Wingstop Stock Drops 7% After Analysts Slash Price Targets on Fast-Food Slowdown Ahead of Third-Quarter Report

NEW YORK — Shares of Wingstop fell about 7% in early trading Wednesday, extending recent losses a week before the chicken wing chain reports third-quarter results. Several analysts have recently lowered their expectations.

The stock dropped $9.03 to $121.28, giving the Dallas-based company a market value of about $3.3 billion. The shares fell about 2% on Tuesday.

Wingstop did not release any company-specific news Wednesday.

Analysts cut targets

Wingstop has faced a series of price target cuts as concerns grow about the fast-food industry.

On Tuesday, StoneX lowered its target to $185 from $245 while keeping a buy rating. Analyst Todd Brooks said the third quarter had been difficult for quick-service restaurants, especially chains with many lower-income customers.

Last week, Citigroup cut its target to $191 from $208, also keeping a buy rating. In August, Bernstein downgraded the stock to market perform, citing concerns about a recovery in customer traffic.

Pressure on lower-income diners

Wingstop has been hurt by a broader slowdown in fast food. Many lower-income customers are cutting back because of high gas prices, persistent inflation and higher borrowing costs.

The company's sales have suffered. In the second quarter, domestic same-store sales fell 7.5%, worse than both management's expectations and Wall Street estimates of a 4.8% drop. Wingstop now expects full-year domestic same-store sales to decline by a low-single-digit percentage, down from its earlier forecast of flat to slight growth.

Second-quarter revenue rose 6.5% to $185.6 million because of new restaurant openings. Adjusted earnings of $1.18 per share beat analysts' estimate of $1.02.

A steep fall from the peak

The stock has dropped sharply over the past year. It traded as high as $302.80 within the past 52 weeks before falling to a low near $95.82. Even after a rebound in recent weeks, the shares are down about 50% from a year ago.

The stock has been very volatile. Earlier this month, shares rose after Citi highlighted NFL-season marketing and the new Wing Pass subscription program as possible ways to bring in more customers. The stock rose more than 20% over the past month before this week's decline.

Short sellers, who bet on falling stock prices, have also been active. Earlier this year, short interest represented a large share of the company's publicly traded stock.

Earnings ahead

Wingstop will report third-quarter results before the market opens Oct. 28 and hold a conference call at 10 a.m. Eastern time.

Analysts expect earnings of about $1.03 to $1.04 per share, down from a year earlier, on revenue of about $195 million, up about 11%.

Investors will focus on:

whether same-store sales declines are getting better or worse, whether marketing and new loyalty programs are bringing back customers, whether the company keeps its full-year outlook.

Wingstop is still opening restaurants worldwide and has more than 3,000 locations. Despite the recent slowdown, most analysts still see long-term growth potential.