I have looked into Wingstop for my core long book, and I didn't think it was that attractive. My point of view is that, yes, Wingstop has a moat protecting it from other chicken wing restaurants, but there is no moat protecting it from Chipotle or Chick-Fil-A. The restaurant industry is highly competitive, so I'm just not sure that earnings growth is secular. Curious your thoughts.
I agree the industry is highly competitive and consumer preferences change. But as long as demand is intact, the franchise model works.
For Wingstop, 100% of domestic development commitments coming from existing operators is hard, strong evidence that demand is intact. These are people who run Wingstop locations every day and are choosing to expand with their own capital.That is conviction.
I see no signs of demand weakness. What I see is a growth lever that is promising both locally and internationally.
Demand intact coupled with decent room for growth makes me believe earnings will continue to grow like a snowball with each new restaurant added.
What you are getting at is business momentum, no? I agree that Wingstop's business is enjoying upward momentum via expansion and increased demand, but momentum is only good until it stops. The key question is: when does it stop?
Who knows. You said that, right now, existing Wingstop franchisees have high conviction in the brand. That can change very quickly.
Using Chipotle as a rough example, everybody thought it was bulletproof until it wasn't. Then, growth slowed. You couldn't really predict that. I would argue it is similar with Wingstop. Sure, Wingstop may grow at a satisfactory rate over the next 3-7 years or more. I don't really want to be constantly worrying about a seemingly random fall-off like most once-great brands have inevitably seen.
In my opinion, restaurants are not a good pond to fish in for long-term, quality-focused investors like you and me.
I could be wrong, though, and I would love to hear your side of it.
You are making a fair point. Every brand that has ever looked bulletproof eventually faced the question of when the momentum stops. Chipotle is a good example and there are many others.
Where I see Wingstop differently is in the structure of the growth, not the brand sentiment. It is also worth noting that Chipotle operates its own restaurants, which means a slowdown in traffic hits the income statement directly and immediately. Wingstop's franchise model creates a layer of separation. A decline in same-store sales pressures franchisee profitability first, and Wingstop's royalty stream is only affected if that pressure becomes severe enough to slow unit growth or cause closures.
A useful comparison is Domino's Pizza. One of their major master franchisees has been facing serious operational and financial trouble for years across several countries, representing roughly 20% of their international royalty fees. Domino's income statement barely felt it. That is the resilience the franchise model provides that an operator-owned model simply cannot replicate.
The 100% existing operator commitment figure tells me that threshold is still being met comfortably today, even with same-store sales under pressure. Franchisees with full visibility into their own unit economics are choosing to expand with their own capital.
On your broader point about restaurants as a pond to fish in, I take it seriously. My answer is that the Wingstop thesis is less about the restaurant and more about the royalty stream it generates. That distinction matters, but it does not eliminate the brand risk you are describing.
I have looked into Wingstop for my core long book, and I didn't think it was that attractive. My point of view is that, yes, Wingstop has a moat protecting it from other chicken wing restaurants, but there is no moat protecting it from Chipotle or Chick-Fil-A. The restaurant industry is highly competitive, so I'm just not sure that earnings growth is secular. Curious your thoughts.
I agree the industry is highly competitive and consumer preferences change. But as long as demand is intact, the franchise model works.
For Wingstop, 100% of domestic development commitments coming from existing operators is hard, strong evidence that demand is intact. These are people who run Wingstop locations every day and are choosing to expand with their own capital.That is conviction.
I see no signs of demand weakness. What I see is a growth lever that is promising both locally and internationally.
Demand intact coupled with decent room for growth makes me believe earnings will continue to grow like a snowball with each new restaurant added.
What you are getting at is business momentum, no? I agree that Wingstop's business is enjoying upward momentum via expansion and increased demand, but momentum is only good until it stops. The key question is: when does it stop?
Who knows. You said that, right now, existing Wingstop franchisees have high conviction in the brand. That can change very quickly.
Using Chipotle as a rough example, everybody thought it was bulletproof until it wasn't. Then, growth slowed. You couldn't really predict that. I would argue it is similar with Wingstop. Sure, Wingstop may grow at a satisfactory rate over the next 3-7 years or more. I don't really want to be constantly worrying about a seemingly random fall-off like most once-great brands have inevitably seen.
In my opinion, restaurants are not a good pond to fish in for long-term, quality-focused investors like you and me.
I could be wrong, though, and I would love to hear your side of it.
You are making a fair point. Every brand that has ever looked bulletproof eventually faced the question of when the momentum stops. Chipotle is a good example and there are many others.
Where I see Wingstop differently is in the structure of the growth, not the brand sentiment. It is also worth noting that Chipotle operates its own restaurants, which means a slowdown in traffic hits the income statement directly and immediately. Wingstop's franchise model creates a layer of separation. A decline in same-store sales pressures franchisee profitability first, and Wingstop's royalty stream is only affected if that pressure becomes severe enough to slow unit growth or cause closures.
A useful comparison is Domino's Pizza. One of their major master franchisees has been facing serious operational and financial trouble for years across several countries, representing roughly 20% of their international royalty fees. Domino's income statement barely felt it. That is the resilience the franchise model provides that an operator-owned model simply cannot replicate.
The 100% existing operator commitment figure tells me that threshold is still being met comfortably today, even with same-store sales under pressure. Franchisees with full visibility into their own unit economics are choosing to expand with their own capital.
On your broader point about restaurants as a pond to fish in, I take it seriously. My answer is that the Wingstop thesis is less about the restaurant and more about the royalty stream it generates. That distinction matters, but it does not eliminate the brand risk you are describing.
You could absolutely be right.
I appreciate the Domino's Pizza example. I didn't know that. Thank you for the insight and the lively debate :)
Always a pleasure :)