvement was driven by higher royalty revenues and franchise fees as well as improvement in company-owned restaurant sales.

The company’s fourth-quarter royalty revenues, franchise fees and other increased 10.4% to $19.1 million. The upside was favored by 113 net franchise restaurant openings and domestic comps growth of 6%.

Advertising fees and related income increased 12.7% year over year in the fourth quarter. Company-owned restaurant sales moved up 25% in the fourth quarter from the year-ago quarter. The increase was primarily due to acquisitions of six franchised restaurants. Also, 4.6% growth in company-owned domestic same-store sales favored total company-owned sales.

Expenses

Cost of sales, as a percentage of company-owned restaurant sales, decreased 350 basis points (bps) in the quarter under review, given the cost leverages from comps growth and a 16.7% decrease in costs of bone-in chicken wings.

However, selling, general & administrative expenses (SG&A) increased 28.5% in the reported quarter due to nonrecurring costs of $1 million related to the securitization of financing facility and subsequent special dividend payout, which occurred in the fourth quarter of 2018. Stock based compensation, and an increase in payroll and benefit expenses also affected SG&A.

Balance Sheet

Cash and cash equivalents as of Dec 29, 2018, were $12.5 million, up from $4.1 million as of Dec 30, 2017. Long-term debt increased to $309.4 million at the end of 2018 from $129.8 million at the end of 2017. Goodwill as a percentage of total assets was 35.5% at the end of 2018 compared with 38.9% at the end of 2017.

2018 Highlights

Total revenues in 2018 increased 14.9% year over year to $153.2 million. This improvement was driven by higher royalty revenues and franchise fees as well as improvement in company-owned restaurant sales. Company-owned domestic comps grew 6.2%.

Adjusted EPS was 84 cents in 2018, up from 69 cents in 2017.

Outlook

For the long term, the company expects more than 10% system-wide unit growth. Domestic comps are expected to grow in low-single-digit.

Zacks Rank & Peer Releases

Wingstop currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Brinker EAT reported mixed second-quarter fiscal 2019 results, wherein earnings were in line with the Zacks Consensus Estimate but revenues surpassed the same. Adjusted earnings of 89 cents per share were in line with the Zacks Consensus Estimate and increased 2.3% on a year-over-year basis.

McDonald’s MCD reported impressive fourth-quarter 2018 results. Adjusted earnings of $1.97 per share surpassed the consensus mark of $1.90 and increased 15% from the year-ago quarter (18% in constant currencies). The upside reflects stronger operating performance.

Starbucks SBUX reported impressive first-quarter fiscal 2019 results. Adjusted earnings of 75 cents per share surpassed the Zacks Consensus Estimate of 65 cents and grew 15.4% on a year-over-year basis.

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