Digital Prowess, Wing Prices Help Wingstop Bridge COVID-19 Sales Pit
Wingstop seems to be bucking the brutal sales trends brought on by COVID-19, even growing in the last few weeks of March when stay-at-home orders spread across the country.
According to a pre-release of first-quarter results, the company continued to surge in same-store sales, reporting 9.9 percent comps. If that weren’t enough, those trends continued even as scores of restaurants closed dining rooms and sales plummeted dramatically across the industry. According to Sense360, in this period, nationwide foot traffic declined by 27 percent for casual dining, 17 percent at quick-service and sales were down 22 percent in the fast-casual segment where Wingstop operates.
During this period, the last two weeks of March, Wingstop saw sales rise 8.9 percent compared with the end of February, actually accelerating from earlier in the month.
The biggest takeaway from those numbers is how important a strong digital strategy already was going into full shutdown and continues to be as everyone is stuck at home for an indefinite period of time. A lot of brands are scrambling to figure out how to catch up with delivery, curbside and other methods, and as they do third-party delivery platforms are overloaded with demand and operators are forced to weigh new investments with massive sales losses.
“The brand was on offense in March, having already planned to advertise delivery capabilities on national TV following the 2019 rollout of third-party delivery with DoorDash,” wrote Cowen analyst Andrew Charles. “The company noted the March sales composition shifted from transactions to ticket, as the company promoted $0 delivery fees that extends through April 30, resulting in an acceleration to 47 percent digital sales mix, up from approximately 40 percent prior to the COVID-19 outbreak.”
The transition to even more digital orders also comes with higher average checks, which the company said was driven upward by more family meals and bundles. Historically, digital orders are much larger than a typical dine-in or carryout order. That’s something BTIG analyst Peter Saleh highlighted.
“We note that digital sales historically generate about $5 more per transaction or roughly 30 percent higher average ticket,” wrote Saleh. “This ticket growth helped offset the lost dine-in business which historically represented about 20 percent of the brand's sales. We see no reason why digital mix cannot continue to increase at a rapid pace, nearing the digital mix of pizza operators at approximately 65 to 70 percent.”
Beyond digital, Wingstop also happened to benefit from a major drop in wing prices. With no sports bars or typical wing spots open, and few large fast-casual or convenient wing options out there, supply suddenly and vastly outweighs demand. According to Wedbush analyst Nick Setyan, wing prices are down 41 percent year-over-year from $1.72 per pound this time last year to $1.17 per pound. He said for every 10-cent decline, Wingstop benefits by 50 basis points (0.5 percent) in cost of goods.
“We currently model COGS of 32.7 percent in Q2 and 34.3 percent in 2020, down from 34.8 percent and 35.3 percent, respectively,” wrote Setyan.
The company reported 36.6 percent COGS in 2019.