In the wake of the pandemic’s impact on the food industry, chicken-wing prices have seen significant volatility. Factors such as the surge in delivery demand, supply chain disruptions, changes in sports seasons, and adjustments to restaurant menus and production have all contributed to this fluctuation.

Despite this uncertainty, analysts at Stifel suggest that Wingstop Inc., a leading chicken-wing chain, is relatively insulated from these shocks within the bone-in wing ecosystem. They also believe that the company has ample room for growth, even as it faces tougher year-over-year financial comparisons later this year. This optimism stems from Wingstop’s introduction of new menu items, wider delivery coverage, and increased advertising investments.

As a result of their analysis, Stifel upgraded Wingstop shares (WING) from “hold” to “buy” and raised their price target from $180 to $200. This news boosted Wingstop stock by 2.1% on Tuesday.

According to the analysts, Wingstop has an extensive runway to explore new flavors and innovate with bundled value offerings. They highlight the recent success of the Cajun Meal Deal as an example. Moreover, Wingstop may introduce new product platforms without overly complicating the franchisees’ operating model.

The analysts emphasize that the delivery channel remains a crucial driver of sales growth for Wingstop. They note that the company has only recently started investing marketing dollars to increase awareness on the Uber Eats platform. Wingstop joined forces with Uber Eats in July 2022 and unveiled a chicken sandwich last September. Despite these recent moves, the analysts see further potential for growth as Wingstop fully leverages its partnership with Uber Eats and continues to expand its national advertising campaigns.

Wingstop’s Growing Control Over Costs

Introduction

Wingstop, a popular fast-food chain specializing in chicken wings, has managed to gain greater control over its costs as the company expands. This positive development has made business more predictable for its franchisees. Additionally, the increasing popularity of boneless chicken has benefited Wingstop, accounting for an impressive 43% of its sales in the second quarter. Let’s explore how these factors have contributed to Wingstop’s success.

Historical Challenges

Traditionally, Wingstop faced challenges related to the fluctuating cost of bone-in wings. During periods of high wing inflation, franchisees had to absorb significant incremental food costs. Conversely, when wing prices were abnormally low, the franchisees enjoyed substantial windfalls. This volatility posed a significant obstacle for the system.

Enhanced Cost Visibility

However, Wingstop’s expanding scale has allowed it to enter fixed-price arrangements through early next year. This strategic move offers better cost visibility to franchisees, decoupling the price the company pays for wings from the unpredictable spot market. As the purchasing volumes continue to climb, Wingstop is confident in its ability to negotiate favorable arrangements in the future.

Chicken-Sandwich and Boneless Menu Sales

The analysts also noted that Wingstop has experienced a boost in sales of its boneless items due to the popularity of chicken sandwiches. Not only are these sandwiches attracting new customers, but these diners also tend to explore other boneless menu items such as tenders and wings. This trend indicates potential for growth in the boneless category.

Conclusion

In conclusion, Wingstop’s expansion not only affords it greater control over costs but also opens up new avenues for growth. By diversifying its menu with boneless chicken and strategically negotiating fixed-price arrangements, Wingstop is well-positioned to withstand price fluctuations and offer stability to its franchisees. As Wingstop continues on its path of growth, it’s expected that boneless items will constitute an even larger portion of the company’s sales.

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