WING
#Can you hi <UNK> can you clarify your comment on slower unit growth.
I think we always ---+ when we start the year, we did this as well last year and in prior years tried to establish what we think is the appropriate range of outcomes for the year as it relates to the development pipeline.
So I would guide you towards the 13% to 15% range as being consistent with what our pace and pattern have been.
On a percentage basis that might be lower, but then the base of restaurants has grown by 18% last year.
And as we noted we've eclipsed 1000 restaurants, so the pace of development remains consistent and that's both US and International currently.
But as we've also noted the pipeline is strong, with pretty much the same number of restaurants in the pipeline at the end of the year that we started the year with.
So we are replenishing it well and replenishing it more so with existing franchisees than with net new franchisees.
So we are very pleased and proud of that, and I think there's nothing other than making sure that we reinforce our long-term guidance that at the pace of growth that we are experiencing today, we'll be able to achieve the profit levels that we've guided to the long-term as well.
Neither of those have been areas that have been of any concern to us.
Our restaurant cost has been fairly consistent since for a number of years now and we don't expect that to change much at all.
The access to real estate remains quite strong.
We don't have a challenge because we are not always looking in the same markets that a lot of the other companies that you may speak with are accessing.
So we're in the urban core markets, looking for those as we talked about before, kind of B and C sites in the centers.
And we're not fighting for the same real estate so it still is plentiful for us.
You're welcome
Yes, I think the only thing that holds us back at the end of the day has been the idea of product quality and making sure that our guests who have been historically very comfortable taking the product with them, and certainly that drives great unit economics and great value, is maintained.
I did see the article about the tests.
We hand-cut our potatoes in our restaurants every single day to make our fresh-cut seasoned fries, and so we want to be very diligent about who controls that product.
And not every delivery company ---+ third-party delivery company allows for such control.
So that's been, if you will, our stubbornness.
We do know that in certain markets our guests look for that.
We know that as we move into the upper Midwest and the Northeast it's going to be a stronger demand.
And so we understand the market, but I think step one for us is let's make sure we can stand behind the product, ensure the same kind of experience that the Wingstop consumer is used to, and then from there make our decisions about how we would if we would and how we would implement that into the business.
Yes, I think the pace is relative.
We have just under 300 franchisees in our system.
I think what's most important is to partner with the right group of franchisees and markets where we are developing new restaurants, which we do every day.
I don't know that it will materially accelerate the number of new franchisees but it certainly will make ---+ we will make sure to bring on high-quality franchisees that are well-capitalized, that are experienced developers, that can develop the brand very quickly.
So I just want to call that little nuance, but certainly that's our goal and objective is to do that.
Yes, last week, if you consider full weeks for us, was positive.
This week to date is also positive so far.
That is momentum and improving, and we align it with two key factors, the tax refunds coming through and our third week of national advertising.
As awareness builds, which we expected it to do very quickly, that awareness is translated into much-improved performance.
Not a lot.
I don't think I'd cite any one specific geography that was substantially different than the others.
If anything, maybe the upper Midwest was an area where we saw some impact, but aside from that, I think the rest of the markets were fairly consistent.
One market might be Texas, did come below the system average during that time frame, but again I think I'd reinforce that all markets are working their way back over the last ---+ in the momentum we just talked about over the last couple of weeks.
I think we had two things impacting the wings.
One the chicken itself was rather large during this time frame in the fourth quarter in particular, and I think you may have heard that from other brands.
I believe one other brand noted desiring to reduce the size of even chicken breasts.
So chickens got bigger and also the price was high.
As Mike noted, since the peak on pricing on wings over the past few weeks wings have come down as much as 18 since a pound.
So that has a significant impact on the P&L.
And then from a wage inflation perspective, I think a lot of those are factored into some of the price discussion that we have talked about in the past, where we've tried to get ahead of those.
And I think is coming into play now for our franchisees in certain markets where they are seeing the wage inflate.
But then there's more obviously coming in the future.
So I think we hope to see the wings relax a little bit more.
That would be a benefit to the business.
At least follow what is a more normal seasonal pattern, which we did not see in the third and fourth quarter of last year, and then that would help stabilize the P&L if there's any stress there.
Yes, I don't think it's a question of the return, because we're just shifting dollars from franchisees and co-ops to the national fund.
And so it's not like there's a significant incremental spend.
We would still spend the same amount of money it's just being spend more wisely from our standpoint.
So I really don't look at it from that standpoint.
I think it's growing brand awareness, particularly in these newer markets where branded awareness is relatively low while sustaining momentum in our core markets.
That's the way we would look at success.
I don't think we would show an improvement in the Company store margin particularly since we are starting up the year with wings, which is the main driver of movement, outside of the two new stores you mentioned.
The main driver of moving in the market is going to be really what happens with the size and the price per pound of wings.
And so as you guys know there's a bit of volatility on food cost for us that comes from year to year and quarter to quarter.
And that's going to be the main driver what happens with margins at Company stores and franchise stores.
I think obviously made the investments in the back half of the year that we talked about.
And those investments have continued so we'll have a little headwind at the first part of the year, but we are at a steady run right now
Yes.
No, <UNK>, I don't think that's a major driver of what's going on with comps.
We looked at it.
We've got a lot of stores in LA and that was one of the areas that got the least amount of impact actually as we looked at the rainfall.
So that's not something that we would call out specifically as a driver.
Nothing that's material.
At this point in time we don't have any in the pipeline.
I think we brought the new countries on board.
Each of those countries should produce at least a restaurant in the first year.
That's pretty typical of a new deal.
But then the rest would be just run rate from our existing markets and continuing to grow those at a similar pace to what we've seen before.
As these new markets come on board and start to ramp up, then they'll gain momentum in usually their second and third year of operation overall.
Is typically a three-week on, two-week off cadence, something like that throughout the year.
It's been scheduled that way, so there's not a big heavy push for eight weeks and then off for four or five, so it's fairly consistent throughout the year.
Very welcome.
I think it's a great question.
And the answer is I don't think it has any impact at this point whatsoever.
If you think about going from 10% to 1%, keep in mind that over the last five years, our aggregate comp growth during that time is almost 45%.
So what's fueled our growth and will continue to fuel our growth is our exceptional unit economic model.
It still has a three to one sales investment ratio and second year cash on cash returns between 35% and 40%.
And our franchisees value that.
That's why they continue to help replenish the pipeline and continue to grow.
So even in choppy waters temporarily, that's not going to cause them to change their overall perspective on the business as well.
So I really don't see that being a driver of change.
And I think the 13% to 15%, I think you said it well.
Look, we're at the beginning of the year.
We established that pipeline.
We have great momentum.
We carried excellent momentum into Q4.
Q4 did not pull any new restaurants forward out of the pipeline.
It was part of our normal cadence of openings and so we've always expected that the percentage might drop as we get bigger, and opening 153 net new restaurants is the size of some small chains in one year.
So we are very proud of that in think that that's really the key driver of our growth in the long-term.
Yes, we continuously increase our rate by about a point a quarter sequentially, and we've done that for three consecutive years.
This natural evolution is nice in that we don't have to provide an incentive to continue to see the kind of growth that were getting.
The risk of putting incentives in place is that you start to erode the value proposition a little bit, and that might take some margin away, to give something away to get it to grow.
So we like the approach we're taking.
You do see that our International advertising and you'll see it more in our national advertising.
And our hope is that through national advertising, bringing awareness to that channel, and continuing to drive it is going to be the benefit to the Company.
We did say previously that before we had our point-of-sale system rolled out we were a little more hesitant to advertise aggressively, so you can expect that our ads in the future will be much more pointed towards online advertising as a way to drive the business.
I think there's a reasonable chance it's going to be below that in 2017.
The factors that go into forecasting that are unpredictable, which is why we didn't build it in.
It basically has to predict when people exercise stock options and what prices they exercise at.
And that GAAP particularly since we do have a lot of options and money, a gap between the strike and the exercise price will create a tax reduction.
We currently get that on our tax returns, so this is not really an economic benefit.
It's just a presentation.
It used to go through equity on the balance sheet, and now it's just going to run through the tax expense on the P&L.
So it's not really going to provide economic benefit to the Company, so we thought it best to just start with our normalized rate and report back when we report our quarters on what the difference is.
You're welcome.
No closing comments.
I think we are fine.
I know we have a number people that we will chat with this evening, so we appreciate everybody's time for joining the call today thank you.
