A month has gone by since the last earnings report for Wendy's (WEN). Shares have lost about 4.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Wendy's due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Wendy's Q1 Earnings & Revenues Top Estimates, Rise Y/Y
Wendy's reported impressive first-quarter fiscal 2023 results, with earnings and revenues beating the Zacks Consensus Estimate. The top and the bottom line increased on a year-over-year basis.
President and chief executive officer Todd Penegor stated, "We delivered our sixth consecutive quarter of double-digit global same-restaurant sales growth on a two-year basis driven in part by our compelling marketing programs, continued operational improvements, and the significant acceleration of our digital business. Our successful start to the year and clear alignment behind our strategic pillars give us confidence that we will deliver meaningful global growth for the remainder of 2023 and beyond."
Q1 Earnings & Revenues
For the fiscal first quarter, the company reported adjusted earnings per share (EPS) of 21 cents, beating the Zacks Consensus Estimate of 20 cents. In the prior-year quarter, WEN reported an adjusted EPS of 17 cents.
During the quarter, the company reported revenues of $528.8 million, surpassing the consensus mark of $526 million. The top line increased 8.2% on a year-over-year basis. The upside was primarily driven by higher sales at company-operated restaurants and higher same-restaurant sales. Also, a rise in franchise royalty revenues and advertising funds revenues added to the upside.
During the quarter under review, same-restaurant sales at international restaurants (excluding Argentina) rose 13.9% year over year compared with growth of 14.1% in the year-ago quarter. Comps at Global restaurants rose 8% year over year compared with a 2.4% increase reported in the prior-year quarter. Comps in the United States witnessed an improvement of 7.2% year over year compared with an increase of 1.1% in the prior-year quarter.
In the quarter under review, Wendy’s inaugurated 93 restaurants globally, reflecting an increase of 67 net new units.
System-Wide Sales Discussion
During the fiscal first quarter, global system-wide sales — including company-operated and franchise restaurants — were nearly $3.4 million, up 9.5% year over year. During the quarter under review, system-wide sales in the U.S. and the International segments were nearly $2.9 million and $0.4 million, up 8.6% and 16.4% year over year, respectively.
During the fiscal first quarter, the company-operated restaurant margin came in at 14.7% compared with 12% reported in the prior-year quarter. The upside was backed by a rise in average check. However, this was partially offset by higher commodity and labor costs and customer count declines.
General and administrative expenses in the quarter were $62.3 million flat year over year.
Quarterly operating profit amounted to $84.5 million, up 12.8% from the year-ago quarter’s levels. The upside was backed by a rise in franchise royalty revenue and company-operated restaurant margin. However, this was partially offset by offset by high reorganization and realignment costs (on account of the company's organizational redesign).
Net income during the fiscal first quarter was $39.8 million, up 6.4% from $37.4 million reported in the year-ago quarter.
Adjusted EBITDA during the quarter totaled $125.6 million, up 17.5% from $106.9 million reported in the prior-year quarter. The increase was primarily backed by higher franchise royalty revenue, and company-operated restaurant margin.
Cash and cash equivalents as of Apr 2, 2023, totaled $676.5 million compared with $745.9 million on Jan 1, 2023. Inventories at the end of the fiscal first quarter amounted to $6.5 million compared with $7.1 million reported in the previous quarter. As of Apr 2, 2023, long-term debt was $2,786.5 million compared with $2,822.2 million at the end of Jan 1, 2023.
The company declared a quarterly dividend of 25 cents per share. The dividend will be paid out on Jun 15, 2023, to shareholders on record as of Jun 1, 2023.
For 2023, the company expects global system-wide sales growth in the range of 6-8%. Adjusted EBITDA is projected in the band of $530-$540 million. Adjusted EPS for 2023 is anticipated to be in the range of $0.95-$1. The Zacks Consensus Estimate for 2023 earnings is pegged at 98 cents.
The company anticipates cash flow from operations to be in the band of $340-$360 million, while capital expenditures are projected between $75 million and $85 million. Free cash flow is anticipated to be $265-$275 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
At this time, Wendy's has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Wendy's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Wendy's is part of the Zacks Retail - Restaurants industry. Over the past month, Restaurant Brands (QSR), a stock from the same industry, has gained 2.3%. The company reported its results for the quarter ended March 2023 more than a month ago.
Restaurant Brands reported revenues of $1.59 billion in the last reported quarter, representing a year-over-year change of +9.6%. EPS of $0.75 for the same period compares with $0.64 a year ago.
Restaurant Brands is expected to post earnings of $0.75 per share for the current quarter, representing a year-over-year change of -8.5%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.
Restaurant Brands has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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