New Restaurants And Smart Kitchens Will Elevate Guest Experience

Key Takeaways

• Aggressive unit growth strategy, smart kitchen rollout, and menu innovations aim to enhance revenue and operational efficiency through increased customer satisfaction.
  
• International expansion and upcoming loyalty program are poised to drive long-term global growth and customer retention.
  
• Uncertain consumer confidence, market pullbacks, and rising expenses may limit Wingstop's revenue growth and operational profitability despite increasing sales.

Catalysts

Wingstop Inc., together with its subsidiaries, franchises and operates restaurants under the Wingstop brand.

• Wingstop's aggressive restaurant development strategy, with a record-breaking 126 new units opened in Q1 and a planned increase in unit growth to 16%-17% for 2025, is likely to expand its footprint, enhance brand awareness, and drive future revenue growth.
  
• The rollout of the Wingstop Smart Kitchen, which aims to halve order times and increase consistency, could significantly boost same-store sales by improving customer satisfaction and operational efficiency, impacting future earnings.
  
• The relaunch of crispy chicken tenders and strategic menu innovations, such as partnerships with popular brands like the NBA and developing limited-time offerings, can attract new customers and enhance guest frequency, potentially increasing revenue.
  
• The planned system-wide launch of a loyalty program in 2026, leveraging a robust database of over 50 million users, aims to drive customer retention, frequency, and personalized engagement, supporting revenue growth.
  
• International expansion, with new markets like Australia and a focus on strategic regions, presents significant opportunities for revenue growth and brand scalability, contributing to Wingstop's long-term global restaurant count target of 10,000 units.

Wingstop Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wingstop's revenue will grow by 17.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 17.4% today to 17.1% in 3 years time.
• Analysts expect earnings to reach $172.5 million (and earnings per share of $6.27) by about April 2028, up from $108.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $190.1 million in earnings, and the most bearish expecting $145.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 52.7x on those 2028 earnings, down from 59.2x today. This future PE is greater than the current PE for the US Hospitality industry at 22.6x.
• Analysts expect the number of shares outstanding to decline by 2.41% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.1%, as per the Simply Wall St company report.

Wingstop Future Earnings Per Share Growth

Risks

• The macroeconomic environment is presenting challenges with consumer sentiment at its second lowest level since 1952, potentially leading to decreased consumer spending and impacting revenue growth.
  
• The forecast for a low same-store sales growth of approximately 1% for 2025, down from a previous projection of low to mid-single digits, reflects uncertainty in consumer confidence that could limit revenue expansion.
  
• The brand faces variability in demand with busy hours leading to increased quote times and potential inconsistencies in guest experiences, affecting customer satisfaction and potentially impacting future revenue streams.
  
• Wingstop is experiencing a temporary pullback in certain core markets, particularly affecting Hispanic and lower-middle-income consumers, which may impact revenue and net earnings if these segments do not recover quickly.
  
• Increased SG&A with significant nonrecurring expenses may affect net margins, potentially limiting operational profitability despite rising system-wide sales and unit growth.

Valuation

• The analysts have a consensus price target of $287.862 for Wingstop based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $385.0, and the most bearish reporting a price target of just $181.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.0 billion, earnings will come to $172.5 million, and it would be trading on a PE ratio of 52.7x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of $230.51, the analyst price target of $287.86 is 19.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.