What changed in this filing

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Item 1. Business

2022-02-16 compared with 2021-02-18 · 41 added, 62 removed, 124 unchanged (45% of the section changed)

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Wingstop is the largest fast casual chicken wings-focused restaurant chain in the world, with over 1,700 locations worldwide.

We are dedicated to serving the world flavor through an unparalleled guest experience and offering of classic wings, boneless wings and tenders, always cooked to order, and hand-sauced-and-tossed in 11 bold, distinctive flavors.

The first Wingstop opened in Garland, Texas in 1994, and we began franchising Wingstop restaurants in 1997.

Since 2015, Wingstop Inc.'s common stock has traded on the Nasdaq Global Select Market under the symbol “WING.” We are dedicated to serving the world flavor through an unparalleled guest experience and offering of classic wings, boneless wings and tenders, always cooked to order, and hand-sauced-and-tossed in 11 bold, distinctive flavors.

The Company is primarily a franchisor, with approximately 98% of Wingstop’s restaurants currently owned and operated by independent franchisees.

Wingstop generates revenues by charging royalties, advertising fees, and franchise fees to our franchisees and by operating a number of our own restaurants.

We operate in a single segment for reporting purposes and generate revenues by charging royalties, advertising fees, and franchise fees to our franchisees and by operating a number of our own restaurants.

We believe our asset-light, highly-franchised business model generates strong operating margins and requires low capital expenditures, creating stockholder value through strong and consistent free cash flow and capital-efficient growth.

Historically, the Company had two reporting segments:

franchise operations and company restaurant operations.

In accordance with Accounting Standards Codification 280 “Segment Reporting”, the Company uses the management approach for determining its reportable segments.

The management approach is based upon the way management reviews performance and allocates resources.

During the second fiscal quarter of 2020, the Company reevaluated its operating segments and determined it has one operating segment and one reporting segment due to changes in how the Company’s chief operating decision maker assesses the Company’s performance and allocates resources.

The first Wingstop restaurant opened in Garland, Texas in 1994.

We began franchising Wingstop restaurants in 1997, and in 2009 we opened our first international location in Mexico.

Wingstop Inc.

was incorporated in Delaware on March 18, 2015.

On June 15, 2015, we completed our initial public offering, and our stock became listed on the NASDAQ Global Select Market under the symbol “WING.”

We operate in the rapidly-growing, and intensely competitive, fast casual segment of the restaurant industry.

We believe that fast casual concepts, which are a segment of limited service restaurants ("LSRs"), such as Wingstop, attract customers away from other restaurant segments and, accordingly, are generating faster growth than the overall restaurant industry and increasing their market share relative to other segments.

We compete on the basis of taste, quality, price of food offered, guest service, ambiance, location, and overall dining experience.

We also compete with many restaurant and retail establishments for site locations and restaurant-level employees.

We believe we compete primarily with fast casual establishments and quick service restaurants, local and regional sports bars, and casual dining restaurants.

Many of these direct and indirect competitors are well-established national, regional, or local chains.

We believe that our attractive price-value relationship, our flexible service model, and the quality and distinctive flavor of our food enables us to differentiate ourselves from our competitors.

It is our mission to serve the world flavor.

We offer our guests fresh, cooked-to-order wings with bold, layered flavors that touch all of the senses and complement our wings with fresh-cut, seasoned fries and fresh, hand-cut carrots and celery.

We offer our guests fresh, cooked-to-order wings with bold, layered flavors that touch all of the senses, and we complement our wings with fresh-cut, seasoned fries and fresh, hand-cut carrots and celery.

We round out the flavor experience with ranch and bleu cheese dips that are made in-house daily.

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Our approach to becoming a Top 10 Global Restaurant Brand centers around the following key strategic priorities:

– sustaining long-term same store sales growth through brand awareness and innovation;

– maintaining best in class unit economics;

– sustaining long-term same store sales growth;

– maintaining best in class returns;

– expanding our global footprint.

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Sustaining Long-Term Same Store Sales Growth through Brand Awareness and Innovation

In February 2017, we launched our national advertising program.

Our transition from advertising cooperatives, a more locally driven advertising approach, to national advertising provided us with more reach and frequency in existing media markets and expanded our coverage to smaller and newer markets where we did not previously utilize television advertising.

We fund our national advertising program through the Wingstop Restaurants Advertising Fund (the “Ad Fund”), a consolidated not-for-profit advertising fund for which a percentage of gross sales is collected from Wingstop restaurant domestic franchisees and company-owned restaurants to be used for various forms of advertising for the Wingstop brand.

Beginning in fiscal year 2019, we increased the contribution rate that domestic franchisees are required to contribute to the Ad Fund from 3% to 4% of gross sales.

Our national advertising program focuses on two key messaging windows and utilizes an extensive range of social media and digital marketing tools, including search engine, digital video, and social media advertising, to allow us to target core customers and increase brand awareness.

We are making focused investments in technology to provide a convenient and engaging brand experience, with the goal of digitizing every transaction.

We developed a custom website and mobile ordering application that we believe position Wingstop for further digital expansion.

Delivery also continues to drive our digital sales.

In 2017, we partnered with DoorDash to provide delivery to our customers, and substantially all of our domestic restaurants offered delivery as of the end of the 2020 fiscal year.

We believe our DoorDash partnership and delivery strategy will continue to drive domestic same store sales growth.

Our digital sales increased to 62.5% of sales during the fourth quarter of 2020, compared to 38.2% of sales during the fourth quarter of 2019.

We believe in sustaining long-term same store sales growth through brand awareness.

Our national advertising program is funded through the Wingstop Restaurants Advertising Fund (the “Ad Fund”), a consolidated not-for-profit advertising fund for which a percentage of gross sales is collected from Wingstop restaurant domestic franchisees and company-owned restaurants to be used for various forms of advertising for the Wingstop brand.

Domestic franchisees are required to contribute 4% of gross sales to the Ad Fund.

The continued growth of our national advertising program since its inception in 2017 supports elevated marketing spend and premium placements through an extensive range of social media and digital marketing channels, including search engine, digital video, and social media advertising, to allow us to target core customers and create top of mind consideration with relevant, impactful messaging.

We are making focused investments in customer relationship management (“CRM”) and our digital platform, which will allow us to transition from the traditional promotion-based marketing approach to a digital platform-based strategy.

As a result of these investments, we continue to sustain digital sales above 60%.

Maintaining Best-in-Class Unit Economics

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Upon opening, our restaurant volume generally builds year after year.

Our domestic average unit volume (“AUV”) has grown consistently, approaching $1.5 million during fiscal year 2020.

Our domestic average unit volume (“AUV”) has grown consistently, approximating $1.6 million during fiscal year 2021.

Our operating model targets a low average estimated initial investment of approximately $400,000, excluding real estate purchase or lease costs and pre-opening expenses.

In year two of operation, we target a franchisee unlevered cash-on-cash return of approximately 35% to 40%.

In year two of operation, we target a franchisee unlevered cash-on-cash return of approximately 50%+.

We believe low entry costs and high returns provide a compelling investment opportunity for our franchisees that has helped drive the continued growth of our system.

Expanding Our Global Footprint

We believe in the importance of building one global brand with a distinctive flavor experience that is consistent around the globe.

This includes laying the groundwork for a global supply chain to support expansion of our global footprint, as well as creating a consistent digital presence centered around our global technology strategy which includes expanding our best-in-class domestic digital platform internationally.

We believe that there is significant opportunity to expand globally, and we intend to focus our efforts on increasing our geographic penetration in both existing and new domestic markets, as well as international markets.

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We expect franchisee demand for our brand, supported by compelling unit economics, operational simplicity, low entry costs, and flexible real estate profile, to drive global restaurant growth.

We believe we can achieve our domestic restaurant potential by expanding in our existing markets where we believe we can more than double our current restaurant count, as well as continuing to expand into emerging markets.

Our “inside out” domestic market expansion strategy focuses our initial development in urban centers where our core demographic is most densely populated and then builds outward into suburban areas as our brand awareness grows in the market.

We have a robust domestic development pipeline and over 80% of our domestic commitments as of December 26, 2020 were from existing franchisees, supporting the attractiveness of our restaurant business model as well as our positive franchisor-franchisee relationships.

We believe we can achieve our domestic restaurant potential by expanding in our existing markets where we believe we can double our current restaurant count, as well as continuing to expand into emerging markets.

Our domestic market expansion strategy focuses on maximizing our brand market share and visibility in key priority markets.

We have a robust development pipeline with approximately 90% of our domestic commitments as of December 25, 2021 from existing franchisees, supporting the strength of our restaurant business model and our positive franchisor-franchisee relationships.

We also believe that there is a significant opportunity to grow our business internationally.

As of December 26, 2020, we had 179 international restaurants located in nine countries, all of which were franchised.

As of December 25, 2021, we had 197 international restaurants located in six countries, all of which were franchised.

In fiscal year 2021, we opened 34 international locations.

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Franchise Overview

Our franchisees operated a total of 1,506 restaurants in 44 states and ten countries as of December 26, 2020.

Our franchisees operated a total of 1,695 restaurants in 44 states and seven countries as of December 25, 2021.

We have rigorous qualification criteria and training programs for our franchisees and require them to adhere to strict operating standards.

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This increase is consistent with our strategy to grow with our existing franchisees.

As of December 26, 2020, our domestic franchise base had an average restaurant ownership of approximately six restaurants per franchisee and an average tenure of seven years.

As of December 25, 2021, our domestic franchise base had an average restaurant ownership of approximately six restaurants per franchisee and an average tenure of twelve years.

Franchise Agreements

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Each restaurant also contributes 4% of gross sales net of discounts to fund national marketing and advertising campaigns.

Beginning in fiscal year 2022, the contribution rate will increase to 5% of gross sales net of discounts.

These funds are managed by the Ad Fund and are primarily used to create advertising content and purchase digital and television advertising on a national level.

In addition to the national and market-level advertising contributions, U.S.

stores generally spend additional funds on local restaurant marketing activities .

For example, our current form of franchise agreement requires franchisees to spend a percentage of their gross sales on local advertising and promotions.

International Franchise Agreements

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All food items and packaging goods for Wingstop restaurants are sourced through one distributor, Performance Food Group (“PFG”).

There are sixteen geographically diverse PFG distribution centers, which carry all products required for a Wingstop restaurant and service all of Wingstop’s domestic restaurants.

There are 16 geographically diverse PFG distribution centers, which carry all products required for a Wingstop restaurant and service all of Wingstop’s domestic restaurants.

PFG is contractually obligated to deliver products to our restaurants at least twice weekly.

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We have core information systems in place that, together with focused investments we are making in technology, we believe are designed to scale and support our future growth plans.

We specify a standard point of sale ("POS") system and restaurant management system in all domestic restaurants that helps facilitate the operation of the restaurants by recording sales, purchasing and inventory of goods, managing of labor and assessing restaurant performance.

We specify a POS system and restaurant management system in all domestic restaurants that helps facilitate the operation of the restaurants by recording sales, purchasing and inventory of goods, managing of labor and assessing restaurant performance.

Our POS system and restaurant management system is configured to record and store financial information in a manner that we specify, and we require franchisees to provide us with continual and unlimited independent access to all information on each POS system.

We have an online ordering platform and mobile ordering applications that integrate with third party delivery providers and our POS system, which makes it easy for our guests to order-ahead, and which we believe leads to higher check averages.

We require our franchisees’ electronic information systems, including POS systems, comply with and maintain established network security standards, including applicable Payment Card Industry ("PCI") and data privacy standards.

Human Capital Resources

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and acquire talent and facilitate internal talent mobility to create a high-performing and diverse workforce.

We are committed to fostering an environment of diversity and inclusion, including among our board members, and having diverse representation across all levels of our workforce.

We are committed to fostering an environment of diversity and inclusion, including among our board of directors, and having diverse representation across all levels of our workforce.

Examples of some of our recent efforts and metrics include:

• we implemented unconscious bias training for all our corporate team members;

• currently 50% of our board of directors classify as diverse;

• currently 60% of our franchisees and 50% of our board of directors classify as diverse;

• we are a member of the Women’s Foodservice Forum;

• we launched a partnership with Disability Solutions to help reach talented and qualified people with disabilities to serve on our Wingstop team;

• our Chief Executive Officer joined the CEO Action for Diversity and Inclusion.

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In addition to seeking to acquire new talent in the marketplace that share our values and goals, we recognize and support the growth and development of our team members and offer opportunities to participate in regular talent and development planning reviews to assist us with growing our internal restaurant teams, resulting in a majority of current managers of company-owned restaurants being promoted from within.

COVID-19 Response

We took early action regarding team member well-being in response to the COVID-19 pandemic, implementing comprehensive protocols to protect the health and safety of our team members and guests.

Remote work for corporate management and staff was adopted ahead of state and county requirements.

We did not reduce scheduled hours for team members in our company-owned restaurants.

For team members of our company-owned restaurants, we also enhanced our benefits programs to offer expanded supplemental paid sick leave ahead of state and county mandates and in counties where sick leave was not mandated, as well as distributed COVID-19 related incentive payments to our restaurant team members.

Government Regulation

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Immigration Reform and Control Act of 1986, the Occupational Safety and Health Act, and various other federal and state laws governing matters such as minimum wage requirements, overtime, fringe benefits, workplace safety and other working conditions and citizenship requirements.

A significant number of our and our franchisees’ food service personnel are paid at rates related to the applicable minimum wage, and past increases in the minimum wage have increased our and our franchisees’ labor costs, as would future increases.

significant number of our and our franchisees’ food service personnel are paid at rates related to the applicable minimum wage, and past increases in the minimum wage have increased our and our franchisees’ labor costs, as would future increases.

Our distributors and suppliers also may be affected by higher minimum wage and benefit standards, which could result in higher costs for goods and services supplied to us and our franchisees.

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Each restaurant is subject to licensing and regulation by a number of governmental authorities, including with respect to zoning, health, safety, sanitation, nutritional information disclosure, environmental, and building and fire safety, in the jurisdiction in which the restaurant is located.

Our and our franchisees’ licenses to sell alcoholic beverages must be renewed

annually and may be suspended or revoked at any time for cause, including violation by us or our employees, or our franchisees or their employees, of any law or regulation pertaining to alcoholic beverage control, such as those regulating the minimum age of patrons or employees, advertising, wholesale purchasing, and inventory control.

Our and our franchisees’ licenses to sell alcoholic beverages must be renewed annually and may be suspended or revoked at any time for cause, including violation by us or our employees, or our franchisees or their employees, of any law or regulation pertaining to alcoholic beverage control, such as those regulating the minimum age of patrons or employees, advertising, wholesale purchasing, and inventory control.

In addition, we are subject to the rules and regulations of the Federal Trade Commission (the "FTC") and various state laws regulating the offer and sale of franchises.

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We believe that we have established procedures at our international franchised restaurants that provide reasonable assurance that our international franchised restaurants comply in all material respects with the laws of the applicable foreign jurisdiction.

We have many registered trademarks and believe that the Wingstop mark and Wingstop names and logos, in particular, have significant value and are important to our business.

Our policy is to pursue registration of our trademarks and to vigorously oppose the infringement of any of our trademarks.

We license the use of our registered marks to franchisees through franchise agreements.

Environmental Matters

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Community Involvement

We are committed to strengthening the neighborhoods that we serve by being strong, active, corporate citizens and good neighbors.

In fiscal year 2020, we donated $1 million to the National Restaurant Association Educational Foundation’s Restaurant Employee Relief Fund and, along with our franchisees, provided more than 1 million meals to frontline workers and COVID first responders.

In 2016, we created Wingstop Charities, a non-profit organization dedicated to enhancing and elevating the community work of our franchisees to make a difference in the lives of our youth, which has donated over $600,000 through local grants and team member assistance since its inception.

You can find more about the involvement of Wingstop Charities in its local communities at www.wingstopcharities.org.

Additional Information about the Company

In 2016, we created Wingstop Charities, a non-profit organization dedicated to enhancing and elevating the community work of our franchisees to make a difference in the lives of our youth.

We are committed to strengthening the communities we serve by being strong, active, corporate citizens and good neighbors.

In fiscal year 2021, more than 120 organizations and team members received grants or team member assistance.

In fiscal year 2020, we donated $1 million to the National Restaurant Association Educational Foundation’s Restaurant Employee Relief Fund and, in partnership with our franchisees, donated more than one million meals to frontline workers and COVID-19 first responders.

Since its inception, Wingstop Charities has donated over $1 million through local grants and team member assistance.

To learn more about how Wingstop Charities is making an impact in our local communities, visit www.wingstopcharities.org.

Available Information

We make available, free of charge, through our internet website www.wingstop.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business