Ladies and gentlemen, thank you for standing by. Welcome to the Wingstop Inc. fiscal first quarter 2019 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. Please note this conference is being recorded today, Tuesday, May 7th, 2019. On the call, we have Charlie Morrison, Chairman and CEO, and Michael Skipworth, Executive Vice President and CFO. I would now like to turn the conference over to Michael. Please go ahead.
Thank you. Welcome. Everyone should have access to our fiscal first quarter 2019 earnings release. A copy is posted under the investor relations tab on our website at wingstop.com. Our discussion today will include forward-looking statements. These forward-looking statements are not guarantees of future performance, therefore, you should not place 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. Our recent SEC filings contain a detailed discussion of the risks that could affect our future operating results and financial condition. We will also discuss certain non-GAAP financial measures that 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.
Reconciliations to comparable GAAP measures are contained in our earnings release. With that, I would like to turn the call over to Charlie.
Thank you, Michael. Thank you all for joining us today. If you have read the earnings release that Michael just referenced, you know why it's such a great time to be a part of Wingstop. We had a strong start to 2019 with domestic same-store sales growing 7.1% in the first quarter. This is a 7.1% comp on top of a 9.5% comp in Q1 last year. This same-store sales growth is a testament to the effectiveness of our long-term strategies of driving same-store sales growth via growing brand awareness and innovation, maintaining best-in-class unit economics for our franchisees, continuing to expand our global footprint. All of this ladders up to our vision of building Wingstop into a top 10 global restaurant brand. We are very excited about all of the positive momentum in our business.
To that end, we're equally excited to talk to you about some investments we are making in our company for the long term to create sustainable shareholder value for years to come. With the kind of growth and success that Wingstop has experienced, it would be natural to rest on our laurels and try to maintain the status quo. That is not us. At Wingstop, we feel a responsibility to our shareholders, team members and franchisees, whom we affectionately refer to as our brand partners, to capitalize on our success and position Wingstop for long-term sustainable growth well into the future. This feeling has been amplified given the overwhelming success our brand has experienced since our last earnings call.
The additional 1% of sales in the national advertising fund, the brand awareness acceleration from our national TV advertising strategy, and the growth of delivery were all showing early signs of success since the last time we spoke. On the last call, we gave you a qualitative indication of what we were seeing in Q1 to date. For the rest of the quarter, our momentum has accelerated, as evidenced by the strong one and two year same-store sales growth numbers we delivered. While times are extremely good, we owe it to you and ourselves to take stock of where we're headed in the long term and how we're going to get there. We believe we have reached an inflection point as a company, and without the necessary investments that I'm going to discuss next, we risk not reaching the full potential of the Wingstop brand.
It's a play that we have run before with great success. Prior to our IPO, Wingstop was achieving best-in-class growth. In 2014 and 2015, we made investments to ensure success in our next phase of growth as a public company. It's now prudent to undertake similar levels of investment so that our growth and success continue on pace. The investments that I am talking about all support our long-term strategy and drive toward our continued vision of becoming a top 10 global restaurant brand. In rough numbers, that vision means we plan to grow to 6 times our size today. We believe we will achieve this kind of growth with our franchise partners, who, by the way, are getting approximately 50% returns at our current average unit volume of $1.1 million.
We believe we will drive even higher average unit volumes and continue to drive Wingstop as a destination for leading franchise partners because we are going to invest, as we did several years ago, and continue to deliver best-in-class unit level economics. We are going to invest in order to accommodate that growth. Broadly, the investments fall into 3 categories: digitizing every transaction, simplifying our great guest experience with technology and kitchen enhancements, and building the organization for the next level. We are well on our way to digitizing every transaction. In the first quarter, over 30% of our sales are coming through digital channels. This is up 640 basis points from Q1 last year.
We launched our new consumer-facing web and app at the beginning of the first quarter. We are seeing best-in-class app ratings and an over three percentage point improvement in guests visiting our digital properties and then converting to an order. Consistent with other brands that leverage technology as a strategic advantage, there will be ongoing investments necessary to continue to offer best-in-class experience to our guests, and we believe that technology is the right area for us to continue to invest as well as innovate. To that point, while very early, we just started testing order and payment kiosks, QR-coded pickup lockers, and digital menu boards in select restaurants. In the back of the house, we are experimenting with different technologies to enhance speed of service and allow more throughput from the kitchen.
As we look forward to the Wingstop of the future, we believe these technologies will play a key role. We are making investments in this area today, and we're excited to provide more updates as we gain further learnings. In addition to investments in technology and guest experience, we're also making strategic investments in people, a lot of which we made in 2018. These investments include adding the appropriate heads to support key initiatives we have in place to drive top-line growth, as well as attracting top-tier talent to our ranks as we strive toward our next growth phase. We run a lean organization, and we are going to continue to run lean well into the future. We are also not deviating from our heavily franchised asset-light model.
The reality of where we are today and where we are headed is that we must invest in our people so that we can be poised for continued success in the future. You will hear more specifics from Michael in a few minutes regarding 2019 guidance, and it is our intent to provide as much transparency as possible to ensure we clearly set expectations for 2019. However, we remain confident in our long-term algorithm of low single-digit same-store sales growth and 10%-plus unit growth, which we believe will translate to best-in-class shareholder returns as we execute against our vision of building Wingstop into a top 10 global restaurant brand. With that, I will turn the call to Michael for further discussion of our first quarter results.
Thank you. As you heard from Charlie, we're extremely pleased with our execution at all levels that fueled a strong start to 2019. We delivered another quarter of a mid-teens growth rate in system-wide sales totaling $362 million for the first quarter. That's up 15.8% over the prior year quarter. This growth was fueled by domestic same-store sales growth of 7.1% in the quarter, which, as Charlie mentioned, was on top of a 9.5% same-store sales growth rate in the prior year. On the development front, we ended the quarter with a global footprint of 1,273 restaurants, reflecting 21 net new restaurants in the quarter as compared to 24 in Q1 2018. From a quarterly cadence perspective, the first quarter is seasonally lower for us for new restaurant development.
By the end of May each year, we have good visibility into the current year pipeline of new restaurant development, and while it is not quite the end of May right now, we can confirm that we are on pace to deliver on our long-term target of 10%-plus unit growth for 2019. This top-line growth translated to total revenue of $48.1 million for the quarter, compared to $37.4 million in the prior year quarter. Royalties, franchise fees, and other increased to $3.5 million, driven by 111 net franchise restaurant openings since Q1 of last year, the 7.1% domestic same-store growth number, and higher termination fees recognized in the first quarter compared to last year's first quarter.
Advertising fees and related income increased $4.6 million to $13.2 million, due primarily to the increase in the contribution rate to our national ad fund from 3% to 4% of gross sales in fiscal year 2019, as well as the 15.8% increase in system-wide sales. Our company-owned restaurant sales increased $2.5 million to $13.5 million. This increase is primarily due to the acquisition of five franchise restaurants since Q1 2018, as well as same-store sales growth of 4.7%. One item to call out for modeling purposes, that the three Kansas City restaurants that we acquired from a former franchisee in the fourth quarter of 2018 are newer or younger restaurants than the rest of our company-owned restaurant portfolio. These Kansas City restaurants' volume levels, on average, are much closer to our year one target of $820,000.
We remain confident in the opportunity in the Kansas market. We will continue to make the necessary investments to position these restaurants for refranchising to a partner who can develop the Kansas City market. Cost of sales increased by 480 basis points as a percentage of company-owned restaurant sales. The increase was primarily due to the 10% inflation we saw in bone and wing prices and the increase in contribution rates to our national ad fund from 3% to 4% beginning in fiscal year 2019. We also saw increases in labor and other operating expenses related to additional labor, training, and repairs and maintenance associated with the three Kansas City restaurants acquired in the fourth quarter of 2018 as we prepare these restaurants to be refranchised in the future.
On the topic of wing prices, we have not seen the seasonal deflation that we typically see this time of year as the demand for wings continues to be strong. In addition to the strong demand for wings, we also believe there has been pressure on the overall wing supply as chicken suppliers have struggled with bird weight through the first four months of the year. As fresh wings are sold in the market in 40-pound cases, it is taking more birds to fill the 40-pound case requirement and putting pressure on the wing market. These smaller wing sizes partially mitigate the impact of the inflation in wing prices since our menu is built around piece counts. With where wing prices stand today, we are updating our outlook from mid to high single-digit inflation to roughly 15% inflation for 2019.
However, we remain confident in the strength of our unit economic model and do not believe this inflation will hinder our ability to deliver a 2019 unit growth number that is in line with our long-term target of 10%+ unit growth. Advertising expenses increased $4.1 million to $12.7 million. As previously mentioned, the ad fund contribution rate increased from 3% to 4% at the beginning of 2019, which is driving the majority of the increase. Also, to remind everyone, advertising expenses are recognized at the same time the related advertising revenue is recognized and does not necessarily correspond to the actual timing of the related advertising. Selling general and administrative expenses were $12.5 million in the quarter, which is a $1.7 million increase versus Q1 2018.
As Charlie earlier noted, we made investments in our organization throughout late 2018 as we prepare the organization for the next phase of growth. With the backdrop of the strong top-line results from our national advertising strategy and systematic rollout of delivery, we began accelerating some investments to ensure we are well positioned for long-term growth. These investments can be seen in $1.6 million of increases in headcount-related expenses when compared to Q1 last year. Also contributing to the increase is a $600,000 increase in marketing-related expenses. However, this $600,000 increase is offset by contributions included in revenue. The balance of the increase is driven by investments in technology as well as other initiatives. These year-over-year increases are offset by the non-recurring cost of $1.5 million in SG&A last year that were associated with the recap completed in Q1 of 2018.
Adjusted EBITDA, a non-GAAP measure, increased 11.2% to $13.9 million for the first quarter. There is a reconciliation table between adjusted EBITDA and net income, its most directly comparable GAAP measure, included in our earnings release. While there has been a fair amount of discussion around SG&A investments today, we are very pleased with the profitability for the first quarter, as $13.9 million in adjusted EBITDA is a record quarter for Wingstop. Adjusted net income in the first quarter was $6.6 million or $0.22 per diluted share, down from $0.25 in the prior year. This decline was impacted primarily by higher interest expense, which we guided to on our last earnings call, and is a result of a higher average debt balance and applicable interest rate related to our securitized debt. Our income tax rate for the quarter was 10%, compared to 21% in the prior year period.
The lower tax rate is due to the recognition of excess tax benefits associated with stock option exercises during Q1. Despite the lower tax rate this quarter, we continue to anticipate a 25% tax rate for the balance of the year. The reconciliation between net income and adjusted net income is included in the accompanying financial data included in our earnings release. We continued to achieve robust cash conversion in Q1 2019 of 95%, marking another strong quarter of cash flow generation. As of the end of the first quarter, we had cash on hand of approximately $13.6 million and $320 million in debt. Our net debt to trailing 12-month adjusted EBITDA for the quarter was at six times, as we continue to delever at a rapid pace, down almost a full turn of leverage when compared to the pro forma Q3 2018 leverage number adjusted for our securitized debt.
We remain comfortable with this level of leverage. We believe we will continue to delever through a combination of adjusted EBITDA growth and strong free cash flow generation. Additionally, we remain committed to returning capital to shareholders on a regular basis through our quarterly dividend, which is targeted at approximately 40% of free cash flow. Yesterday, our board of directors declared a quarterly dividend of $0.09 per share of common stock, totaling approximately $2.7 million. This dividend will be paid on June 21st of 2019 to stockholders of record as of June 7th. Turning to guidance. Considering our strong sales growth this quarter, which was fueled by the effectiveness of our national advertising strategy and our continued execution of national delivery rollout, we feel it is prudent that we give more color around our view of 2019.
For the full year, we are anticipating mid-single-digit same-store sales growth, which is above our long-term target of low single digits. As previously stated, unit growth that we will deliver on our long-term target of over 10% unit growth. We also acknowledge that there are several moving pieces as it relates to SG&A and the investments that were previously discussed. We would like to provide some additional commentary specific to 2019 in an effort to provide clarity. We expect SG&A as reported on our P&L for the fiscal year 2019 to be between $52 million and $55 million. This is up from previous guidance of $48 million to $50 million.
We have included a reconciliation in our earnings release from SG&A as reported to an adjusted SG&A number that excludes transaction fees, non-cash stock-based compensation, and is further adjusted for convention and marketing related items which have equal and offsetting contributions in revenue and do not impact profitability metrics. Let me briefly comment on each of these components that are included in SG&A. As previously stated, we expect our franchisee convention cost to be approximately $2 million. Please note that our convention occurs in the fourth quarter of each year. Expenses related to national advertising of between $7.3 million and $7.7 million, stock-based compensation of between $5.9 million and $6.4 million. Separate from SG&A, we expect the following for 2019. Interest expense of $17.8 million, no change from our prior guidance.
We estimate a tax rate of 25% for the balance of the year. We are introducing fully diluted adjusted EPS of between $0.72 and $0.74 per share, which reflects 29.8 million shares outstanding. Please note the additional interest expense associated with the securitization we completed in Q4 of 2018 impacts EPS for 2019 by approximately $0.19 per share when compared to the prior year. In closing, as a company, we are sharply focused on growing Wingstop for the long term. As such, we have provided metrics to measure our growth and success as our business continues to scale and mature. We remain confident in previously shared long-term targets and will continue to manage the business with a long-term outlook that is anchored on 10% plus unit growth and low single-digit same-store sales growth. Thank you all for joining us today.
With that, we will now be happy to answer any questions that you may have. Operator, please open the lines for questions.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star followed by the number one on your telephone keypad. A confirmation tone will indicate your line in the question queue. You may press star followed by two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star keys. One moment while we poll for questions. Your first question comes from David Tarantino from Baird. Go ahead, please.
Hi, good afternoon. Congratulations on such a strong start to the year on the top line. Maybe my first question is about that. Thank you for the guidance for the full year, to think about the mid-single digit comp guidance you just gave relative to the very strong start to the year that you had against your toughest comparison of the year. I guess, what are you trying to signal, if anything, about the rest of the year in the business, given that the compares don't look quite as daunting as the first quarter?
Well, hello, David, thank you for the call this afternoon. We definitely wanted to give some guidance towards mid-single digits because of that strong start. This quarter definitely was our toughest compare. As we cycle 2018's performance, you may recall that we had a fair amount of check growth in the comp throughout the year that really tailed off as we got to the end of the year. I would just take that into consideration as you're thinking about the guide to mid-single digits.
Charlie, are you willing to share anything related to how you're trending in the second quarter so far or?
No, we're not providing any insights to Q2 at this time.
Got it. Michael, can you just maybe clarify what the profit impact is related to the change in the G&A guidance? I know you have some moving parts with some offsets in that line. What is the net impact on the profit? Charlie, I certainly respect the need to lean in on investments as you think about the long term, I guess, is this a one-time lean in terms of adding layers of cost, or how do you envision continuing to invest after this year to reach your long-term goals?
Hey, David. This is Michael. I'll jump in first and let Charlie answer the second half of that question directed towards him. A little bit of the logic behind the kind of adjusted G&A number that we provided in the earnings release this afternoon was to really provide some clarity into what exactly is impacting the profitability metrics, specifically adjusted EBITDA. You can see that in that reconciliation, we're really comparing a $33.6 million adjusted G&A number in 2018 to an adjusted range for 2019 of between $36.8 million and $38.9 million. That gives you a little bit of a flavor as to what's the growth in G&A that's impacting adjusted EBITDA.
David, I'll comment on the investments. I appreciate you asking the question. I think it's very important to provide some clarity there. We've been working on a couple of these key strategic areas for a while. Notably, the increase in the national advertising spend and the associated work necessary to make sure we maximize the potential, which I think we're starting to demonstrate with the strong comp performance. The other piece being delivery. Lastly, I'll add one to that, which are some of the investments in further digitizing every transaction, as we've noted, as a long-term focus for the brand. All of those require us to make sure that we've got the team in place that has the capacity to be able to build, test, deploy, and ultimately maintain each and every one of those.
We've put a lot onto the organization, and we want to make sure that we maximize the benefit of each of these investments. If we look back into late 2018, we had already started making some of these investments, and I think last quarter we talked about some of the investments in G&A that were already in place. We wanted to see the momentum really kick in from the new advertising campaign to be able to maintain our confidence in making further investments down the road. As you look into our quarter, we definitely saw the momentum of the business pick up through March, and we've maintained our focus on these investments as the right thing to do for the business for the long haul.
As we look to the future, we do believe that some of this is a bit of a step function this year, similar to how we pointed towards the investments we made prior to the IPO. As we look into 2020 and beyond, certainly we would expect the type of leverage a large franchisor would expect to see in G&A return to the brand. Although, as you know, with Wingstop's position in a category by itself, as we continue to grow the size and scale of this organization from time to time, we will point towards other strategic investments if we feel those are necessary.
Great. Thank you very much.
You're welcome.
Thank you. Your next question comes from Jeffrey Bernstein, Barclays. Go ahead, please.
Great. Thank you. A couple of questions as well. Maybe first following on as it relates to guidance for this year. You mentioned the planned strategic investments in terms of both people and infrastructure. I would think a lot of that would flow through SG&A. When I look at the reconciliation, though, at least relative to last quarter, it seems like the only material increase is in the line expenses related to national advertising, which I know there's some other wording in there from last quarter, but it showed $2.2 million last quarter, and now we're talking about something in the $7. I'm just wondering to clarify is why that significant increase and where would we be expecting to see those strategic investments, whether that's within there or maybe it should be in another line item.
Hey, Jeff, this is Michael. Let me clarify one thing. Last quarter, when we were talking about the increase in G&A expenses related to supporting our national advertising campaign, we were really talking about the change from 2018 to 2019. When you look at that reconciliation we provided, it's that $4.4 million compared to the $7.3-$7.7 range, which the majority of that $2.2 is captured there. The increase Charlie referenced earlier in his comments, you can kind of see there is some there in the marketing related expenses to support our national advertising, but there are definitely increases in other categories within G&A.
Got it. The last press release was talking about $2.2 million in additional, and now you're just showing maybe more like $3 million plus of additional versus the last year number.
That's exactly right.
Got you. Okay. Then in terms of the adjusted EPS, which is a new metric in terms of guidance you're providing, I'm just wondering whether or not you'd offer some directional thoughts on the adjusted EBITDA. It would seem like that would be well above the EPS line, and obviously with the adjustment of SG&A and other cost adjustments you're making, I'm just wondering where you think that'll settle in versus your 13%-15% long-term growth guidance. I think you mentioned last quarter that you'd likely expect it to be above that range, but wondering whether there's any more directional color on adjusted EBITDA.
Yeah, I think, Jeff, that's a great question. Our point exactly was to try to kind of, with all the investments that we've referenced today that we're excited about to drive long-term growth. We definitely wanted to provide clarity as to what that meant to the bottom line. In providing the EPS range, in addition to stock comp for the year, the tax rate, interest expense, D&A, depreciation, amortization is pretty predictable in our business, roughly $5 million for this year. I think we kind of give you all the pieces that can get you back to an adjusted EBITDA. We definitely would expect that number to kind of be within that long-term target that we've communicated in the past of 13%-15% adjusted EBITDA growth.
Got it. Just lastly
I know it gets talked about periodically in terms of new cooking techniques or the efforts you can make on your end to speed up the cooking process. I know that's typically one of the top complaints you hear when it takes you 12, 13 minutes just to actually cook the wings, and you got a whole lot of fast casual peers that have pre-cooked a lot of items. Any color you could provide on tests around refined cooking techniques or an effort to potentially speed up that process, which would obviously help to level the playing field versus many of your peers?
Sure. One of the things about being a global brand that benefits Wingstop is the opportunity to take some learnings from other markets and incorporate them into what we do here in the U.S. from time to time. One example we've seen is in our London restaurant that we opened up earlier this year, where we have been able to deliver our product in a very consistent quality fashion, with a ticket time that averages somewhere between six and eight minutes to our guests. We're excited by that opportunity. Part of the platform we've put in place here in just a couple of restaurants is to try and find a way to improve our current quoted time for order, which is 16-21 minutes, and bring that down as low as sub 10. We think that adds capacity to the restaurant. It still has to be proven.
We certainly will not sacrifice quality as a means to achieve this milestone. We do believe that there are some advanced cooking techniques and platforms that can help us with that. A lot more to come. We are encouraged by what we've seen in the early phases of this test.
Great. Thank you.
Thank you. Your next question comes from John Glass, Wingstop. Go ahead, please.
Thanks. Morgan Stanley. I'm not working at Wingstop yet.
Did we hire you? Good to have you on the team, John.
It's part of the G&A increase. Can you just talk about the transactions versus ticket this quarter, right? One, you were lapping a big ticket increase a year ago. Qualitatively, can you talk about how that played out this quarter, particularly as wing prices are going up. Are franchisees reacting by raising prices?
Yeah. The answer to the first part of the question, as you know, we don't give specifics on this, but what I can guide you towards is that if you think about our long-term algorithm of low single-digit same-store sales growth, we've always suggested there's a point or so of transaction lift and one to two points of ticket lift in that comp over time. I think we are settling back into the place where we'd like that long-term algorithm to play as it relates to the ticket growth in the comp. That ticket can be driven by further digitization of orders. As you know, we get a $5 higher average check on digital orders, and at 30% plus now, we're seeing many more of those orders coming through.
We do have a little bit of benefit associated with the new web and app technology that's showing us a little higher ticket lift. There is some price that our franchisees will take from time to time. The comfort I have in that is that none of those would be considered knee-jerk type price increases. Quite the opposite. We've engaged a third party to work with our franchisees and our team to work with them on thoughtful and careful price increases that won't have a negative impact on transaction growth. At the end of the day, we feel pretty good that the majority of the lift that we will see through our guidance for the balance of the year will be in the form of transaction growth.
Thank you. Just if I could follow up, how important was delivery this quarter to the comp? If you could provide any color in that respect and any color in terms of how many stores you had on delivery this quarter versus a year ago. I know you're still on target, or presume you're on target for this 50% of your stores by mid-year and 80%, I think, by year-end. Is that still a good number? Is that accelerating faster or slower than you may have thought?
I think, John, we're right on the cadence we expected. Certainly, we will hit that 50% threshold fairly quickly as we roll out some large markets. The first quarter's impact, while positive, wasn't substantial. We do hope to see continued increase in performance as we get through the back half of the year. Keep in mind too, that we did start rolling out a couple of large markets in the fourth quarter of last year, so we'll lap that performance as well. As of right now, delivery is right on track and consistent in both a sales mix perspective and a growth rate that we have seen during our testing phase that we talked about before.
Got it. Okay. Thank you.
Thank you. Your next question comes from Matthew DiFrisco from Guggenheim Securities. Go ahead, please.
Thank you. I just had a question about the development. I'm curious as far as if you could sort of rank some of the concerns of a franchisee. Obviously, you're doing phenomenal 50% plus cash on cash returns still. Wing prices being a little higher, a little higher on the advertising expenses, and labor costs also. Is that somewhat showing in the maybe more moderate growth, or is it just more seasonality and some weather issues potentially that maybe caused the store count to look lower on a net basis year-over-year?
Hi, Matt. I would always hate to blame the weather for anything. What I'd focus on is the seasonality of this. I think if you look at the gross number of openings that we had in the first quarter, we were only a couple different than where we were a year ago, and that's pretty consistent. It can go up and down. A lot of it depends on how many restaurants a franchisee was able to open before the end of the prior fiscal year. As I think you may know, but we'll remind everyone, because of the impact of the Super Bowl and the high volume we have around it and the playoffs, franchisees tend to defer openings until later in the first quarter.
It just comes down to timing of making sure that they're in, they get the construction done, they open them in a high-quality way. We're not concerned. To your question of ranking franchisees' top challenges, I think everyone in the industry looks at the labor line and is challenged by low unemployment, higher wage rates, the challenges associated with retaining and attracting the best potential team members to our business. That's very important to us. The COGS line is seasonal. We know it to be seasonal. I would reinforce the messaging we had before that while we are up against the prior year, the prior year was substantially lower than the three or four-year trend. We're starting to even out and get back to a normal range.
I think as Michael noted, while the Urner Barry, which sets the price per pound of wings, is up quite a bit, that's being offset by the size of the chicken wing itself, which has a yield benefit to our franchisees. I would also note that some of that offset is also being seen through the negotiated deal we did with PFG, and seeing that flow through to the franchisees' bottom line. I think their challenges are the ones that most see, but I think the beauty of what we've done by investing in the advertising line, yielding fantastic same-store sales growth, both on a one and two-year basis, both of which I believe are industry-leading type comps. I think they're very happy with the performance of the brand as it stands today.
I may have missed it. Was there any change to CapEx or some of these investments or any of them going to be reflected in as far as shared cost or investment in accelerating the digital and kiosks into the franchisees and bringing them into the stores?
I don't think we're at a point yet to even give you an opinion on that, to be honest. I think definitely there's a capital expense associated with some of the investments. What we need to figure out is what's the return on that investment, then balance that with speed and timing to market. Also, what investments make the most sense for which restaurant. There's a lot we still need to unpack. We're just getting started on that. I would say that's quite a ways out.
Okay. Thank you.
You're welcome.
Thank you. Your next question comes from Andrew Charles from Cowen and Co. Go ahead, please.
Thank you. Charlie, a year ago on the 1Q18 call, you called out the consensus development estimates at the time for 2018 were reasonable. I appreciate that you're reiterating the 10% plus net unit growth in 2019. Based on guidance for 15% wing inflation, can you just confirm that consensus estimates now for about 12%-13% net restaurant development in 2019 are still reasonable?
Yeah. Let me see if I can give you some perspective on why we're confident in our look at a long-term algorithm for the year. If you look back at gross openings the last couple of years for the brand and factor into that the fact that we have, on average, most years less than or equal to 1% closure rate, you can walk right into a growth rate that is consistent with that 10% plus algorithm. Coming out of the pipeline that we've saw coming into the year, as Michael mentioned, as we navigate through the next month or two, we'll have clarity on this, and certainly we can provide some more insight as we come into the next quarter. We remain confident in our ability to be able to do that.
Great. Looking at the 210 basis points increase in cost of sales this quarter, what would the increase have been if you didn't have the PFG agreement in place?
I think if you break that down, the benefit we're seeing on what we would call the landed price per pound for the franchisees equates to about a 10% improvement against what the Urner Barry pricing is. That landed component is a reflection of two things. One is the agreement with PFG, the other is the sheer size of the chicken wings themselves.
Got it. closer to 230-240 basis points increase instead?
No.
No, I think it would be a little bit more than that.
Yeah.
If you purely look at the inflation in the Urner Barry in Q1, I think what Charlie was saying is it was about 10 percentage points higher than the inflation we saw in our P&L.
Right.
The benefit we saw against the pure Urner Barry inflation is the combination of the smaller wing sizes from the smaller birds, as well as the benefits associated with our PFG agreement.
I got you. Michael, last question. Could we get some more color on that $900,000 termination fee? How many stores in the pipeline did this impact, and was this a domestic or an international fee that you saw?
Yeah. I'll jump on that for you. A big component of the termination fee, some was domestic, the majority of it was one international prospect that did not materialize for us. That happens from time to time, where we wait for that prospect to put together their infrastructure to build their business out. We had gotten beyond our patience level to execute that and decided that it was in the best interest of the brand to terminate. Many of those deals have a one-time fee up front that covers our costs associated with preparation for the market. Because of the termination, we decided to book it, but we never did build a restaurant in that particular instance.
That's helpful. Thanks, guys.
Thank you. Your next question comes from Jon Tower, Wells Fargo. Go ahead, please.
Great. Thanks. Just quickly, a clarification from an earlier comment. I think, Charlie, you'd mentioned you've engaged a third party to work with the franchisees on pricing across the system. When was that relationship put in place? I have a follow-up question.
Yeah, that was put in place in the fourth quarter of 2018.
Okay. Fairly new. Great. Just going back to the advertising spend, I believe last quarter, you talked about the cadence for the year being on air right after the Super Bowl for about 12 weeks and higher TRPs and everything, off air again until the fall. Is that cadence still kind of in play, or sorry, I shouldn't say the fall, until football season? Does that cadence still apply now? Even thinking about the promotions, I know last year in the second quarter, you reintroduced a few things around food, whether that was the Spicy Korean Q or even doing the boneless wing nights. I think starting the third quarter, you did the boneless bundles. Are any of those still thought to be used again this year?
Great question. Yes to the fact that we will have these two 12-week compressed national media schedules, one of which we're in currently, the other one will start really at about the last week of August. Consistent timing with what we did last year. In between those two, one thing we will be doing is celebrating our 25th anniversary as a brand this year. You'll see some messaging products and a few other things coming along here shortly that I won't provide detail to just yet. It will be a focus on flavor and flavor events that celebrate that 25 years of Wingstop, that'll carry through the summer months, primarily supported both in our local co-op markets, as well as through digital media that we always use during those off-peak times for the brand.
Very excited about what's coming for the summer months, but a little early to be able to provide specifics.
Cool. Thank you.
You're welcome.
Thank you. Your next question comes from Jeff Farmer, Gordon Haskett. Go ahead, please.
Thank you. You touched on it with the ad campaign launch question. Did you see a greater level of March transaction momentum or right after that advertising launch? Did you see a greater level of it in developing markets, the established markets? Was it evenly sort of seen across the system? I'm just curious to see how impactful the advertising was in some of those markets where the brand has a less level or lower level of awareness.
Hi, Jeff. The easy answer, I suppose, on this is that it was very consistently seen across the system. There are one or two markets that we would love to have seen a little better performance. For the most part, all brand partners, all markets have seen a strong response to the media plan as well as the creative we put in place.
A follow-up on delivery. Can you guys just share what you're seeing in terms of incrementality, day part, week part? I think you talked about urban versus suburban in the past. Any color in terms of what you are seeing right now in delivery?
Nothing new to tell you that we haven't already discussed from our test markets over the past couple of years. I think each new market that comes along, we feel pretty confident that the way we've designed our playbook and the results that we see from that have been very consistent as it relates to mix incrementality and top-line effect.
Okay, just one final question. In terms of all those delivery orders you're getting right now, I'm just curious what % of those are coming from either your own Wingstop mobile app or website or are coming through the DoorDash app directly? Any color there in terms of how those delivery orders are coming in?
Yeah. It's still our strong preference to have as many orders come through our app and web channels as possible. At some point, when DoorDash has started doing some advertising, we can see the mix starting to swing slightly more towards DoorDash than what we experienced in our test. Just for recollection, our test was about a two-thirds Wingstop, one-third DoorDash. We can see that move towards 50/50 when they're out pushing media. Quite frankly, from a franchisee's perspective, those orders show up at the restaurant the same way. It's really seamless to us. The key is to make sure we maximize the number of orders coming through the system. You're welcome.
Thank you. Your next question comes from Chris O'Cull, Stifel. Go ahead, please.
Hi, thanks. It's actually Alec on for Chris. In the past, you've mentioned that your national advertising around delivery wouldn't be a priority in 2019. I'm just wondering, has there been any local delivery advertising in these larger market rollouts?
Not really. Most of it, if anything, is supported with digital. There might be a tag or two to a TV spot, but for the most part this year, we're going to hold off on delivery-focused messaging and use that as part of our opportunity for 2020 and beyond.
Okay, thanks. Next question is, you'd previously indicated that you're targeting 80% of the system with delivery. Curious, are new units coming online with delivery in place? If so, what has that done to the volumes on new unit openings?
To the extent a new unit comes into a market that offers delivery, they will come online. I don't have a metric to give you that provides any specific sets to the delivery performance, improving the overall performance. Suffice it to say, I think the mix levels are pretty consistent no matter whether they're new or existing restaurants.
Okay, great. Thanks for taking the question.
You're welcome.
Thank you. Your next question comes from Will Slabaugh. He is from Stephens. Go ahead, please.
Yeah. Thanks, guys. You mentioned the rate of sales growth accelerated throughout the first quarter. I was wondering, as you take stock of the quarter as a whole, if you give more credit to that, to the increased media during the times you were on air, if you saw it then, maybe the delivery benefit, which I think you mentioned was not too substantial, or maybe simply brand awareness or elsewhere.
Yeah. I think definitely the advertising campaign that is fueling brand awareness is the primary driver of performance, and certainly that acceleration, primarily because it didn't start until the last third of the quarter anyway. I think there's a strong correlation there. As delivery takes hold and we gain more momentum, and then we start to accelerate the rollout throughout the balance of the year, certainly both should be beneficial to the top line.
One more follow-up, if I could, on digital. That mix of transactions continues moving up nicely. Just given the benefits of that continuing to go higher, I was curious if you had any initiatives to more aggressively get the message out, however that might be done, just given the benefits both to the consumer and to you of ordering either through the app or online.
Yeah. I think our stated approach has worked quite well for us to not necessarily provide an offer or incentive to drive digital sales, but to continue to grow it organically. We saw about a 630 basis point increase in digital year-over-year, which is an acceleration of the cadence sequentially quarter to quarter. None of which was driven by any sort of discounting or forced acceleration. We like that option because it's better for the P&L to get that $5 higher average ticket as we bring them on board. I think we'll continue to see that number accelerate while we add delivery, all of which delivery will be digital. There's no phone order option for delivery for Wingstop, so that's going to help continue to raise that number quite a bit.
Great. Thank you.
Thank you. Your next question comes from Jake Bartlett, SunTrust. Go ahead, please.
Great. Thanks for taking the questions. I just had really a couple clarifications. Michael, the national advertising expense in SG&A, I just wanted to make sure I understood what that was. I was under the impression previously that it was really the difference between advertising fund revenue and advertising fund expense that we see more explicitly on the income statement, and I thought the difference between those two was what was found in SG&A. Is that not the case? Maybe if you could, in the answering that, tell us what it was in the first quarter, just so we can help isolate it.
Yeah. Sure, Jake. I think the majority of what you see flowing through SG&A that's related to national advertising would be resources we have here inclusive of headcount to other G&A related expenses that are directly correlated with our national advertising program. It's not a specific solve necessarily just to the difference in advertising revenue and advertising expense. There is some additional rebate dollars that go in to fund the national advertising as well.
Where do we see that offset? Is that in franchise revenue, we should kind of gross that up to offset this?
Correct.
Okay. Charlie, you had made the comment just about kind of as we look through the rest of the year, the rest of the quarters, on what was composing, what was driving the same store sales, that it was more check driven and to kind of make some conclusions from that in terms of how difficult they are to compare. Maybe if you could be a little more explicit, I mean, is it more difficult to compare against check-driven same store sales versus traffic driven, or, I mean, how should we interpret that comment?
Yeah. I mean, it absolutely is if you're not taking any price or driving any meaningful check increase, you would expect to not be able to lap that. That puts pressure purely on transaction growth with some check lift, as we mentioned before, to overlap that part of the comp. I definitely think there's a direct impact.
Okay. Thank you very much.
Thank you. I would like to take the opportunity to remind everyone, it is star followed by one to register for a question today. Your next question comes from Andrew Strelzik, BMO Capital Markets. Go ahead, please.
Hey, good afternoon. You mentioned the nice comp impact from the national advertising and certainly the placements of those ads were pretty prominent. I guess what I was wondering is, do you have any metrics? Have you tried to gauge how the brand awareness has changed in either newer or existing markets or any of those types of things now that you're bulk of the way through that 12-week push? Are there any metrics or ways to gauge how much brand awareness has improved?
We do have those metrics coming. They're not available to us yet. It's a little early to gauge that right now. They don't appear until we go through a national survey process that we execute quarterly. We usually get that information in with a little bit of a lag, sometimes up to a half a quarter to a quarter lag. As we move through Q2, we will be able to see that impact and then be able to report back on that. I think all indications are a definite increase in aided awareness of the brand as a driver for new customers and coming into the brand, as a primary source of growth.
Great. I just wanted to ask a question on international. Could you give us an update on how things are trending internationally, particularly after the Philippines exit? Are you happy with where things are going? Any markets where you're particularly pleased or maybe concerned on the flip side, as things have progressed, maybe in some of the newer markets over the last 12 months or so?
I'm very excited about the opportunity internationally. Each new country represents a whole new business to put together. As we've talked about before, we're being very careful in how we approach each market. If you look at some of the core markets that we have been developing over the past few years, we've seen great success, continued same-store sales growth. We highlighted two markets, both Mexico and Indonesia, as very strong performers with scale, both of those with roughly 80 and 30 restaurants, respectively, and growing. Each of the other markets are taking hold. They're all fairly young and coming together. I spent some time in the U.K. recently. We saw our very prominent location just off Piccadilly Circus in that market that is performing exceptionally well.
We're getting ready to open in France shortly. We continue to expand aggressively in Central America based on the partnerships that carried on from our Mexico partner as well. All systems go. We're feeling very good about international. Part of the investments that we talked about center on making sure that we continue to scale the support side for international so that as we enter additional new markets, which we anticipate doing this year, we would be prepared to provide a high-quality experience for our franchise prospects. That's still right on track for what we expect.
Great. Thank you very much.
You're welcome.
Thank you. This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.