Wingstop (NASDAQ: WING) is Going to Stay Hot… Vaccine or No Vaccine

You could probably count the number of restaurants that have been pandemic winners on one hand. I’m not talking about restaurants that have weathered the storm. I’m talking about restaurants that are doing better now vs. pre-pandemic.

Wingstop NASDAQ: WING is one of them. It’s been a glorious eight months (and counting) for Wingstop. The company has eclipsed its pre-pandemic growth rates, which were already in the double-digits, on the back of digital.

The flip side of that success, however, is that investors have serious questions about how Wingstop will fare in a post-vaccine world. Well, that day may come a lot sooner than many expected. Many WING shareholders rushed to the exits, with shares dipping nearly 6% on Monday.

I’m here to tell you that this fear is misplaced, and that yesterday’s recovery is a sign of things to come.

WING is going to lose some tailwinds in a post-COVID world – assuming the vaccine actually comes through. But the company still has a bright future, with many years of double-digit growth ahead.

More Options Doesn’t Mean Less Wingstop

So, why did Wingstop sell-off on the vaccine news?

Probably because investors think that once other restaurants are able to fully re-open, they will take customers away from Wingstop. But I don’t see it that way.

Digital has been a big source of growth for Wingstop; digital sales in Q3 2020 were more than double digital sales in Q3 2019. But Wingstop has been missing out on in-store sales. People love to eat wings and watch football – college and NFL – on the weekends. Yes, they can still order in, but it’s not really possible to have large gatherings at their homes. And some people simply prefer to go out.

Looking at the numbers, it’s clear that, overall, Wingstop didn’t get that big of a boost from COVID-19. Domestic same-store sales were up 25.4% in Q3 yoy, but also increased 11.1% in full-year 2019.

In fact, 2020 is on track to be Wingstop’s 17^th straight year of domestic same-store sales growth. That 17-year stretch covers the 2008 financial crisis, showing the Wingstop can thrive in a variety of economic climates.

Expansion Plans are Accelerating

Wingstop just hit 1,500 locations, but in the long run, it has plans to quadruple that number to 6,000. Now, WING is accelerating those expansion plans. At the end of Q1, “consensus estimates for net new openings for the year for Wingstop was only 95.” Now, Wingstop expects between 135 and 140 net new restaurants for fiscal 2020.

Back in June, I noted that Wingstop had commitments to open over 600 new US locations, with 80% of those commitments coming from existing franchisees. On the Q3 earnings call, Wingstop CEO Charles R. Morrison explained why existing franchisees keep coming back for more, saying:

“The average initial investment to open a Wingstop is less than $400,000, and at our current average unit volumes for second year restaurants, our brand partners are enjoying unlevered cash on cash returns well above 50%, truly best-in-class unit economics.”

We’ve seen a similar story play out with Planet Fitness NYSE: PLNT. When you see something like this, you should take note, because who knows the business better than those who are in the trenches?

Wingstop Isn’t a One-Hit Wonder

Wingstop had a strong digital presence before COVID-19 changed life as we know it; digital made up 40% of overall sales before the pandemic. Now, digital sales are 62% of Wingstop’s business.

The company’s digital sales won’t grow at 2020 rates in 2021 and beyond, but that was always to be expected. And it’s totally fine.

I still think that Wingstop has a lot of growth in its future. It will just come a little less from digital, and a little more from in-store comps and new restaurants. Wingstop seems like the type of company that will see explosive growth for longer than you expect.

Those types of companies can turn into extraordinary investments. The risk is a bit higher on them – as it is with Wingstop – but the potential reward is well worth it.