WING - Wingstop

[tol1]

Good morning,

 

Have followed the QSR/FCR space and Wingstop does not seem to discontinue their share price run.

 

Does anyone have views on their potential expansion plans, their advertised CoC returns vs returns of competitive franchisees and any other fundamental views? The valuation does reflect a flawless execution.

 

 

[DTEJD1997]

Hey all:

 

WING has been written up numerous times over on VIC as a SHORT.

 

The valuation simply makes no sense.  I will eat at Wingstop a couple of times a year.  Their food is OK, nothing special.  The prices are a bit high.

 

Here is my area of town, a local competitor has opened up.  Detroit Wing Company (DWC) first location is less than a mile from where I live.  They bought an old auto service building and re-purposed it into a carryout.  Now they've got several locations AND a location inside the MGM casino!  Their quality is higher than WING, and they are doing well.

 

I would think that what has happened near me with DWC, can happen all across the country.

 

I would think WING is incredibly vulnerable and "silly" in it's valuation.  WING has managed to defy this assertion for YEARS.  Hard to say how long it runs.

[Gregmal]

I would agree with the above just from my local observations.

 

There are not many big names in the space they operate. They do have great brand power and have been clever with endorsements. However the food is mediocre, their prices are very high, and when I want wings, I prefer local competitors. Nevertheless, in terms of name recognition and scale, when someone wants wings, these guys will always be the first ones to pop up.

 

I also would not give a ton of credibility to the VIC write-ups. If you are wrong for a little while; sure, it may just be a case of the market being a voting machine in the short term. When you are wrong for years, or in the case of WING, a half decade, you are clearly missing something. Many people didn't get DPZ until it was too obvious either. Granted, these are different business models, but this isn't just a no brainer short because a bunch of hedge fund guys dont understand it. Its been quite incredible watching this being called some outrageously valued no brainer short back in the teens, only to watch it go to $75 and issue a shit ton of special dividends as well. Total home run if you've gotten this one right.

[tol1]

Thanks -

 

The expansion plans are ambitious (to 6k restaurants from current 1.3k total) and I wonder how realistic the target is. In the US, there are a number of franchises opening up and the North consumes fewer chicken wings vs the South, where WING is already present - in particular, in Texas, where they started. 

 

Having lived in Europe, I just do not see the broad appeal for wings as a main dish, but I do not have the underlying data here.

 

Same store sales growth has come down over the years, but bounced back in 2018 to 6-7%. Unfortunately, the company does not given the pricing impact. I find it challenging as investor to pin-point comp growth.

 

Regarding the dividends: the net leverage is remarkable by now and I generally question the approach as a high-growth company.

 

The VIC write-ups lack some substance and the question 'Why now?' IMO.

 

 

 

[Gregmal]

Yup. I don't get the appeal; in college getting a ton of wings and a quarter keg for a Thursday night was fun, but other than that I haven't ever known people, let alone entire families who just have wings for dinner. This definitely isn't a Europe biz IMO. I've never really understood where their customers come from entirely, so I've never been comfortable owning it(I briefly, and unsuccessfully shorted it a while ago). I mean going even further I would say(without doing much research) that their customers are predominantly males. I've never known women to jump at the chance to get all dirty chowing down on wings like barbarians. This really isn't the type of food you quick order on your lunch break either...

 

My understanding is that initially, Roark and a bunch of pre-IPO guys wanted out fast. That was the basis for many of the special dividends. IIRC Roark finally blew out around $29. That seemed to be holding the stock back. Now its nearly tripled.

 

Nevertheless, I see aspects of what makes this biz unique. I see areas where they can improve. I dont see much international growth. There are enough companies I understand and offer compelling return profiles that make this an FYE story for me.

[tol1]

Turning the discussion to fundamentals and numbers: has anyone looked at WING from a bottom-up perspective and done any work on expansion potential, analysis of future comp growth, actual COC returns and its development and anything else?