NEW YORK (TheStreet) -- Wingstop (WING - Get Report) knows its wings.

And judging by the financial performance of the 21-year old, 800-store chain, customers appreciate the devotion to executing the perfect bite. 

Wingstop's second quarter domestic same-restaurant sales increased 9%, while adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose 18.5%. Profits would have grown even quicker if not for a 26% surge in bone-in chicken wing costs, an issue that has also plagued rival Buffalo Wild Wings (BWLD)  throughout the year. The higher chicken costs stem from a decline in chicken production in 2014 that led to scant supplies of wings.  

Nevertheless, Wingstop is well on its way to achieving its 12th consecutive year of domestic same-restaurant sales increases, no small feat in the ultra-competitive fast food business.


At Wingstop, it's all about the flavors and less about the theater.

The Dallas, Texas-based company also continues to outperform its closest competitors in terms of sales growth. Sports bar concept Buffalo Wild Wings, which has 21 different flavors and sauces compared to Wingstop's 12, delivered same-store sales gains of 4.2% and 2.5% respectively, at company-owned and franchised locations during the second quarter. At Popeye's (PLKI) , more of a purveyor of cajun-inspired chicken, second quarter domestic same-store sales increased 7.9%.

Importantly, investors have largely stayed upbeat on the prospects for Wingstop since a sizzling IPO on the Nasdaq Jun. 12, when the stock jumped about 61% in its first day of trading. Since its IPO, Wingstop shares have lost about 3.5%, compared to a 12.2% nosedive on the Nasdaq.

The PowerShares S&P Small Cap Consumer Discretionary ETF (PSCD - Get Report) , which counts fast-growing restaurant chains such as DineEquity (DIN - Get Report) and Texas Roadhouse (TXRH - Get Report)  among its top holdings, has fallen roughly 9.8% since Wingstop's IPO.



The small size of Wingstop's restaurants, and strong sales, have led to big profits.

In an Oct. 8 note to clients, SunTrust Robinson Humphrey analyst Jake Bartlett noted that Wingstop stands to continue producing strong same-store sales. The analyst, which initiated coverage of the stock with a buy rating and $32 price target, cited several reasons for his optimism: "(1) increasing brand awareness with further market penetration, (2) a shift toward online ordering, and (3) a (profit) tailwind as new unit volumes mature."

There are two reasons investors may still be feeling OK about Wingstop's stock even as consumer spending slows and rising minimum wages have sent shockwaves throughout the restaurant industry. First, Wingstop has a clear path to opening many more stores in the U.S under a lucrative franchise model. The company recently opened its 800th U.S. location, and believes it could reach 2,500 sites across the country.

Wingstop CEO Charles Morrison declined to comment on a timetable to reaching that mark. Approximately 98% of Wingstop's restaurants are franchisee operated.

Second, the small size of a typical Wingstop at 1,700 square feet and a singular focus on serving up bold, crispy wings made from fryers means low labor costs, and the potential for juicy profits. From 2012 to 2014, Wingstop's adjusted EBITDA margin increased from 30.3% in 2012 to 36.1% in 2014. In the second quarter, adjusted EBITDA margin has climbed even higher to 37.7% from 37.5% a year earlier.

Morrison conceded that rising minimum wages could impact Wingstop's business, however. 

"Certainly the rise in wages is concerning because it potentially has a negative effect on the jobs side of equation, and especially for Wingstop as we have been adding new restaurants," Morrison said.

As for why Wingstop's restaurants are still stuffed with people for lunch and dinner, look no further than the chain's main item on the menu -- the wings.



Be sure to have a glass of water nearby while consuming Wingstop's "Atomic" flavored wings.

TheStreet sampled multiple flavors from a newly opened Wingstop in Brooklyn, New York, and left impressed by the freshness of the boneless wings, a product that is notorious for drying out.

Wingstop's made-to-order cooking approach, doesn't use the the hot lamps used at most fast food chains that tend to dry out proteins and weaken flavors. The company also does not use frozen chicken.

The crisp on the boneless wings was strong, as was the taste of saucy flavors such as "Atomic" and new addition "Spicy Korean Q." Morrison noted that Wingstop has only added two new flavors to the menu in 21 years, and the company's focus on executing the flavors correctly, as opposed to constantly adding new menu items to win attention, was clear.  

The wings also tasted relatively fresh 30 minutes later when pulled from a styrofoam takeout container, which bodes well for Wingstop's online sales. According to Morrison, about 13% of Wingstop's sales now come from online ordering, where average orders are higher than those placed by walk-in customers.

"We really focus on wings, fries and sides -- we are not a bar, we don't want to be a bar, the key for us is that's all about the food, not about the restaurant and big occasion," says Morrison.

So far for Wingstop, simplicity seems to be its secret sauce.