Wingstop Inc. (WING) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Wingstop Inc. Fiscal First Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded today, Wednesday, May 3, 2023. On the call today are Michael Skipworth, President and Chief Executive Officer; and Alex Kaleida, Vice President and Chief Investment Officer. At this time, I would like to introduce Mr. Kaleida to begin the presentation. Thank you.

Thank you, and welcome to the Fiscal First Quarter 2023 Earnings Conference Call for Wingstop. Our results were published earlier this morning and are available on our Investor Relations website at ir.wingstop.com. Our discussion today includes forward-looking statements. These statements are not guarantees of future performance and are subject to numerous risks and uncertainties that could cause our actual results to differ materially from what we currently expect. Our SEC filings describe various risks that could affect our future operating results and financial condition. We use certain non-GAAP financial measures that we believe can be useful in evaluating our performance. Presentation of such information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are contained in our earnings release. [Operator Instructions] With that, I would like to turn the call over to Michael.

Good morning, and thank you for joining our call. The momentum we saw in our business in the back half of 2022 has continued into 2023 and given us a strong start to the year. While we continue to execute against several multiyear sales drivers, our strong start to 2023 speaks to the resiliency of the Wingstop brand and the staying power of our strategies. This gives us confidence in our ability to deliver another year of industry-leading results. At the foundation of our strategies is people, and I couldn't be prouder of our team and brand partners who are fueling our path to becoming a top 10 global restaurant brand. In the first quarter, we delivered 20.1% same-store sales growth. Substantially, all of our comp was driven by transaction growth, a true demonstration of the underlying strength of the Wingstop brand. Within our sales growth, we saw further expansion in our digital channels, achieving a record 65% digital sales mix for the quarter. We opened 37 net new units during the quarter, representing a unit growth rate of 11.4%. Global system-wide sales grew by 30%, and we are now approaching $3 billion in system sales. Adjusted EBITDA was $34.6 million, an increase of 60% versus the prior year. This strength in transaction growth fueling our same-store sales is driven by multiyear sales drivers we have been executing against, and we believe provides us clear line of sight to growing AUVs north of $2 million. These strategic growth levers consist of building brand awareness, menu innovation, expanding our delivery channel, digital transformation and data-driven marketing. In just the last 3 years alone, our AUV has grown by nearly $400,000 and is now approaching $1.7 million. But we believe the growth levers we are executing against will continue to increase AUVs, and a huge opportunity within our strategies is to scale brand awareness. Our advertising fund continues to grow at a rate similar to our system sales, which increased 30% in Q1, giving us the fuel to continue making progress against the gap in brand awareness to other national brands. In the first quarter, the ad fund was further bolstered by the conversion of the 1% local advertising requirement to national advertising that became effective at the beginning of Q2 last year. The growth in our ad spend has allowed us to increase our presence in social, streaming and digital channels and to be a big buyer in media to include more premium properties such as the NFL and NBA. 2023 will mark our first full year deploying an always-on message, which will keep Wingstop top of mind with consumers throughout the entire year, a strategy we implemented in the back half of 2022 and one that we believe is working. We are making great progress on closing our gap in awareness to other national brands, but there remains a significant opportunity ahead as we look to deliver our 20th consecutive year of same-store sales growth and sustain same-store sales growth over the long term. We recently announced the appointment of our new creative agency, 72andSunny, currently, the lead agency for the NFL and many other great brands. We feel 72andSunny can propel the Wingstop brand into our next phase of growth and help make Wingstop a household name. We're excited about their proven talent and what's in store for our creative later this year. A new creative campaign will further support the growth levers we are actioning against. In fact, we can slightly see new creative that focuses on one of our recent menu innovations like chicken sandwich, which was introduced in August of 2022. Not only did we launch 1 chicken sandwich, which we launched 12 chicken sandwiches that showcase our unique flavor profiles to both new and existing guests. This has proven to be a powerful enabler for building awareness, increasing frequency and winning new occasions. Chicken sandwich gives us an opportunity to deliver our Wingstop flavor in a category that has upwards of 2.8 billion servings annually, an opportunity we are just scratching the surface. Not only is chicken sandwich a growth lever, it also advances our supply chain strategy in a meaningful way, where we see a path to 50% plus boneless mix, which we believe could result in a structural change to our long-term food costs, yielding COGS in the low 30% range and would further enhance our already best-in-class unit economics. We also drive innovation through flavor. During the first quarter, we brought back a new fan-favorite flavor, Hot Honey Rub, which has been our highest mixing flavor LTO on record. Flavor LTOs are a proven tactic in our toolkit to drive relevance and repeat occasions with our core as well as bring in new guests to the brand, and we have a pantry full of consumer-tested flavor options with tremendous potential that we can lean into for future LTOs. Another contributor to our AUV growth is the delivery channel. And in our case, this channel has not shown any signs of slowing down. The launch of Wingstop on Uber Eats platform in July of last year, combined with continued growth on DoorDash's platform, provides us with an additional base of consumers to build awareness and capture new occasions. We have seen growth in all channels, but expansion in our delivery channels showcases the opportunity we believe we have to continue to scale this channel long term and drive further AUV growth. We hit a record digital sales mix in Q1, surpassing 65%, and our first-party database continues to grow, now at an incredible 35 million. This database feeds our marketing engine, allowing us to drive improvement in retention rates, increased frequency and win new occasions. Even with our early success in leveraging first-party data to drive our business, it remains a significant opportunity for Wingstop to further impact retention and frequency. As we continue to lean into innovation and pursue our aspirational goal of digitizing every transaction, we are excited about early results from a test we just completed around AI-enabled phone orders. We are expanding this test to where we convert phone orders, would still represent about 10% of our sales today, into digital orders through AI voice ordering technology. The early results are promising as we see an improvement in the team member experience, order time, guest satisfaction and an increase in ticket size with the ability to capture this guest digitally. This also allows team members to focus on taking care of our guests that is picking up their order in the restaurant. The transaction growth fueling 20% same-store sales in Q1 is bringing a lot of new guests into the brand, winning new occasions with these guests and moving them up the frequency curve, which is a powerful unlock for continued AUV growth. And we know how important it is to provide a great guest experience. A key to that is operating with excellence, something we have been extremely focused on. We are encouraged by the progress our restaurants are making to deliver a best-in-class guest experience, and the results back it up. But we know there continues to be opportunity to further enhance the guest experience that we know will contribute to further top line growth. The multiyear sales levers we are executing against give us confidence in our goal to drive AUVs above $2 million. But even at our current AUVs of almost $1.7 million and an initial investment in the mid-$400,000 range, we are generating best-in-class returns for our brand partners. A good proxy for our system is our company-owned restaurants, which, in Q1, we saw our unit economics strengthen to margins of 27.6%. We're not resting on our laurels and remain committed to executing our supply chain strategy to become less reliant on the historically volatile spot price for wings and delivering more predictable food cost for our brand partners. The combination of our size and scale, combined with our strategy, has enabled a fundamental change in how we go to market from a supply chain standpoint and is allowing us to make great progress towards moving more of our buy away from the spot market to longer-term pricing arrangements. Our brand partners are excited by our progress and the strength in our business, and this is translating into significant growth in our development pipeline, setting the backdrop for another strong development year in 2023. Based on the strength of our pipeline and the visibility we have today into approved sites and stages in our construction pipeline, we are reiterating our guidance for 2023 of approximately 240 net new restaurants, which would be another record year for Wingstop. As we exited 2022, a year where we surpassed more than 200 net new restaurants for the first time, we have an energized base of brand partners that are ready and willing to acquire and develop more territory. In fact, as of the end of the first quarter, we now have a record global development pipeline that's approaching 1,200 restaurant commitments. We also are seeing a record number of approved sites through the start of the year, which supports our outlook for openings in 2023. This strength in momentum and development helped us hit an exciting milestone for the brand, opening our 2,000th restaurant this past month. Truly exciting times for Wingstop with an accelerated pace of development and the incredible opportunity we have in front of us to scale to more than 7,000 global restaurants. We're making great progress in our international markets, where we see an opportunity to open more than 3,000 restaurants. Our U.K. market, which serves as a playbook for future market launches, continues to expand AUVs past $2 million, while unit economics are at levels comparable to our domestic business. Our Canada market launched in June last year, and we're thrilled by the consumer response. We opened the first Wingstop in Korea during Q1. And most recently, we signed a 30-restaurant commitment to bring our flavor to Puerto Rico, another example of the strength of our business development pipeline. This week, Raj Kapoor, new Head of International, joined my leadership team. Raj is a tremendous business leader, and I'm thrilled to have the opportunity to partner with him as we scale Wingstop globally. He brings a wealth of experience and an eagerness to shepherd our international business into our next phase of growth. Wingstop is well positioned for another industry-leading year. I'm excited by our start to 2023, and our sight's clearly set on the 20th consecutive year of same-store sales growth. With a strong start to the year, we are raising our full-year 2023 outlook to high-single-digit same-store sales growth from our prior guidance of mid-single digits. Our brand partners are seeing some of the strongest unit economics in our history. We believe this positions us to deliver upon our target of approximately 240 net new units. Wingstop is well positioned as an asset-light, high-growth brand, supported by best-in-class unit economics with unique sustaining same-store sales growth drivers in an industry-leading pace of restaurant development. We believe this really highlights the opportunity we have in front of us here at Wingstop, and positions us well to deliver best-in-class shareholder returns. Before I hand it off to Alex, I want to thank our brand partners, our team members in the restaurant and the team members at the Global Support Center for all their incredible work and commitment. With that, I'll -- I'd like to turn the call over to Alex.

Thank you, Michael. As you just heard from Michael, the first quarter demonstrated the strength of our long-term strategies. We delivered 30.4% growth in system-wide sales in the first quarter, which now totals $2.9 billion on a trailing 12-month basis. Total revenue increased to $108.7 million from $76.2 million in the prior-year fiscal first quarter. Royalty revenues, franchise fees and other revenue increased by $13.1 million in Q1, driven primarily by 199 net franchise openings since the prior-year comparable period and a 20.1% increase in domestic same-store sales. The transaction growth we experienced in the second half of the prior year continued, and the majority of our first quarter comp was driven by transaction growth. Company-owned restaurant sales totaled $23.1 million in Q1, an increase of $4.5 million, primarily due to a 10.3% increase in company-owned same-store sales, driven entirely by transaction growth and 6 net new restaurants versus the prior-year comparable period. Cost of sales as a percentage of company-owned restaurant sales improved by more than 1,100 basis points compared to the prior year, mainly driven by a 1000-basis-point reduction in food, beverage and packaging costs. We are pleased to see this continued improvement in restaurant margins, which, for the first quarter, benefited from a 53% decrease in the cost of bone-in chicken wings. With our supply chain strategy and based on what we know today with leading indicators for our core commodities, we believe we have line of sight to a predictable food costs for 2023 in the low 30% range. As a result, we anticipate company-owned restaurant cost of sales to be approximately 75%. Combined with this deflation in our core commodity, our supply chain strategy to reduce the volatility in our food cost is paying dividends and is generating quite a bit of excitement among our brand partners as unit economics have strengthened to near record levels. In the first quarter, SG&A increased by $5.6 million versus the prior-year comparable period to a total of $23.6 million, driven by investments in strategic projects to support the long-term growth of the business and an increase in performance-based stock compensation and incentive compensation as a result of the business' performance. We will continue to make investments in strategic areas of our business, such as in technology, development and international, to allow us to sustaining these industry-leading results. Adjusted EBITDA, a non-GAAP measure, was $34.6 million during the quarter, an increase of 60% versus the prior year. Adjusting for nonrecurring items, we delivered adjusted earnings per diluted share, a non-GAAP measure, of $0.59, an 80% increase versus the prior year. Our highly franchised asset-light model continues to deliver strong free cash flows. As of the end of the first quarter, we had $513.3 million in net debt. Our net debt to trailing 12-month adjusted EBITDA was at 4.3x, which is a 0.5x lower than at the end of the fourth quarter, underscoring our ability to quickly delever through a combination of adjusted EBITDA growth and a strong free cash flow generation. We are maintaining a strong cash balance that stands at over $200 million, and it allows us to be opportunistic as we navigate any uncertainty in the macro backdrop in the back half of this year. We will also continue to explore opportunities with this cash to maximize shareholder returns. We remain committed to driving shareholder value and returning capital to shareholders through our regular quarterly dividend. Today, we announced a dividend of $0.19 per share of common stock, a demonstration of the strength of our model. This dividend totaling approximately $5.7 million, will be paid on June 9, 2023 to stockholders of record as of May 19, 2023. Now shifting to our outlook for 2023. With the strong start to the year, we have increased our outlook to high-single-digit same-store sales growth for 2023 from mid-single-digit same-store sales. Based on the visibility we have in our pipeline at this point in the year, we are reiterating our development outlook of approximately 240 net new units, translating to a unit growth rate of more than 12% versus the prior year. We also anticipate our pace of openings to be weighted more towards the second half. SG&A guidance is estimated to be between $85.5 million and $87.5 million, including $2.8 million in consulting projects to support our strategic initiatives and an estimated $12 million to $13 million of stock-based compensation expense. We are excited by the momentum in our business, the underlying health of the Wingstop brand and the opportunity that lies ahead for 2023 and beyond. Our growth strategy is a unique part of the story for Wingstop. We have staying power that give us the confidence in delivering our outlook for 2023. With that, I'd like to now turn to Q&A. Operator, please open the line for questions.

[Operator Instructions] And the first question comes from David Tarantino with Baird.

And congratulations on such a strong start to the year. My question is related to the strength you're seeing in the domestic comps or AUVs. I guess the way we look at it on a seasonal basis, it looked like you had a pretty strong surge in volumes relative to normal seasonality. And I was wondering, Michael, if you could maybe talk about the factors that drove that step-up from the last quarter? And whether you think those are structural or whether you think there was some temporary benefit in the first quarter? And then I have a follow-up.

Yes. I think we mentioned this on our last call how we did acknowledge that we saw the comp momentum build as we progress through Q4, and that continued into Q1 this year, giving us a really strong start to the year, as you mentioned. We really believe it is structural, not a seasonal change in our business, in that these growth levers that we're executing against putting us in a pretty unique spot to have so many different levers that are not only continuing to drive repeat visit with our core consumers, we're bringing a lot of guests into the brand, whether that's through just expanding brand awareness, through the growth in our national ad fund or expansion in the delivery channel or winning occasions with chicken sandwich, just to name a few, that we've been executing against. And so we saw that momentum build as we progressed through the quarter. And obviously, as we think about the rest of this year and kind of how it's going to shape up, everyone is trying to get their arms around the back half of the year, the consumer. But we feel pretty confident in the strategies that we're executing against and in our ability to deliver on our outlook, which would result in the 20th consecutive year of same-store sales growth.

Great. Michael, I did want to ask about the guidance. I guess the guidance assumes your comps moderate pretty significantly and maybe even your seasonally adjusted volumes moderate pretty significantly from what you just reported for Q1. So I guess, first question is, are you already seeing that? Or are you seeing something? Or is this just maybe a bit of conservatism as you think about the second half of the year?

Yes, David, I think it's probably more of the latter. Obviously, there's still a fair amount of uncertainty with the macro environment, the consumer, recession. Everyone is trying to really understand what's going to happen later today with the Fed as an example. And so we're all trying to get our arms around exactly what that means to the overall consumer. That said, and I mentioned it just a second ago, we feel like we're in a pretty unique spot as a brand to be able to raise our guidance this year, even considering that overall macro backdrop, and deliver a really strong year.

And the next question comes from Jeffrey Bernstein with Barclays.

Great. Two questions. The first one just on the unit growth. Clearly, there are concerns of macro easing and rate increases and just, over the [ past ] month or 2, a lot of small bank concerns. So I'm just wondering if any or all of those factors you think are having any impact on your unit growth outlook. I know you've reiterated the guidance for this year for 12% plus. But just trying to get some color on whether you think that has any impact at all. I think you mentioned your pipeline is 1,200 units. So I'm just wondering maybe that could provide some color. Maybe what was that pipeline last year and the year before? Any kind of color in terms of the -- any headwinds on that unit growth outlook, based on the current macro? And then I have one follow-up.

Yes, the pipeline, as we sit here today, we mentioned, is at a record level, 1,200 strong. And just to provide some perspective, that was close to 1,000 this time a year ago. And then you layer on top of that the openings we had over the past year of 200 roughly, it really speaks to the demand that we're seeing from our brand partners to reinvest in Wingstop and their desire to continue to grow. And as we sit here today, we have pretty good visibility into our pipeline. And in fact, the number of sites that we need to deliver on that outlook that we reiterated of 240 net new units are sitting in our pipeline today. And so we feel pretty confident, regardless of what happens in the overall macro, to be able to continue to deliver industry-leading unit development. And a lot of that has to do -- if you think about financing, the rate environment or these regional banks, there's not a lot of lending or leverage conversations we have with our brand partner community. A lot of their growth is fueled by cash flow from operations. And then, on top of that, compared to other brands, it's a relatively modest initial investment to open a Wingstop. So I think all those things help position us to be able to sit here today with confidence in delivering another industry-leading return from a unit development perspective.

Understood. And then the follow-up is just on the commodity cost outlook. Clearly, the deflation of 50% plus on the bone-in wings is incredible. Just wondering -- your outlook for that for the second quarter or the back half, just wondering, when you would think it might turn into a headwind? And I think you mentioned something about from a supply chain's perspective, you're shifting more to long-term buys versus spot market. If there's any incremental color you could provide in terms of new details, that would be great.

Jeff, we're really encouraged by the commodity backdrop that we see today. As we look at some of the leading indicators around the price of -- that leads to the price of wings, those are favorable as well. Seems to signal to a little bit of softness maybe out there from a more macro perspective, but obviously, nothing we're seeing in our business. And we're seeing some pretty favorable pricing as we sit here today in the Urner Barry. But we do expect that to normalize -- the Urner Barry to revert back to what I would describe as a more seasonal trend, which, if you get into the back half of the year, football season, you see the price of wings usually tick up a little bit. But even that, with that environment in front of us, we still see a pretty favorable overall food cost, not only for our company-owned restaurants that we guided to in the overall margin there, but for our brand partners, something that we think is going to continue to fuel overall demand for growth. But you mentioned it, and we talked about it in our prepared remarks. The combination of our size and scale and then just the continued execution against our overall supply chain strategy is allowing us to shift more and more of our buy away from the spot market and be able to negotiate longer-term pricing arrangements that give us more predictability in food cost as -- the further we look out. And some of these arrangements are actually giving us some comfort and confidence into what 2024 is starting to shape up as well.

Understood. And just to clarify, in your response there, I think you mentioned the macro outlook maybe softening a little bit, but not anything you're seeing in your results. I think it was questioned earlier, but is that safe to assume then, without giving specifics, that the momentum you saw through the first quarter, there really hasn't been a change in trend at least through the month of April?

Jeff, I can jump in here. One of the leading indicators is around frozen inventory levels on wings and breast meat. And I think that's the one that we're pointing to that signals some softness as suppliers are rebalancing that equilibrium between demand and supply right now.

I'm sorry. I was talking about the comp momentum with the 20% plus in the first quarter, and I think you've indicated you really haven't seen a slowdown from a top line comp perspective thus far in the second quarter, despite the macro concerns. I wasn't sure if that was the message you were trying to convey about April?

No, I don't think we were trying to be intentional about April, but more just around some of the leading indicators that influence the outlook and what the Urner Barry will do. As it relates to our business and overall demand, I think all of that factored into kind of our outlook for the balance of the year, which resulted in us raising our guidance for the year from mid-single digits to high-single digits.

And the next question comes from Jon Tower with Citigroup.

One question and then a follow-up. Just curious on the chicken sandwich where that mixed in, in the quarter. But more importantly just looking at the LTO, you talked about the Hot Honey Rub doing quite well. I'm curious if you could speak to how a product makes its way from an LTO to a permanent menu item, especially given the success that this product seemed to have during the quarter?

Jeff -- or Jon, I'm sorry. I would say, as it relates to the LTO, and maybe I'll start there, as we reflect on Wingstop as a brand over our almost 30 years, there hasn't been a significant amount of menu innovation. And specifically related to flavors, I think we've eliminated 1 and added 2. So it is a decently high bar to make it on our menu permanently. That said, obviously, we look at and listen to the overall consumer sentiment and demand for a flavor like Hot Honey Rub, which has been significant. And so we'll continue to evaluate that and monitor it, Jon. But as it relates to chicken sandwich, what's exciting for our brand and kind of what we've seen is, we've seen growth in all channels. If you look at digital carryout, nondigital carryout, you look at delivery, you name it, we saw growth across all channels. And chicken sandwich, we saw that mix sustain from what we've seen in prior quarter of about a mid-single-digit mix range. And we're encouraged by that because it's a bit of a halo effect, in that we're seeing bone-in wings, boneless wings, tender [ cells ], all categories rise as we're experiencing some of the strength in the overall business. And so we're encouraged by that. And really excited to see that we continue to see that chicken sandwich sales mix sustain, which means we're winning more occasions and bringing new guests into the brand, as we mentioned earlier, which we're really excited about what that can mean for the brand long term.

Got it. And then just going to -- I think, thinking about the consulting projects that you talked about. Can you give us a little color as to what's going on? Is that going back to the supply chain side of the business? And looking at the opportunities there, is there something else happening that you're looking at right now that might impact the business, going forward?

Yes, Jon, I think as we take a step back and sit here, we kind of feel like, as a brand, this is another one of those put-our-foot-on-the-gas moments. And so we've -- you've known us over the years to make some strategic investments in areas, where we think we can continue to advance our growth strategy and continue to deliver industry-leading results. And I would kind of generally put this in that bucket, where we're leaning in just to make sure we are taking advantage of the momentum that we have in the brand today. We're playing offense and leaning in to position the brand for this next phase of growth that's in front of us that we're excited about.

Okay. So this is not to do with the supply chain examination you've done previously?

Yes. It's not specifically related to that overall supply chain strategy that we've talked about historically, correct.

And the next question comes from Andrew Charles with TD Cowen.

Great. Michael, in 1Q is impressive comps with your higher 2023 outlook, what's the plan with the surplus, the ad fund that comes on top of what was already a robust-planned 20% ad fund increase that followed the 40% increase in 2022? Is the plan to deploy this later in 2023? Or are you able to hold on to the surplus to beef up 2024 TRPs?

Andrew, I think it ties back a little bit to my comment I just made to Jon about this feeling like a little bit of a put-our-foot-on-the-gas moment. And so we are leaning in and finding opportunities to strategically invest any surplus that we do see coming into the ad fund to continue to drive growth and take advantage of this -- these growth levers we have in front of us that are bringing a lot of new guests into the brand that we mentioned in our prepared remarks. And we're really excited about what we're seeing, not only within the 4 walls of the restaurant, but how we're able to retain more of those guests and see them move up the frequency curve with the brand, which is what you want to see, and we think, to tie back to an earlier comment, as part of an overall structural change that we're seeing in AUVs for the brand.

Okay. Great. And then I wanted to just check in as well just on the opportunity to mitigate bone-in wing volatility. You described that you're very flexible in the approach here. And so roughly a year later after first detailing the project. Just kind of want to see the progress that's been made, just kind of where your head is with this? And obviously, when you did the recap a year ago, you took on about $130 million of cash on the balance sheet to help fortify. Is that something you still view as really needed to help you with your efforts? Or is there, perhaps, more of a lower intensity, lower cash usage approach here that may be able to lead to the cash to be deployed to shareholders?

Andrew, this is Alex. Thanks for the question. Yes, I think, as you will recall, our supply chain strategy included multiple tenets of the strategy, which include more of a cost plus pricing model, moving our buy away from the spot market, potential co-investment scenario, an acquisition of a complex or a potential build scenario. And we've been working that first element of our strategy really hard, where, as Michael mentioned on the call, just with our articulation of our strategy, that has fundamentally changed conversations that we're having on our buy year in, year out. So you're starting to see some of that come into our outlook. And I think this is really the first -- one of the first years we've been able to articulate the visibility we have into food costs in that low 30% range for 2023. So we're going to work that -- continue to work that less capital-intensive approach as we continue to see the benefits from that. And then, as you mentioned, we are positioned with the cash on our balance sheet to be opportunistic, whether it is something in our supply chain strategy or a return of capital to shareholders down the line.

Next question comes from Brian Harbour with Morgan Stanley.

Can you talk about just demographic exposure a little bit? Because I know about a year ago, we had talked about kind of some of the lower-end customers pulling back. I think the higher-end customers have since come to you in quite a strong way, especially given kind of delivery. But what do you observe more recently? Has some of the lower end improved? Or what have you seen just from a demographic perspective?

Brian, if you recall, several years ago, we had a stated strategy where we saw an opportunity to broaden kind of the top of the funnel and go after this heavy -- we described it as a heavy QSR user. And this QSR user represents about 60% of all QSR visits and is a little -- just skew a little bit more higher income, a little bit less [ ethnically ] diverse than our core. And we're pretty excited about the progress we've made over the years as it relates to bringing those heavy QSR users into the brand. And so, call it, 4 or 5 years ago, that lower-income consumer was over half of our business. And today, that's roughly less than 30%. So we're clearly making progress there. That said, we have a unique position as a brand with these -- our core, and that is, it's not a high-frequency occasion. The average frequency is once a month or 3 times a quarter, and they engage with our brand -- is almost an indulgent occasion. And so we've talked about the unique position that puts Wingstop, whether it's in a recessionary environment or just the consumers feeling overall pressure from inflation in their pocket book is that they'll have a tendency to pull back more on high-frequency QSR occasions. And then it's almost as though they get towards the end of the month and feel like they should reward themselves. And so as long as we're driving top-of-mind awareness and presenting them with value, we've demonstrated an ability to retain those indulgent occasions. And I think that's exactly what we've seen throughout the first quarter and -- is our ability to retain those indulgent occasions with our core.

Great. And I mean, related to that, is there anything you can quantify just in terms of the increase in frequency more recently, too? And you sort of alluded to this, and certainly, I think elsewhere in the industry, we are seeing some of the higher-frequency QSRs holding on or even building frequency at this point, but it kind of depends on the brand. What have you seen with that more recently?

Brian, this is Alex. I can jump in here. As we mentioned, we've attracted this new guest that comes in that's into Wingstop at a lower frequency than our core average, yet we've been able to sustain that average overall of about 3x a quarter. So I think that demonstrates the continued focus to build frequency with our core as well as move our new guests along the frequency curve.

And then I'll just add to that, Brian. We mentioned our comp in Q1 of 20.1% was entirely driven by transaction growth. And I think that just further supports the point Alex is making about bringing in a lot of new users and new occasions into the brand while retaining those indulgent occasions with their core.

And the next question comes from Josh along with Stephens Inc.

My first question was more of a clarification on some of the build-out costs that you mentioned. I understand that the pipeline is very strong, that's very exciting. Curious if you could talk about some of the construction cost inflation or just maybe permitting things that may have been kind of pushing and pulling on the development pipeline? I understand that your stores and your format is advantaged versus many others of your peers. But just curious, what kind of pressures in your feeling in the current environment? And then I have one follow-up.

Thanks for the question, Josh. This is Alex. I think what you've seen is we've been able to sustain that initial investment of about $450,000 for brand partners and while building our AUVs to now approaching $1.7 million. So that yield is a payback of less than 2 years. So while we're not certainly immune to inflation, we've been doing things very strategically behind the scenes to stage inventory, buy-forward equipment in order to mitigate some of the smaller headwinds they see on some of their purchases. But I think with the growth in the expansion of our margins, with what you're seeing in the pipeline and the level of commitments that we've continued to build on and that low upfront investment, that's got our brand partner base energized to continue to grow and open more Wingstops.