Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Wingstop Inc. Fiscal Third Quarter 2018 Earnings Conference Call. A question and answer session will follow the formal presentation. Please note that this conference is being recorded today, Monday, October 29, 2018.
On the call, we have Charlie Morrison, Chairman and Chief Executive Officer and Michael Skipworth, Executive Vice President and Chief Financial Officer. I would now like to turn the conference over to Michael. Please go ahead.
Thank you and welcome. By now everyone should have access to our fiscal Q3 2018 earnings release, which has been posted to the Investor Relations tab on our website, wingstop.com. Please note that our discussion today will include forward looking statements. These forward looking statements are not guarantees of future performance, and 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. And with that, I would like to turn the call over to Charlie.
Thank you, Michael, and good afternoon. As always, we appreciate your interest in Wingstop and your participation in our quarterly conference call. As noted in our earnings release, which hit the wire a few minutes ago, our Q3 performance was exceptional. The continued strength in our business has once again allowed us to deliver on our shareholders' expectations. With this momentum and the strong performance year to date, we are well positioned for 2018 to be our 15th consecutive year of positive same store sales growth, an achievement we believe is unmatched in the industry.
For the Q3, total system wide sales rose 15.1%, driven by a 6.3% increase in domestic same store sales and system wide unit growth of nearly 12%. Consistent with what we've shared with you in our previous quarterly calls, our new unit development continues to strengthen during 2018 as our domestic franchisees accelerate their investment in Wingstop. During the quarter, we opened 27 net new restaurants and ended the quarter with 12 15 locations worldwide. We remain confident in delivering strong unit growth, driven by the momentum in the number of new restaurant commitment sales as well as the healthiness of our existing pipeline. In our Q2 call, we told you that our 3rd quarter to date comp was 4.5% and noted that the Q3 of 2018 would be a tougher compare to the prior year.
We were encouraged by the acceleration we saw in the comp for the balance of the Q3, largely driven by transaction growth, resulting in 6.3% same store sales growth for the full quarter. Our comp continues to reflect some above normal ticket growth, which we believe to be a transitory issue. We expect above normal ticket growth to be reflected in our comp until we lap the pricing actions taken by our franchisees late last year when record high wing inflation occurred. However, we are very pleased with the results of the transaction driving initiatives we put in place to mitigate the pricing. As you may recall, these initiatives we put in place to drive transactions included leveraging digital advertising to promote our 0.60 dollars boneless wings on Mondays Tuesdays the introduction of 2 versions of loaded fries and fried corn as new sides, which replaced less popular, more labor intensive options.
And last but not least, certainly, the launch of a 15.99 Big Night Inn Boneless Wing Bundle, which was supported by national TV and Digital Media Advertising. This marked the first time that we have leveraged our national scale for a product bundle like this. This transaction driven momentum set the stage for our annual franchise convention that we held in Las Vegas in early October. Our franchisees continue to express excitement and enthusiasm for the Wingstop brand. At the convention, we shared our strategy to leverage an additional 1% franchisee contribution to our advertising fund, and it was very well received.
As we had previously noted, Wingstop's current brand awareness levels are more than 20 percentage points below other large franchised restaurant brands. And as you move down the brand strength funnel from awareness to purchase consideration, we are as much as 30 percentage points below that same group. We believe the implementation of the additional 1% in January 2019 will boost our awareness and aid consideration as we move through the calendar year. Our unit development and same store sales growth in the Q3 translated to total revenue growth of 15.5% and increases in adjusted EBITDA and EPS of 23.3% and 31.3%, respectively, demonstrating the strong flow through of the Wingstop model. The continued strong margins in our company owned restaurants contributed to the increases in adjusted EBITDA and EPS.
We benefited from over 1300 basis point improvement in margins at our company owned restaurants due to favorable wing prices and leverage on labor and other operating expenses from continued same store sales growth. At our franchisee convention, we discussed how franchisees were seeing similar margin improvement, further fueling their positive sentiment. This margin improvement further enhances our best in class unit level economics. Our domestic target year 1 average unit volume for Wingstop is $820,000 We believe our franchisees can achieve a year 2 unlevered cash on cash return of approximately 35% to 40%. At our domestic system average unit volume of $1,100,000 these returns exceed 50%.
These industry leading returns are driving our unit growth and the reason that existing franchisees continue to reinvest and grow the Wingstop system. Existing franchisees comprise approximately 80% of the pipeline for new unit development. Our strategy for continued growth has been consistent since our IPO in 2015. Our plan to continue delivering industry leading results over the long term is predicated on 4 key long term growth strategies. 1st, growing brand awareness as we accelerate our national advertising furthering our digital expansion, the national rollout of delivery and continued global unit expansion.
We have already discussed leveraging an additional 1% of sales towards national advertising to take advantage of the opportunity to grow brand awareness. So let's push more deeply into the other three key strategies. Revenue growth through our digital channel expansion is one of our key top line drivers. Digital sales rose 360 basis points from Q3 last year to 25.4 percent of total sales for the current quarter. This was also 110 basis points higher than Q2 of this year.
Almost 80% of the entire domestic restaurant base now generates more than 20% of sales from digital channels, which is up from 75% in Q2. In addition to providing efficiencies within the four walls of the restaurant, our average digital check is $5 higher than our non digital average check of just $17 Recall that about 75% of our business is takeout and a large percentage of orders still come in over the phone. So we believe that we have ample incentive and opportunity for further digital expansion. We continue to make progress against several initiatives that we believe will position Wingstop to continue to further drive digital sales. Our new custom built app and website is on schedule to start testing this quarter.
This app and website will replace a third party white label product that is currently in place and will provide an improved guest experience and will be optimized to support our national rollout of delivery. CRM. We continue to build out our CRM platform as we gather guest data that will position us for a more engaging interaction with our guests. Over time, this platform will integrate with the new app ordering. We continue to work on natural voice recognition technology for orders that come in through the phone so that they can be converted into digital orders.
These are just a few of the near term technologies that we are working on. Others are down the road, but we are excited about the progress we're making here. And long term, we see no reason why our digital sales cannot approach and perhaps exceed the levels of some national pizza chains. Our goal is to digitize every Wingstop transaction. Next is delivery.
We announced on our last call that we have completed the testing and validation to begin rolling out delivery nationally. As background, we have proven the market demand for delivery in 2017 early 2018 in 3 test markets. In all three test markets, we experienced sustained mid to high single digit sales lifts. We have been able to demonstrate that the lift in sales from delivery is highly incremental and profitable at the restaurant level. In fact, the profitability is further enhanced by the checklist we have seen in our delivery tests, which is even higher than the $5 average checklist that we see on ordinary digital orders.
We started the national rollout of delivery this month by expanding to the Denver market, which has about 20 Wingstop restaurants. Denver was a logical next step for us because it presented a smaller, easier to manage market for validating our delivery playbook, and it is a strong market for DoorDash, our 3rd party delivery partner. While still early, we are very encouraged with the sales lift and early indications of incrementality in the Denver market, which is performing similar to what we experienced in our 3 test markets over the past year. In November, we anticipate launching delivery in the Los Angeles market, our largest domestic market from a restaurant count perspective. Following a successful launch in Los Angeles, we plan to add delivery in the Houston market, bringing us to roughly 25% of our domestic footprint offering delivery by the end of 2018.
We are excited about the potential impact of delivery, which we believe will only further strengthen the unit level economics, while driving top line sales growth and profitability for our franchisees. We believe this phased market by market approach to our rollout of delivery will help us ensure that we deliver on our guest expectations while introducing new guests to the Wingstop brand with a great initial experience. We believe by the end of 2019, we should have delivery available to over 80% of the domestic system. Finally, we continue to grow our global footprint as we make progress against our vision of becoming a top 10 global restaurant brand. From an international perspective, we opened 8 restaurants during Q3 and 24 restaurants year to date, ending the quarter with 130 international restaurants in 9 countries.
With chicken as the most highly consumed protein worldwide and the flexibility of our model, our brand is highly portable to markets across the globe. Within the next few weeks, we are scheduled to open our first Wingstop in London with new market openings in France and Australia following in 2019. Our focus over the near term is to ensure that we make the right investments in resources to ensure these new markets open successfully. One item I wanted to mention that will be reported in the 4th quarter results is a conscious decision made during the Q3 to sever our relationship with our franchisee in the Philippines and exit the market. Although we generated a lot of fans in the Philippines and multiple successful restaurants during our 4 year history, our ability to deliver sustainable growth was in conflict with our franchisees' overall plans for other businesses.
While this market represents one of our early market entries, we do not believe that the Philippines is a priority market for our global expansion and at its full potential would represent less than 1% of what we believe is our broader international opportunity. Thus, we decided to focus our resources on higher priority markets. So by the end of October, we will close the 11 Philippines restaurants, slightly bringing down net new unit growth from our previous expectation of 12% to approximately 11% for the fiscal year 2018. We do not have any other situation similar to the Philippines and remain confident that we have the right partners in the right countries as we continue our growth journey overseas. When you combine the long term international development opportunity with our domestic footprint at roughly a third of its potential, we believe there's a significant runway for growth in front of us.
We will build upon what we have already accomplished across the 4 key strategic priorities of national advertising, digital expansion, delivery and global development. We believe Wingstop is truly a brand in a category of 1. We lack a true competitor and have multiple long term sales drivers and enjoy a significant amount of white space for our continued growth. The strong growth of our business is one that is executed in an asset light, shareholder friendly model. As you likely saw in our last in our release last week, we are in the process of pursuing a securitized financing to refinance our current variable rate debt.
Michael will elaborate further, but our second refinancing within 2018 is a true demonstration of the strength of our model. To our knowledge, Wingstop's track record is unmatched in our industry at such an early stage of being a public company. We believe that the continued strength of our domestic economic model and the opportunity we have with our emerging international business demonstrates the promise of our vision of becoming a top 10 global restaurant brand. With that, I'll turn it over to Michael. Thank you, Charlie.
Before I walk through the numbers, I would like to remind everyone that our financial results reflect the new accounting rules around revenue recognition that became effective at the beginning of this year. Our prior year results have been revised to reflect this change so that you can compare apples to apples. Total revenue for the quarter increased 15.5 percent to $38,200,000 Royalties, franchise fees and other increased $1,900,000 driven by 124 net franchise restaurant opening since Q3 of last year and our 6.3% same store sales growth. As Charlie noted earlier, our comp for the Q3 included both increases in transaction counts and an increase in average transaction size. We grew our total restaurant base by 11.7% since the Q3 last year.
This quarter, we added 27 net system wide restaurants including 8 international openings. We ended the quarter with 1215 restaurants of which 130 are outside of U. S. Our company owned restaurants continue to deliver strong financial results. Sales grew 22.5 percent or $2,200,000 for the quarter.
$1,500,000 of the increase is associated with 3 opportunistic acquisitions we made in the Dallas market earlier this year. The remaining increase is driven by same store sales growth of 5% in our company owned restaurants. This same store sales growth was driven by both an increase in transactions and an increase in average transaction size. Cost of sales decreased as a percentage of company owned restaurant sales by 1300 basis points. The decrease was primarily driven by a 9 70 basis point reduction in food, beverage and packaging costs due to a 30% deflation in wing prices compared to Q3 of last year.
Also contributing to the margin improvement was the leverage we obtained on labor costs and other operating expenses as a result of the same store sales growth at our company owned restaurants. As we look at the balance of the year, the outlook for wings remains favorable for Q4, although deflation is expected to moderate from what we experienced in Q3 as we cycle over the decline in wing prices that began in October of last year. Wing deflation in Q4 is expected to be mid to high single digit range. Advertising expenses were $8,400,000 for Q3 compared to $7,700,000 in the prior year. Under the new accounting guidance for 2018, advertising expenses are recognized at the same time the related revenue is recognized, which does not necessarily correlate to the actual timing of the advertising spend.
Selling, general and administrative expenses in the quarter increased to $10,300,000 from $8,100,000 in the prior year. The $2,200,000 variance is primarily driven by payroll and benefit expense related to headcount investments along with an increase in stock based compensation expense. Depreciation and amortization increased to $1,100,000 in Q3 2018 from $900,000 in Q3 2017. The increase is largely due to the additional amortization expense related to the reacquired franchise rights resulting from the acquisitions of franchised restaurants. Adjusted EBITDA, a non GAAP measure increased 23.2% to $12,200,000 Note the reconciliation table between adjusted EBITDA and net income, the most directly comparable GAAP measure included in our earnings release.
Net income increased 33.8 percent to $6,300,000 while diluted earnings per share increased 31.3 percent to $0.21 per share. As of the end of the third quarter, we had cash and cash equivalents of approximately $3,000,000 $215,000,000 in debt. Our net debt to trailing 12 month adjusted EBITDA stood at approximately 4.5 times, which is down over a full turn from the recap we completed in January of this year. We paid a $0.09 per share quarterly dividend during Q3, reflecting our ongoing commitment to returning capital to stockholders on a regular basis. Our Board of Directors has also authorized our next quarterly dividend of $0.09 per share, which will be paid on December 18 to stockholders of record as of December 4.
We have been evaluating the interest rate outlook with our Board of Directors and last week we announced our intention to refinance our existing variable rate credit facility with a new securitized financing facility, expected to be comprised of approximately $300,000,000 of fixed rate senior term notes and $25,000,000 of senior variable funding notes. We intend to use the proceeds to repay our existing debt, pay transaction costs associated with refinancing and for general corporate purposes, which may include a return of capital to shareholders. While subject to typical market risk, this refinancing transaction is anticipated to close in the 4th quarter. Now turning to our financial outlook, we remain confident in our long term targets of low single digit same store sales growth and a 10% plus system wide unit growth. Based on the company's year to date performance for the 1st 39 weeks of 2018 and the momentum in the business, we expect fiscal year 2018 results to exceed our long term targets.
Additionally, for the fiscal year ending December 29, 2018, the company is updating fully diluted adjusted earnings per share to approximately $0.85 compared to $0.80 previously. A reconciliation of diluted earnings per share to adjusted diluted earnings per share is included in our earnings release, which reflects 29,600,000 diluted shares outstanding. This estimate is comparable to fully diluted adjusted earnings per share of 0.69 dollars for fiscal year 2017, which has been restated to reflect the new revenue recognition standards. Fiscal year 2017 included a benefit of $0.08 to adjusted earnings per share associated with excess tax benefits for stock option exercises. The company's 2018 guidance includes a benefit of $0.06 to adjusted earnings per share due to excess tax benefits realized in the 1st 3 quarters 2018.
Thank you all for being with us this afternoon and we would 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 Our first question comes from the line of Jeffrey Bernstein with Barclays. Please proceed with your question.
Great. Thank you very much. Two questions. Just one on the unit growth outlook. Charlie, you mentioned things seemingly accelerated through 2018.
And your convention, it sounds like was quite bullish. I'm wondering in the conversations with franchisees, whether it came up at all in terms of concerns of the rise in construction costs and the increase in borrowing rates. Those are kind of the 2 areas that we're hearing concerns maybe from the franchise models that maybe there's just not enough available capital to sustain the 10% plus unit growth in 2019 that Michael just referenced? And then I had one follow-up.
Well, I'll let me address those real quickly. I think the sentiment was quite strong. We have not heard any feedback related to either the cost of construction or the interest rates being a challenge for our franchisees to access capital or as a pace of new restaurant signings over the last quarter and a half and expect that to continue as we go into the back part of the year.
Yes. And then just on consumer sensitivity, seemingly your results are quite strong and exceeding expectations, but if the consumer environment were to slow, how do you go about assessing your brand elasticity? I know a couple of quarters ago, you guys were talking about maybe being concerned that the 3% plus price increase would maybe lead to short term traffic erosion. So obviously you're cognizant of there's only a certain amount you can take on from a price increase perspective. I'm just wondering how you think about your elasticity if things are slow, maybe whether the balance of value versus premium, anything you've assessed in terms of assessing your consumer?
Yes, sure. A timely question, especially given the performance we had in Q3. If you look at the impact, the bundle that we did during the Q3 had on our performance, it did a great job of increasing frequency amongst our core guests. And so we've noted for a while, if you remember then since back at the election outcome back in 2016 when we had a tough quarter and rebounded from that with our national advertising, we actually have started to see a nice increase back from our core customers and that bundle really drove it. And of course, it was at a great value at $15.99 So our core customer recognized that and really increased their purchase rate.
We think that's a great testament to the brand's ability to react to some tougher environments. And as we noted, our franchisees took a lot of price at the last half of twenty seventeen. So putting this particular bundle in place and then leveraging our national scale in advertising to actually promote that bundle turned out to be a great demonstration of the resiliency that we have with Wingstop. Great. Thank you.
You're welcome.
Our next question comes from line of David Tarantino with Robert W. Baird. Please proceed with your question.
Hi, good afternoon and congratulations on such strong results. The question I have is really on the comp trend exiting the quarter. And I think Charlie called out a few factors, one of them being the TV advertising campaign around that bundled promotion. And if I'm not mistaken, I think you ran higher media rates around that promotion. So I was wondering if you could just elaborate on what you think you learned about the media weights and the approach to the advertising and how that informs your strategy as you move into next year with the extra marketing spending?
Sure. Certainly, the promotion and the increased media weights did have an impact. We raised our weights to above 100 TRPs, in some cases up to 120 TRPs, which was generally up from anywhere from 70 to 90 TRPs, which was our previous approach. And we consolidated some of those together, which really fits with what we expect to do in 2019 when we add the incremental 1%. We believe that in order to really break through and to meaningfully raise awareness, which as you know is our core objective with the increase in our advertising spend, this was a great way to demonstrate that we could really move the needle in a short, maybe compressed period of time.
And so now as we exited our convention, spoke with our franchisees about the impact that that 1% could have, I think this quarter barring the bundle that we promoted is a great demonstration of being able to expand our media presence beyond just our core customers, but also now shifting our media strategy slightly so that we can expand into customers who really don't know much about Wingstop and and convert them into users of our brand. So I think we left the quarter very confident that the 1% is the right decision for the brand going forward. And as we get closer into 2019, we'll start talking a little bit about more how that will manifest itself.
Great. And then one question, Michael. On the guidance for this year, does that assume the type of momentum that you saw in Q3 or at the end of Q3 continues in Q4? Is there a different assumption underlying that EPS target?
No, I do think there's a little bit of an underlying momentum assumption there. Obviously, as we look to kind of what we're running against from Q4 of last year, the compares are a little tougher. But I think it's a good indicator, David.
Great. Thank
you. You're welcome.
Our next question comes from the line of Jeff Farmer with Gordon Haskett. Please proceed with your question.
Great. Thank you. You guys, I believe, are coming up on the 1 year anniversary of delivery in the Chicago market. Curious what changes you've seen over the year in terms of how the consumer is using delivery? Has the delivery mix been relatively stable?
Have you seen it build slowly? Any information on how that year has sort of evolved would be helpful.
Hello, Jeff. Yes, we have seen that mix has not only sustained, but we've actually seen a slight uptick in a couple of the markets as we've surpassed that 1 year mark, which is a great indication that as people become more and more aware of delivery at Wingstop, and I would argue delivery in general, I think that's going to be a benefit to our brand. I will say though that aside from some incremental media primarily through radio and digital means, when we launched the product, we've really supported it with very little marketing effort. And so as we look forward, we're going to continue with that same approach until we get to a scale position where we can leverage our national scale to support delivery long term. But we're very encouraged.
As we mentioned, the Denver market came out of the gates very consistent with other markets we've seen, and we would expect that in other strong markets for DoorDash, like Los Angeles and Houston, we would expect to see similar results going forward.
Okay. And just one quick follow-up on that. You mentioned scale. So from a leveraging your scales at 60%, 70%, 80% of the system, where do you see the tipping point for scale?
Yes, I think it's
got it. Our goal would be to get the 80% level rolled out in 2019 before we made any sort of meaningful change in our advertising strategy. And quite frankly, we've got a lot of work to do, as we noted, in just raising awareness of the brand and then moving people that are aware into consideration. And so, our marketing team is working very hard to work on those two key areas first. And so I think we'll see delivery rollout, I guess, if you will, in a soft manner, before we actually apply any sort of meaningful advertising behind it.
All right. Thank you.
You're welcome. Our next question comes from the line of Matthew DiFrisco with Guggenheim Securities. Please proceed with your question.
Thank you so much. I wonder if you could just give us a little bit more granularity sort of how the price should roll off in the Q4 specifically with the franchisees? And then if there's anything, any price being considered now or anything that just came on maybe inter quarter as well, maybe in the markets that have a little bit more labor pressure?
Hey, Matt, it's Michael. I think as we think about the pricing actions that were taken by our franchisees in 2017, we'll really start to lap those in the back half of Q4, late Q4 really. And then as far as any sort of specific other pricing actions, there's nothing within the quarter to highlight. I do want to remind you that when we think about our kind of long term algorithm of growth for the business as it comes to same store sales and that low single digit same store sales growth target of ours, we do contemplate that, including about 1 or 2 points of price.
Okay. And then I guess if you were around 4% or so in this quarter, is that still sort of the mark and then 3% of that rolls off middle of the fourth quarter or the back half of the fourth quarter?
Yes, I think that's directionally accurate.
Okay. Thank you.
Our next question comes from the line of John Glass with Morgan Stanley. Please proceed with your question.
Thanks very much. My question is on the unit economics and development. Charlie, you've talked about 35% to 40% returns for a while, but sales are better, but more importantly, margins just given wing cost are significantly better. So is that a real number today or return significantly higher given where wing prices are maybe have labor costs sort of offset it to 35 to 40 is still the right effective number. And given those unit economics, you are still sort of behind last year's pace from a development standpoint domestically.
Is that just a it's more 4th quarter loaded this year? Do you think you end up in the same place in absolute number of units opened in 2018 versus 2017, for example?
John, yes, I think a couple of thoughts here. 1, as it relates to the unit economic model, the way we look at that is on an average year or an average over a year. As you know, the wings can be volatile in terms of that commodities impact at any given point through a year. Certainly, in 2017, those returns were stressed based on the strong wing inflation. And this year, where we've seen some deflation, it certainly is helping margins and therefore improving the returns.
But the way we characterize those returns is over the long haul. Is that $820,000 going into $890,000 2nd year average unit volume still delivering a consistent cash on cash return, and we believe it is. As it relates to the cadence of openings, I think we have noted throughout the year that we expected the latter part of the year to be where our strength was in achieving that goal. And as we noted, net of the Philippines decision that we made, we're still on pace for that 12% unit growth year on year. So yes, we have great clarity into our pipeline for the Q4.
And just on delivery, 1, in your test market so far, what's the split in terms of sourcing orders from your app versus DoorDash's app? I know you're doing some work on yours, maybe that changes over time. 2, are they I know you said incremental, but are they really new customers? And 3, do you get data sharing? So will you know if the 3rd if orders are coming through 3rd party app, who your customers are?
Yes. So, in order on the sourcing side of it, most of the customers, typically it's been about 2 thirds of the guests come in through the Wingstop app. And I think it's important what you noted that we are rebuilding that app and expect to launch it at the end of the year, 1st of next year. We're going to change completely the presentation to our guests so that they start with a decision between delivery or carryout as the first choice and then work their way through a much, much more engaging user interface that has fewer clicks and scrolls than what we had before. So we do believe we can continue to improve that.
But as of today, 2 thirds from us, a third from DoorDash. As it relates to new customers, we do believe and we've learned this from research in the pizza business as well that you have really distinct customers that are carryout customers versus delivery customers. There's only about a 15%, maybe 20% overlap. And if you look at the results we've seen so far, it would suggest that at an 80% or so level of incrementality that these truly are new guests that are coming in the door. We can also measure that by looking back at information about these guests to see if they've leveraged Wingstop before for a carryout order using our digital means.
And then if you think about those new customers from a data sharing perspective, again, the majority of them are going to be customers that data we own. But we certainly will share information with our partner to ensure that we clearly understand who that guest is, but we technically don't own that customer in that transaction if it comes through a secondary source. Okay.
Thank you.
You're welcome.
Our next question comes from the line of Will Slabaugh with Stephens. Please proceed with your question.
Thanks guys. I had a question on value. It seems like there was a pretty strong response to both the $0.60 boneless promotion as well as the $15.99 bundle. What does that tell you about there being potentially more room to provide that explicit value message either on the menu or putting it out in promotion form like this? And would you maybe think about using this a little bit more frequently?
Or do you prefer to use it sparingly?
It's a great question and one we've talked about a lot internally. I think it's a great demonstration that when needed, a value offering works quite well to bringing back frequency amongst our core guests, which I mentioned before, our frequency did increase. I think over time though, what we're going to continue to do is execute our playbook, which is all about driving awareness and then improving consideration amongst those who are aware of our brand, so that we can drive net new customers into our business day in and day out, while still providing a great value already. But in a time like this where we needed that bullet in the gun, we have it, which means that we can be very careful and thoughtful about using it again as necessary. And I think that's going to be the way we're going to approach it.
It's been the way we've approached it for many years before.
Got it. And can you just briefly talk about impact that you saw either through TV or digital or if you have much of a means to measure the impact of 1 or the other?
I'm not sure I clearly understand the question. Maybe you can help me there.
Sure. So I guess the as you saw it, if one was more impactful than the other, you spent dollars on digital, dollars on digital, right?
I see. Just between digital versus TV. TV is always going to have the greater impact. You can generate a lot more awareness. And although people talk about the fact that maybe watching television watching is down, it's not so meaningfully down that it would be replaced wholeheartedly by digital.
But certainly from a return on investment, it's much easier to track the digital spend. But I think still from an awareness generation and conversion opportunity, TV becomes or still remains the best opportunity for us.
Thank you.
Our next question comes from the line of Andrew Charles with Cowen and Company. Please proceed with your question.
Great. Thanks. Charles, just to follow-up on another question. The upgraded app and website that you're testing, assuming it has no kinks, did you say that you think that that could roll out system wide sometime in the Q1?
Yes. Our target right now is right at the beginning of the year, assuming to your point well said, no kinks, but we are in the testing process of that currently.
Got it. Okay. And then my real question was that in the spirit of improving brand awareness, would you expect to start putting 20 nineteen's increased marketing contribution to work through elevated TV advertising ahead of
the Super Bowl or afterwards?
Most likely afterwards. We typically try not to do too much media before the Super Bowl. It's a strong time of year for us, stronger volumes. And so we'll usually wait until after the Super Bowl to do anything.
Okay. And then Michael, what's the assumed closing date on the new debt facility with an EPS guidance? And I was wondering if you could give us a sense for the interest rate range for the new fixed facility? And if it's fair to assume that the interest rate on the floating notes is expected to be in line with the L plus 2.75% on the old facility?
Yes, Andrew. I think, obviously, we included information about the securitization in our release last week, and we expect it to close in Q4. And I think once we obviously, we're subject to market conditions and closing the deal, but I think we'll have more details to come in that in the near term.
Thanks guys.
Thank you.
Our next question comes from the line of Jake Bartlett with SunTrust Robinson Humphrey. Please proceed with your question.
Great. Thanks for taking the question. Charlie, just on unit growth, you've mentioned the 12 percent. It does look a little bit less than I think the last time you mentioned was 12% to 12.5%. So I'm wondering whether that's coming from domestic or international, just a minor tick down or whether you'd actually frame it that way.
And then thinking about how understanding that the higher wing prices impacted the volatility of same store sales impacted development this year.
I guess
I would have thought it would have been picking up maybe a little quicker than it has, but how comfortable are you with the 2019 pipeline and that it's going to be a little more balanced in terms of the cadence?
Yes. The cadence is always going to have a strong Q4. That's been consistent for us for a long time. We noted earlier in the year that we expected the cadence to be softer during the middle part of the year because of the impact that the pipeline has. But I think with a unit development pipeline, you have to be thinking almost up to a year out as it relates to refilling it and growing it.
But as I noted on the call, we're very confident that we are seeing a really nice uptick in deals sold as well as filling the pipeline, especially as we look into 2019, a lot of which is fueled by strong comp growth as we've seen and certainly prolonged and sustained improved unit economics through the reduction in wing prices. So this is something we've seen in the past, and I don't expect that to change too much compared to a cadence from a typical year prior to 2018. So do expect that we'll always have a strong Q4, but we do feel very good about this Q4 coming up. As I mentioned, we have great visibility into it and we also have a lot of visibility into the first half of twenty nineteen as well.
Great. And I'm hoping you can help out with G and A. Costs were up more than they were last year in 2018. How should we think about that? Was there something in 2018 in G and A like incentive comp or something that boosted the growth rate that won't be repeated kind of on either your growth rate going forward?
Yes. That's a good question, Jake. This is Michael. I think really what you're seeing there are us making some very intentional investments in G and A to support a lot of these long term growth drivers. One example I'd highlight specifically is, as we decided to accelerate the timing around rolling out national delivery, there was some G and A investment needed to support that growth.
And so I think as we look out over the near term, obviously, we're not going to get into 2019 here, but I think you could expect a little bit of incremental G and A investment as we position ourselves to leverage some of these growth drivers that we have in front of us.
Great. And then lastly, you talked about the 80% target for the delivery for the system. When do you think you're going to hit that? You're going pretty we think you're going pretty fast for the remainder of the Q4 here. But is that more of a mid-twenty 19 sort of target or really is that year end of 2019?
Yes. I think it's still towards the end of the year. Keeping in mind that with the addition of Los Angeles and Houston, you've added 2 very large markets that take up a big percentage of the system. From here forward then market by market, those percentages get a little tougher with the exception of Dallas and maybe San Antonio, which will come along. So I would towards the back half of the year before we hit the 80%.
Great. Thank you very much.
Yes.
Our next question comes from the line of Chris O'Cull with Stifel. Please proceed with your question. Hey, good afternoon guys. Actually Mitch on for Chris.
Just on delivery, Charlie, could you discuss the changes the stores will experience as delivery is implemented?
Yes. It's a couple of things really procedurally, a modification to our strategy for how we package product to separate French fries from the rest of the order and then very simply just a change in procedure on how we cook our French fries. And I've been asked this question before, why don't you just go ahead and make that procedural change everywhere? Part of it is because we want to make sure that we train it improperly. So that happens.
And then really just an education and awareness to how to treat delivery orders, recognize when DoorDash shows up and a reinforcement of done right and on time, the 2 key measures for the highest level of customer satisfaction.
Okay. Okay. And then I know the company's new CMO has been on the team now for a few months. So I was hoping you could elaborate on how you see the company using national promotions moving forward? Thank
you. Yes. I think I'll reinforce the comment I made earlier that, although we did a promotional message with this bundled boneless product, in the Q3, we will continue to leverage brand awareness and brand driving events into the future. So I don't expect to see a lot of promotional advertising. What I will say is we are very excited and our franchisees left our convention very excited about the strategies that Maurice has in play for the coming year to leverage the additional 1%, and we'll talk about those more as we get into 2019.
Great. Thanks guys.
You're welcome.
Our next question comes from the line of Karen Holthouse with Goldman Sachs. Please proceed with your question.
Hi, this is actually Jared on for Karen today. With regards to the positive commentary on the unit growth pipeline, could you guys talk about a little bit about sort of the openings in core versus non core markets or anything else to call out in terms of results for the certain regions? Thanks.
Yes. I think it's very similar to what we've experienced over time. The mix between core and non core or emerging in new markets, existing or new markets is not the same as it always has been. There hasn't been a mix shift change. Really, it's just been the pacing of the openings and the slowing, if you will, that we've seen in Q2 and Q3 now starting to accelerate back in Q4.
Great. Thanks. And just one more. Anything to call out for weather in the quarter? Thanks.
No, no call outs for weather that meaningfully impacted anything in the quarter.
Our next question comes from the line of Peter Saleh with BTIG. Please proceed with your question.
Hey, great. Thanks and congrats on the quarter. I wanted to ask about traffic. I think you guys mentioned a couple of times that the 15.99 bundle with the advertising drove frequency of your core guests. Did you also see, specifically with that promotion or with what else you're doing, are you also seeing new customers being attracted to the brand?
Or do you feel like the incremental contribution to the ad fund in 2019 is designed to drive new customers to the brand?
Yes. I definitely think we saw new frequency driven event with our core customers based on this bundle. And again, people were aware of Wingstop, understood the bundle, saw the value and converted. But I will say to the point that Michael made earlier, on a year to date basis now, the brand is experiencing positive transaction growth and we did experience positive transaction growth during the Q3. So not only did we see an increase in frequency, we did see some increase in what we believe are new customers.
It's a little early to tell because you need the research to follow that up and defend that position, but I think the anecdotal feedback has supported that.
Great. And then on the delivery I know you had mentioned delivery and takeout, 2 separate occasions, not a lot of overlap. So it's pretty incremental. On the delivery side, who do you think you're taking the share from if you're consistently seeing this mid to high single digit sales lift?
I think we're taking it from a number of different occasions. I think the key is to get that true delivery customer to convert their occasions away from what they're used to, which could include pizza occasions and convert those over to a Wingstop occasion. But I think it's that plus any number of offerings that are out there for delivery and Wingstop being perhaps a preferred option.
All right. Thank you very much. Thank you.
Our next question is a follow-up question from the line of Matthew DiFrisco from Guggenheim Securities. Please proceed with your question.
Thank you. My question is just with respect to the development side. I guess a lot of some concern there seems to be about a little bit of a slowing in prior quarters. Is the 12% I guess for 2019 or so, is that something there and beyond that you're seeing the pipeline build to that point that that is multiple years out and visibility around that?
Yes. I don't know that I would provide any insight into what the future outlook is beyond this year and just to call out to the momentum. At the end of Q4, we will report the pipeline as we always do. But I think we've noted here that we've seen a nice increase in the pipeline in terms of deals sold and the momentum increasing as we go throughout the year and even into this Q4. So I think that statement is one that is reflective of confidence in our future growth after going through a relatively tough cycle there.
But I don't want to suggest that that has any indication on further years
out. Okay, excellent. That's helpful.
There are no further questions in the queue. I'd like to hand the call back to management for closing comments. Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.