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Wingstop profits soar, thanks to low chicken wing prices

The company is working on efforts to improve digital orders, including voice recognition technology.

Chicken wing prices have come down dramatically this year, sending Wingstop’s profits—and its stock price—soaring.

The Dallas-based chicken wing chain said this week that its profit margins at company-owned restaurants increased by more than 1,000 basis points. Franchisees’ profit margins have improved by a similar level.

That’s because the price of wings has fallen by 23% this year, leading to a 7.5 percentage point decrease in food and beverage costs. Michael Skipworth, Wingstop’s CFO, said on the company’s earnings call that the wing price outlook “remains favorable.”

In addition, executives on the call said same-store sales are up 4.5% so far in the third quarter, after increasing 4.3% in the period ended June 30, despite tougher comparisons.

The combination of higher sales and higher profits sent the company’s stock skyrocketing on Friday. It rose more than 16% by early afternoon. Wingstop stock is up 45% year to date.

“We lack a true competitor and have multiple long-term sales drivers and a significant amount of white space in front of us for growth,” CEO Charlie Morrison said on the company’s earnings call.

Many of those sales drivers that Morrison believes will keep his chain rolling for the foreseeable future involve a shift to more digital sales.

As it is, nearly a quarter of the chain’s sales were through digital channels in the second quarter, and Morrison believes the company could one day have a digital ordering mix on par with many pizza chains.

Those digital orders are growing 400 basis points year over year.

One of the strategies Wingstop believes will help is voice recognition technology for phone orders, “so they can be digitized and converted into online orders,” Morrison said.

“A large percentage of orders come in over the phone,” he said, “so we believe we have ample incentive and opportunity for further digital expansion.”

The company also believes that delivery is a big opportunity. But unlike other chains that have quickly added delivery to their concept, Wingstop has been taking a slow approach. Morrison, however, said the company is gradually expanding its delivery capabilities with DoorDash this year.

He said that 15% to 20% of the company’s nearly 1,200 restaurants could be delivering chicken wings by the end of the year. The company began testing delivery in Las Vegas in April 2017, then expanded the service to Chicago and Austin. The company has experienced “sustained mid-to-high single-digit” sales increases in those markets, he said.

“We believe we have completed the preparation steps to start our national rollout of delivery,” Morrison said. “We believe we have proven demand for delivery, its profitability and our ability to provide a great guest experience.”

The company believes it can expand to 2,500 locations in the U.S., and it also believes Wingstop has the ability to spread its wings worldwide. The company is operating in just nine countries outside the U.S. but has had success in both Mexico and Indonesia, “two very different markets,” Morrison said.

“Given that chicken is the most highly consumed protein worldwide, and that we have the ability to augment our flavor offerings to match local taste preferences, we are seeing early success in our emerging international business,” he said.

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