Wingstop Inc (WING) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Wingstop Inc. fiscal third-quarter 2015 earnings conference call.

(Operator Instructions)

Please note that this conference is being recorded today, November 5, 2015. On the call we have Charlie Morrison, President and Chief Executive Officer; and Mike Mravle, Chief Financial Officer.

I would now like to turn the conference over to Mike. Please go ahead.

Thank you, operator, and good afternoon. By now everyone should have access to our third-quarter earnings release. If not, it can be found at www.Wingstop.com under the Investor Relations section.

Before we begin our formal remarks, I need to remind everyone that our discussion today will include forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our recent SEC filing for a more detailed discussion of the risks that could impact our future operating results and financial condition.

Lastly, during today's call, we will discuss non-GAAP financial measures which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP, and reconciliations to comparable GAAP measures are available in our earnings release. With that, I would like to turn the call over to Charlie.

Thank you, Mike. Good afternoon, everyone and welcome to our earnings conference call. I'm going to begin with a brief overview of Q3 results and then provide an update on two key initiatives: our unit growth and our technology strategy.

Afterwards, Mike will review our quarterly financial results and provide an update on our full-year 2015 guidance. Finally, I will conclude with our formal remarks with some closing comments before we open the line for your questions.

We've had another solid quarter driven by robust top line and bottom line growth attributed to the effective execution of our growth strategy. Compared to the year-ago period, during the third quarter, we delivered 16.5% revenue growth, 14.1% adjusted EBITDA growth, and 25.2% adjusted net income growth. Notably, these results were achieved while we continued to make infrastructure investments to support our brand over the long term.

The strong growth in both our top and bottom line was driven by maintaining our focus on our high-growth, asset-light model through franchise development opportunities. We had 22 net new openings in Q3, which brings us to 95 net new openings so far this year.

We ended the quarter with 807 system-wide restaurants representing 19% unit growth versus the prior-year period. As you can see in our updated guidance, we are now expecting 125 to 130 net new openings in 2015.

In the third quarter, we reached a significant milestone with the opening of our 800th restaurant as we continue our growth toward our long-term goal of 2,500 domestic locations. Domestic same-store sales increased 6.3% in the third quarter on top of 12.4% last year. Given our strong performance year to date, we now expect our full-year domestic same-store sales growth to be between 7.25% and 7.5%, an increase from our prior annual guidance of 6.5% to 7%.

We are also well on our way to making 2015 our 12th consecutive year of domestic same-store sales growth, an achievement that truly sets us apart in this industry. On September 1, we launched our newest bold, distinctive, craveable wing flavor, Spicy Korean Q, inspired by a hint of honey and a splash of Sriracha chili sauce, providing the perfect combination of spicy and sweet for our guests. This limited time only flavor will be available until November 28.

In conjunction with this new flavor, we unveiled a new advertising campaign utilizing TV and radio spots inspired by our fans' excitement and social media passion for our brand. To date, we have seen strong trial and positive guest reaction to our new Spicy Korean Q.

As exhibited in our third-quarter and year-to-date results, new restaurant development is our primary growth initiative. I'd like to now spend a few minutes providing an update on this key initiative.

In September, Wingstop celebrated its 800th opening, which was an exciting milestone for us and a testament to our national brand appeal and the hard work by all of our franchisees and team members. As I mentioned before, we ended the third quarter with 807 restaurants in our system located in 39 states and six countries outside of the US, and we are marching towards a record year for net new openings.

Our annual unit growth rate is expected to be approximately 18% in 2015 and reflects a sequential improvement from the 16% growth delivered in 2014, 13% growth generated in 2013, and 9% growth realized in 2012. This growth rate is largely fueled by the strong unit economic model that we offer to our franchisees.

Our domestic average unit volume for the trailing 52 weeks ended September 26, 2015 was $1.1 million. This strong volume, coupled with our average investment cost of $370,000, yielded best-in-class sales to investment ratio of 3.0 times.

With respect to new domestic franchise units, we target an unlevered year two cash on cash return of 35% to 40%. The performance of our 2013 and 2014 new units is in line with our targeted average unit volume. While we do not have a full year of results on 2015 new units, average unit volumes for this vintage is tracking ahead of our unit economic targets.

As we think about our future unit development, we believe there is significant opportunity in both existing and new markets. Our existing markets are comprised of 92 DMAs that are dispersed across multiple geographies in the United States, which we believe demonstrates the portability of our brand.

We have the opportunity to more than double the current number of our restaurants in existing markets alone. Additionally, we intend to leverage the growing awareness and portability of our brand by expanding into new markets, which consist of 118 DMAs where we have limited or no presence at this time.

We believe Dallas-Fort Worth reflects an optimized market for our concept. We have approximately 13 restaurants for every 1 million people in Dallas and have an average unit volume of approximately $1.3 million.

As compared -- as a comparison, our penetration rate in our other existing markets in total is less than four restaurants per 1 million people. While we would not anticipate that all markets get to the same penetration rate as Dallas, there's clearly significant opportunity to fill in markets where we already have a presence.

The combination of strong unit economics and significant white space for development has created substantial demand from within the Wingstop franchise community to continue to grow. Our existing franchisees, who are a mix of small and large operators, are committed to opening more locations in existing and new geographies. In fact, within our current development pipeline, approximately 74% of franchisee commitments are with existing franchisees, up from 63% at the end of 2014.

Our existing franchisees are not only developing in their home markets but are also expanding geographically. We've recently sold development agreements to existing Texas and California franchisees in Las Vegas, Phoenix, Boston, Kansas City, and Philadelphia. We believe this demonstrates that our franchisees acknowledge the opportunity that Wingstop provides for them to grow their businesses and achieve solid returns on their investments.

As we continue towards our 2,500 domestic unit goal, we also believe we have an opportunity to build more than 800 restaurants in new markets. In addition to existing franchisees who desire to grow in new territories, we are also attracting new franchise partners. We have recently sold territory to new franchisees in markets such as Atlanta, Boston, Philadelphia and New Jersey.

Our unit economics and growth potential are both supported by three key attributes of our flexible real estate model. First of all, our prototype restaurant is only about 1,700 square feet. This relatively small size allows us access to real estate that others may find too small.

Second, while we can be successful across various location types, we prefer in-line positioning in strip centers to optimize our investment, minimize operating cost and maximize the availability of sites. We do not need to compete for in caps and strip centers or freestanding locations to deliver on our growth targets.

Lastly, the trade areas we target due to our customer demographics are not typically defined as A trade areas by others restaurant concepts. This limits the amount of competition we face in securing locations to deliver on our growth plan. Achieving our domestic unit potential is the key driver of our growth plan, and we feel good about our progress on this front.

In addition to development, we have the opportunity to continue to grow same-store sales as part of our long-term growth plan. One of our key strategies to do that is to leverage technology to improve the customer experience in operations of our restaurants.

Our technology strategy is focused on the integration of our online ordering channel to the restaurants providing a seamless transaction for our guests. Online ordering is a significant opportunity for us because of our takeout mix of 75%, our trip to order menu and younger tech-savvy millennial customer base.

Following the rollout of our new online ordering platform and mobile app last year, we have seen our sales from this channel double to approximately 14% of domestic system-wide sales in the third quarter. This momentum has continued into the fourth quarter where online sales have exceeded 15% of domestic system-wide sales through the first four weeks of the fourth quarter. Our growth in this channel has been steady, and we anticipate further growth in time through growing customer awareness and additional tools such as app enhancements and CRM capabilities.

An enabler of our ability to grow our online business is improving our operational integration of our online channel to our new Aloha POS platform. This integrated system will significantly enhance the customer's experience through improved speed and accuracy of online orders. The integration allows for more efficient use of labor hours as that our associates in our company-owned and franchise restaurants no longer have to spend time entering online orders into the POS system manually.

In addition, the new POS platform also provides back-of-the-house benefits to our company-owned and franchise restaurants to help operate the business more efficiently. The tools include actual versus theoretical food cost as well as enhanced labor management.

At the end of Q3, more of our domestic restaurants were on the new Aloha POS system than any of our legacy POS systems. We anticipate that almost all of our restaurants will be converted by the end of 2017.

As with our unit growth initiative and technology strategy in place, we believe we have opportunities to continue to grow both our unit count and our same-store sales over the long term. We will continue to provide updates on these two key strategies as we move forward. With that, let me turn the call over to Mike for a more detailed review of the quarterly financials and our updates to our 2015 full-year guidance.

Thanks, Charlie. Turning to the results of our third-quarter 2015 ended September 26, total revenues increased 16.5% to $19.1 million for the third quarter of 2015 from $16.4 million in the comparable prior-year period. As you know, the majority of our revenues are made up of royalties and franchise fees, which increased 22.3% to $11.6 million for the third quarter compared to $9.5 million in last year's third quarter.

We open 22 net new restaurants in the third quarter, bringing our year-to-date total net new openings to 95. We ended the third quarter with 807 total system-wide restaurants, representing a unit growth rate of approximately 19% during the last 52-week period. All of our developments so far this year have been franchise development.

In addition to restaurant development, revenue growth was also driven by domestic same-store sales growth of 6.3% in the third quarter. Our company-owned restaurant revenue increased to $7.5 million from $6.9 million in the prior year driven entirely by 8.7% growth in same-store sales.

Our company-owned restaurant average unit volumes are now approximately $1.6 million for the trailing 52 weeks ended September 26, 2015. These domestic same-store sales results put us on track to deliver our 12th consecutive year of positive domestic same-store sales growth.

Cost of sales increased 9.1% to $5.3 million from $4.9 million in the prior fiscal year's third quarter. As a percentage of company-owned restaurant sales, cost of sales increased 40 basis points to 70.7% from 70.3%. The increase was primary driven by a 17% increase in the commodity cost of bone-in chicken wings, which was partially offset by sales leverage and operational efficiencies in both food and labor costs.

Our new back-office tools including actual versus theoretical food cost and labor management are having a positive impact in our corporate restaurants. The price of bone-in chicken wings for the company-owned restaurants were in line with our expectations for the third quarter.

Selling, general and administrative expenses increased to $7.3 million from $6.8 million in the prior year. The increase in SG&A was primarily due to headcount additions to support our growth. In the year-ago period, we had approximately $800,000 of nonrecurring expenses related to our preparation to enter the public markets.

Adjusted EBITDA, a non-GAAP measure, increased 14.1% to $6.5 million from $5.7 million last year. Please review the reconciliation tables provided in our earnings release between adjusted EBITDA and net income, its most directly comparable GAAP measure.

For the quarter, income tax expense was $1.8 million. Our annual effective tax rate is estimated at 37.3% compared to 37.2% in the prior year. Net income increased 59.2% to $3.2 million or $0.11 per diluted share compared to net income of $2 million or $0.08 per diluted share in the same quarter last year.

Weighted average diluted shares outstanding were approximately 28.9 million for the third quarter and approximately 26.2 million for the prior-year period. Adjusted net income, a non-GAAP measure, was $3.2 million or $0.11 per pro forma diluted share compared to $2.5 million or $0.09 per pro forma diluted share last year.

We used a pro forma diluted weighted average count of 28.9 million shares for Q3 2015 and 28.4 million shares for Q3 2014. Pro forma diluted share count gives historical effect to the additional 2.15 million shares of our common stock issued in the IPO as if all shares had been outstanding as of the beginning of 2014. Please review the reconciliation table provided in our earnings release between adjusted net income and net income, its most directly comparable GAAP measure.

In terms of our liquidity and balance sheet, as of September 26, 2015, we had cash and cash equivalents of approximately $5.7 million and outstanding debt of $95.5 million. We made a voluntary debt payment of $5 million during the third quarter and do not have a required principal payment on our current term loan until 2019.

Our gross debt to trailing 12-month adjusted EBITDA was approximately 3.6. Year-to-date CapEx was $1.3 million through the third quarter.

With regards to full-year 2015, we are raising our guidance for all the key sales and profitability metrics given our year-to-date performance and fourth-quarter projections. We now expect 125 to 130 net new system-wide franchise store openings for the year. This represents approximately 18% annual unit growth.

Domestic same-store sales are projected to increase 7.25% to 7.5%, up from our prior range of 6.5% to 7%. On a two-year stacked basis, this would equate to approximately 20% growth. Total revenue is expected to be between $76.8 million and $77.2 million.

We are tightening the range for SG&A expenses to be between $33.1 million and $33.6 million. This is inclusive of $3.3 million in management agreement termination fee, $200,000 in management fees and $2 million in transaction costs that were associated with both our market 2015 refinancing and our IPO.

Adjusted EBITDA is now anticipated to be between $27.5 million and $28 million, an increase from $26.8 million and $27.3 million prior. Adjusted net income is expected to be between $12.4 million and $12.9 million, up from $11.8 million and $12.1 million prior.

And lastly, we model a pro forma diluted share count of approximately $28.8 million. This is unchanged from our prior expectations. And now, I will turn the call back over to Charlie for closing remarks before we begin Q&A.

Thank you, Mike. We are excited about the opportunities that lie ahead for Wingstop. I applaud the great work by our team and our franchisees that yielded our strong performance in the third quarter and feel confident in our ability to continue delivering consistent results into the future.

Restaurant development is our driving force, and while 2015 will be a strong year, we still have significant opportunity as we remain focused on our long-term goal of 2,500 domestic locations. We continue to see demand for unit growth both with new and existing franchisees. We believe they appreciate the simplicity of the operating model, the flexibility of our real estate, the superiority of our unit economics and the significant white space available for them to grow.

Wingstop's distinct brand attributes are what make all of this possible. From our compelling value proposition to our ability to attract a broad audience, including successful engagement with the coveted millennial customer, to our distinct and craveable flavors, to the ability to customize orders to share with family and friends or just eat it by themselves, we have positioned ourselves well across our three brand pillars: flavor, simplicity and value. And we believe we have achieved best in class category performance as a result.

Thank you again for joining us this afternoon. We appreciate your interest in Wingstop and would be happy to answer any questions that you may have. Operator, please open the lines for questions.

(Operator Instructions)

John Glass, Morgan Stanley.

Hi, good evening. Maybe just first, if you could talk about the comp guidance for the year. You've raised it, but it was a fairly specific range. So maybe if you could talk about what you're seeing in the fourth quarter, what you're implying there.

And since you're based in Texas, the majority of your stores or at least the largest market is there. We've heard different accounts of what's happening in Texas. Maybe comment a little bit about that market specifically if you would.

Hi John, Charlie here. Let me first start by commenting on Texas.

We have not seen an impact in the state of Texas, and I think given just the impact perhaps that others have talked about with regard to the commodities business or otherwise, it has not impacted our business. In fact, the Texas market has, in many cases, outperformed for us. I think one indicator of that is that our Company store performance was also strong in the quarter and in fact stronger than the chain average in 14 out of 19 stores in the Texas market.

As it relates to the guidance, it's a fairly narrow range I suppose, but I think it's indicative of the continued momentum we have in the Company associated with our same-store sales. And I think at 7.25% to 7.5%, we've obviously increased our guidance, and that reflects not only the performance in the quarter but the continued momentum of the brand.

Two other questions. One is, as you've gotten to this 15% level in digital orders, maybe what you are seeing in terms of order size, the benefit. If there's a way you can quantify maybe the savings available to -- I know it's a largely franchise system, but is there franchisees starting to benefit from some labor efficiencies from that? Any color on how those digital are differing from the base would be helpful.

Sure. As we noted before and we see this consistently, the average check from an online order is about $4 higher than the typical check in the system. So as we increase mix, we certainly see the benefit of that. And as we noted, we've exceeded 15% online order -- online orders as a percent of our domestic system revenue in the first four weeks of the quarter.

In fact, we've also seen during this time frame that roughly 160 of our restaurants have exceeded 20% online sales. So we are very excited about the increased performance and the continued performance there.

At the restaurant level, it does create an inherent efficiency right off the bat simply by adjusting the method by which transactions hit the POS system. So they come in straight into the POS system, they drop on the ticket rail ready to be made and then provided back to the customer.

Historically online orders came in on a printer that the associate at the front counter had to in turn input into the POS system. So depending on how fast you are at that, it does create some labor benefit. We see that as much as a benefit in cost as an opportunity to deploy our team members at the front counter towards higher levels of service to the customer as well.

If I could just -- one last one as we think about 2016, are there any high-level thoughts you have in terms of the development pipeline? For example, any movement in the P&L and anything -- I know it's a relatively simple model, so maybe there aren't a lot of moving parts that you can predict here. But anything you could talk about 2016 would be helpful.

Yes, I think at this time, John, we are not providing any guidance into 2016. We will provide that perhaps at the next earnings call.

But what I can say is we are confident in our pipeline. As we noted in our remarks, our existing franchisees are continuing to invest in the Wingstop brand.

74% of our pipeline is now made up of existing franchisees. So it shows the continued strengthening of that throughout the year, and we expect it to carry into next year.

Thank you.

You're welcome.

Andy Barish, Jefferies.

Hey guys, wondering if you can give us a little color on the flavor rollout of Spicy Korean Q in September. Did you see a pickup around that because I think that was a new LTL versus brand advertising last year? And was the television advertising coverage greater, and did you do anything different there, or was it focused in those co-op markets where you already had some TV presence?

Yes, Andy the Spicy Korean Q product was well received by our customers. It is equally performing against a lot of the limited time only flavors that we've had in the past few years. Most notably it mixed about the same as Mango Habanero did when we rolled out that product.

The approach to media was very consistent with other flavor events but also on a year-over-year basis was consistent with how we deployed media when we did brand advertising last year, but the TV spots were very specific to the product. They engage the customer via the concepts around social media and our millennial core base by leveraging a tweet and then incorporating that into the commercial.

So overall I think the media was consistent. It was deployed primarily on TV and radio through our 13 co-ops across the country, and that's consistent with the year prior.

And just finally on that any movement on the -- with the football schedule changing, as we've heard from some other folks who serve wings?

Hey Andy, this is Mike. We did lose a week of football this year as you heard from others. That's a timing shift. That will flip in the Q1 of 2016. And we estimate that impacted our comp in the quarter by about 70 basis points.

Thank you.

Thank you.

David Tarantino, Robert W. Baird.

Hi, good afternoon. Charlie, on the unit development outlook, you mentioned that you had been able to not only increase the number of openings in each of the past several years, but also the rate of growth. And just wondering, big picture as you think about the next several years, and your commentary around the breadth of the franchisee base expanding as you sign up more franchisees, do you think it's realistic to think that the number of openings will continue to increase as we look out over the next several years? I'm not asking specifically about 2016 but longer term.

Hey David. I think certainly we are very confident in the pipeline and the continued growth in the pipeline as well as the number of restaurants that we put in the ground. This year, between 125 and 130 is a big increase from where we were last year. The pipeline supports continued growth.

I did note the pace of increase over the past few years, but obviously as you know we start from a lower base in the prior years and that base increases every year. So harder and harder of course to eclipse those rates of growth. But I do have a lot of confidence in the future growth of the brand, and we are well on our way and strengthening as we go towards our goal of 2500 restaurants. But I would still maintain our long-term guidance of 10% plus manual unit growth, would remain consistent into the long-term outlook of the brand.

Okay great, that's helpful. And then a question on pricing, I think you -- the system took some pricing last Q4, and I think you're rolling over that sooner. Or if you've already rolled over it, may be that's the case.

Can you talk about that dynamic as you enter the fourth quarter, how much pricing you will have versus what you had in the third quarter? And then maybe more broadly, what the philosophy on pricing is as you move into next year or what are the franchisees thinking given all the headwinds that they might have around labor cost?

David, it's Mike. A couple of things on pricing. As you mentioned, we did have a price increase last Q4 of about 3%.

We do roll over that this year as we move from the third quarter into the fourth quarter. As you're looking at the trend on comps for those few things, that will be a trend difference between those two quarters, and we don't have -- we are not putting another 3% on top of that this year.

The other piece to mention just from a shift standpoint in the fourth quarter, you do have the Christmas shift which does cost us by about 50 point basis points of comp just on the quarter just to reconcile the trend on the comp. That's the pricing for now.

We don't have any specific pricing plans that we have in place for next year. We don't typically take menu pricing to drive comp. It's more to manage inflationary cost in the P&L.

The franchisees obviously make their own decisions relative to pricing, and I know they consider those things particularly in states where we have the wage increases like California. Those franchisees will be looking to possibly take some pricing to manage those inflationary costs. But a lot of that has to do with what's going on in the wing environment as well, so we will see how that plays out.

Great, and just to be clear, Mike, is that 3% pricing, is that for the system or is that for your corporate stores or both?

It's a system number. It's for both of them, but it's a system number generally.

Okay great, thank you very much.

Jake Bartlett, SunTrust.

Thanks for taking the question. Just to clarify that last point, are you saying that there's going to be no pricing because you're rolling over the pricing from last year in the fourth quarter so that your guidance has no pricing in the fourth quarter?

No Jake, we don't break our comp down between pricing and ticket and transactions. But we will when we have take these system-wide, organized price increases just as context.

And so that's context of the roll over 3%. It wasn't a commentary that there is no other price or ticket in the comp in the quarter.

Okay, and when I do the math, I come up with 3% to 4% for the system in the fourth quarter for a comp. And that implies a deceleration on the two-year basis, the one-year basis and the three-year basis.

Are you rolling over anything in particular last fourth quarter that is difficult to compare against? Or maybe help us understand why we should -- why were expecting a deceleration.

I think it goes to the comment I just made, which is we're losing those 3 points of price and we have that calendar shift on Christmas. If you bridge those things from Q3 to Q4, I think you're going to see the momentum is relatively the same as we just posted in Q3.

Okay, and on the calendar shift just to clarify, we're losing 70 basis points in the fourth quarter because of football and 50 basis points because of Christmas.

No, the football shift was the third quarter.

Okay, it goes from the third quarter into the fourth quarter?

No, it goes from the third quarter -- we lost a week of football in the third quarter. It cost us about 70 basis points. That comes into the first quarter of 2016.

Okay. I think I got it. One question just -- I guess last question on international development. There was I think four closings internationally.

That was just one question about what those were or if there's any -- if you can give us an indication of what you expect for international growth just over the next several years. Should we expect the pace we've seen this year and last year in terms of gross openings?

Yes. I will first say that we have definitely delivered against the pace that we would expect on international growth this year and expect that to be the case. Even net of the closings that we had, I would expect that to be consistent as we move forward.

The foreclosures were specific to the Philippines market. Our partner there had opened a few restaurants very quickly early in their I guess lifecycle of development for this brand there in the Philippines. It's only a deal that's about a year-and-a-half, two years old.

Those turned out to be real estate choices they weren't happy with, but I will say that that particular partner is well ahead of his development schedule and continuing to open restaurants. And we've opened a couple of the restaurants since then in the Philippines to replace these closures. So we are very confident in the brand internationally, but this was just a one-time event where these particular restaurants, they felt like they'd be better suited in different trade areas in the market.

Great, thank you very much.

You're welcome.

Jeff Farmer, Wells Fargo.

Thank you. Just following up on one of David's earlier question, you guys did touch on it, but as it relates to the California franchisees and that July -- I think it was July 1, 2014 minimum wage increase, what did they do? Did they act as a group of franchisees? Did they act as a state? What happened when that minimum-wage increase went through?

I think part of the price increases that Mike had talked about, and obviously this wage inflation was anticipated, so it wasn't a surprise that many franchisees collectively worked to get ahead of that trend. And so a big piece of the price increase was taken last year was incorporating -- in anticipation of that event.

And then I apologize for being slow on this, but as it relates to California taking another increase in January 2016, as of right now, there's just nothing you guys are disclosing, there's nothing contemplated. What's the game plan there to address that second minimum-wage increase in California?

Yes. I think one of the things to keep in mind about Wingstop is the simplicity of our model. So our franchisees are definitely cognizant of that and want to make sure that as we take price, we take it very carefully and try not to erode the transaction train of the business.

So we've taken some price over the past couple years. I think they feel comfortable at least at this point in the pricing action that we've taken. They certainly have the ability to adjust price as we go forward, but our labor model is quite simple in our restaurant.

We can afford to run this restaurant with a very lean team and still deliver the higher average unit volumes that we do. And that's part of the reason why you see such great returns on our stores. So we try to be careful and cautious as we go through those price increases not to do anything to otherwise affect the business.

Understood, and just final one and unfortunately one more on pricing. You mentioned the 3% menu pricing taken in Q4. So again, to try to further the understanding here, is that a situation where maybe half the franchisees are at 3%, some 25% or above 3%, 25% below 3%? How should we think about that?

I mean I think is reasonable to assume that some are above and some are below. But I think there's certainly a reasonable peak to what that price increase could or should be, and it's really market dependent and restaurant dependent. Some trade areas are going to be more receptive to a higher price increase than others.

But usually market to market and within a co-op or a DMA, our franchisees do try to align themselves so that their pricing doesn't conflict with each other. So you should see regional consistency as they make price changes.

Okay and I apologize again, very last one, but theoretically if the pricing or the franchise group decided to move forward with pricing sometime in the next two months, that wouldn't be communicated to the investor community until early 2016 or when you report Q4 in 2016? How would that happen?

That would be consistent with how we would discuss that, yes.

Okay, thank you very much.

You're welcome.

Jeffrey Bernstein, Barclays.

Hi thanks. This is [Braddock] on for Jeff. Just had a quick question regarding the wing outlook. Obviously prices remained elevated in the third quarter up 17%, and we've heard from one of your peers who is also heavily involved in wings talk about how prices haven't really fallen as far and as quickly as maybe were expected. And just what are you guys thinking about, going forward, your outlook for 2016 and how we should think about wing prices?

Sure. One of the things Mike commented on in his remarks earlier was that wing prices were spot on to where we thought they would be in the third quarter. So I think we had a pretty good feel for what the market was going to be and so they delivered right where we thought they' be.

As you look into the fourth quarter and the first four weeks of the quarter, we have seen the price of chicken wings ease a pretty decent amount. So you can find that on the Urner Barry, which is how most companies acquire wings or that sets the price for how we buy wings.

As we go into the fourth quarter and into the first quarter of next year, there is typically a seasonal uptick just because of the high demand for wings going into the Super Bowl time frame. And then they tend to taper off after that, and that's how the seasonality here works.

We do have a few things that may be opportunistic for us. We just have to wait and see how the market behaves, but the growers are expecting a larger flock. We do see that the pound estimates for broilers next year are going to be up, and that's a good sign for Wingstop.

The other thing I would comment on is the feed costs seem to remain in line and consistent with what we experienced this year. So all the right inputs are in place for the year to be pretty good for us.

As we know, it can be a volatile market, lots of things can affect this market and change it. There's only two wings on a chicken, so these things all factor in.

But right now we feel very confident in our ability to look at the market ahead. And as I've said in the third quarter, it did not impact us because the team had pegged where we thought the market would be, and we were spot on.

That's very helpful, thanks.

You're welcome.

Matthew DiFrisco, Guggenheim Securities.

Thank you. I had a question with respect to the mobile and how that -- over time obviously you been pretty detailed about talking about the average check benefit there. I wonder though also if you've seen any early indications of what that is doing as far as capacity to your stores, how has it helped reallocate labor, us it more efficiently?

Have you seen an ability to sustain higher volumes? You already do very big volumes off a small footprint, but I was wondering does the mobile app skew even more to that takeout order and drive that business more or increase the repeat of that customer to a point where you think you could even maybe test the limits on some of the higher-volumes stores?

A couple things I would tell you on that. First, we've demonstrated our very small yet efficient footprint can deliver pretty high volumes. Our Company restaurants on average on a trailing 12-month are in the $1.5 million to $1.6 million a year performance or AUV. So we do know that there certainly is more capacity within the restaurant for growth without expansion or retooling of the configuration of the kitchen.

The app and the online ordering mechanism, we think it provides efficiencies as I mentioned before to the restaurant in just terms of the ease and consistency and accuracy of providing orders to our guests. It certainly makes it easier for our employees and our team to process those orders. And we'd also mentioned before that we are in the process of implementing one modification to the restaurant that we think can help the customer experience, and that is modifying our front counter to have a dedicated area where the customer can come in and grab their order with out standing in line for others who are waiting to place an order.

A lot of the online orders are going to replace people who are today calling into our restaurants. I would note that our concept already delivers 75% takeout for our guests in terms of their preference and choice of how they dine with us. So to increase that, I don't know that it would necessarily increase that number, but it certainly is a mix shift between the phone-in orders and the online app.

And then I just had a question, a second one on delivery. A lot of the quick casual peers are getting into delivery now that do a significantly smaller amount of takeout business.

I know you've always said about the food quality of it is something to be concerned about, that it is just not great to deliver. But it does seem like the technology's there or at least the burden of delivery has been transferred to some third parties and some are trying to step up their games on delivering it. Would you test or have some your franchisees discussed or considered testing delivery in the face of some competition coming in with it?

It's a great question. I will go back to the comment you made that step one is to make sure that we maintain quality and put our high-quality food, our fresh ingredients and all of those elements into the hands of our customers in the best manner possible. We have to be cautious of making sure that any third-party company that we would do any business with is going to commit to delivering upon our expectations.

And not all food is made for delivery. We hand cut every potato in our restaurant to make our fresh cut seasoned fries every single day. Those fries wouldn't hold up well if a third-party delivery driver took a long time to get it to the customer. So we are certainly aware of the trend and the growth in the trend, but at this point we haven't made any firm commitments one way or the other as to how we would address that emerging trend.

And then just a last question, how many stores are going to be in new markets over -- if we were to think like two to three years from now every year, your percentage of stores that are going to be opening from franchisees regardless of if they're within that bucket of existing franchisees or not but considered more so than new markets rather than new franchisees? And that's my last question.

Okay sure, thank you. I don't have a specific number or metric to provide you as to what percentage would be in new markets versus existing markets. I can tell you that the complexion of restaurants that are opening in new markets is going to grow relative to the existing, so it will outpace that.

I would also just point your attention to a statistic we provided earlier on, which is of our -- in our growth goals to our 2500 unit target domestically, there's almost an even split between the remaining restaurants that we can develop in both existing and new markets. So as I mentioned in my earlier comments, we can more than double the size of the chain just in existing markets alone without even entering new markets.

And as we also noted, we have sold some deals recently in some of these new markets, Boston as an example, Philadelphia, et cetera. So we would expect to see that mix shift over time.

Excellent, thank you.

You're welcome.

Karen Holthouse, Goldman Sachs.

Hi, good evening. This is Harsh Aneja on for Karen. We saw the gap between company comps and franchisee comps widen by over 200 bps this quarter.

Just wondering if you could give us some color on what drove this? Was it differences in traffic or check? I know you don't break out comps, but any directional color would be helpful. Thank you.

Yes, I think the thing Charlie mentioned before is probably the major driver is the geography piece that they're in. So Texas was a particularly strong market for us. Most of our company stores are in Texas, particularly Dallas and Houston.

So that probably explains the majority of variance there. The other thing to consider is there's only 19 company stores to, so the base is quite small. But I would say the geography's the major difference

Okay great, thank you.

You're welcome.

This concludes time allocated for questions on today's call. This also concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.