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Wendy's (WEN) Up 8.5% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Wendy's (WEN - Free Report) . Shares have added about 8.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Wendy's due for a pullback? 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 catalysts.
Wendy's Q1 Earnings & Revenues Miss Estimates
Wendy's reported first-quarter fiscal 2022 results, wherein earnings and revenues missed the Zacks Consensus Estimate. The bottom line lagged the consensus mark after beating the same for four consecutive quarters.
Q1 Earnings & Revenues
During the fiscal first quarter, the company reported adjusted earnings of 17 cents per share that lagged the Zacks Consensus Estimate of 18 cents. However, the bottom line fell 15% year over year from adjusted earnings per share (EPS) of 20 cents reported in the prior-year quarter.
Quarterly revenues of $488.6 million fell short of the consensus mark of $496 million. However, the top line increased 6.2% on a year-over-year basis. The upside was primarily driven by an increase in sales at company-operated restaurants, which benefited from the acquisition of 93 franchise-operated restaurants in Florida in fourth-quarter 2021.
During the quarter under review, same-restaurant sales at International restaurants (excluding Venezuela and Argentina) rose 14.1% year over year compared with growth of 7.9% in the year-ago quarter. Comps at Global restaurants rose 2.4% year over year compared with a 13% increase reported in the prior-year quarter. Comps in the United States witnessed an improvement of 1.1% year over year compared with an increase of 13.5% 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 $3.1 million, up 4.1% year over year. During the quarter under review, system-wide sales in the U.S. and the International segments were approximately $2.7 million and $0.4 million, up 2.5% and 18.4% year over year, respectively.
Operating Highlights
During the fiscal first quarter, the company-operated restaurant margin came in at 11.6%, compared with 17% in the year-ago quarter. The downside was primarily due to a higher labor rate, increase in commodity costs and decline in customer counts.
General and administrative expenses in the quarter were $62.3 million compared with $52.6 million in the prior-year quarter. This was primarily on account of higher salaries.
Quarterly operating profit amounted to $74.9 million, down 9.9% from the year-ago quarter. The decline was primarily due to a rise in general and administrative expenses and a decline in company-operated restaurant margin.
Net income during the fiscal first quarter was $37.4 million, down 9.6% from $41.4 million reported in the year-ago quarter. The downside was primarily due to a decrease in operating profit.
Adjusted EBITDA during the quarter totaled $106.9 million, down 11.6% from $121 million reported in the prior-year quarter. The downside was primarily due to a rise in general and administrative expenses and a decrease in company-operated restaurant margin. However, this was partially offset by higher franchise royalty revenues and fees.
Balance Sheet
Cash and cash equivalents as of Apr 3, 2022, totaled $741.2 million compared with $249.4 million on Jan 2, 2022. Inventories at the end of the fiscal first quarter amounted to $5.9 million, flat year over year. As of Apr 3, 2022, long-term debt was $2,836.8 million compared with $2,356.4 million at the end of Jan 2, 2022.
The company declared a quarterly dividend to 12.5 cents per share (or 50 cents annually) from the previous payout of 12 cents (or 48 cents annually). The dividend will be paid out on Jun 15, 2022, to shareholders on record as of Jun 1, 2022. In the first quarter, the company repurchased 0.7 million shares.
2022 Outlook
For 2022, the company continues to expect global system-wide sales growth to be 6-8%. Adjusted EBITDA is projected in the band of $490 million to $505 million. Adjusted EPS for 2022 is anticipated to be 82-86 cents, down from the prior estimate of 87-91 cents. The Zacks Consensus Estimate for 2022 earnings is pegged at 87 cents. The company anticipates cash flow from operations in the band of $305-$325 million, while capital expenditures are projected between $90 million and $100 million. Free cash flow is anticipated to be $215-$225 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -8% due to these changes.
VGM Scores
At this time, Wendy's has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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, Starbucks (SBUX - Free Report) , a stock from the same industry, has gained 12.9%. The company reported its results for the quarter ended March 2022 more than a month ago.
Starbucks reported revenues of $7.64 billion in the last reported quarter, representing a year-over-year change of +14.5%. EPS of $0.59 for the same period compares with $0.62 a year ago.
Starbucks is expected to post earnings of $0.78 per share for the current quarter, representing a year-over-year change of -22.8%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.
Starbucks has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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Wendy's (WEN) Up 8.5% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Wendy's (WEN - Free Report) . Shares have added about 8.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Wendy's due for a pullback? 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 catalysts.
Wendy's Q1 Earnings & Revenues Miss Estimates
Wendy's reported first-quarter fiscal 2022 results, wherein earnings and revenues missed the Zacks Consensus Estimate. The bottom line lagged the consensus mark after beating the same for four consecutive quarters.
Q1 Earnings & Revenues
During the fiscal first quarter, the company reported adjusted earnings of 17 cents per share that lagged the Zacks Consensus Estimate of 18 cents. However, the bottom line fell 15% year over year from adjusted earnings per share (EPS) of 20 cents reported in the prior-year quarter.
Quarterly revenues of $488.6 million fell short of the consensus mark of $496 million. However, the top line increased 6.2% on a year-over-year basis. The upside was primarily driven by an increase in sales at company-operated restaurants, which benefited from the acquisition of 93 franchise-operated restaurants in Florida in fourth-quarter 2021.
During the quarter under review, same-restaurant sales at International restaurants (excluding Venezuela and Argentina) rose 14.1% year over year compared with growth of 7.9% in the year-ago quarter. Comps at Global restaurants rose 2.4% year over year compared with a 13% increase reported in the prior-year quarter. Comps in the United States witnessed an improvement of 1.1% year over year compared with an increase of 13.5% 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 $3.1 million, up 4.1% year over year. During the quarter under review, system-wide sales in the U.S. and the International segments were approximately $2.7 million and $0.4 million, up 2.5% and 18.4% year over year, respectively.
Operating Highlights
During the fiscal first quarter, the company-operated restaurant margin came in at 11.6%, compared with 17% in the year-ago quarter. The downside was primarily due to a higher labor rate, increase in commodity costs and decline in customer counts.
General and administrative expenses in the quarter were $62.3 million compared with $52.6 million in the prior-year quarter. This was primarily on account of higher salaries.
Quarterly operating profit amounted to $74.9 million, down 9.9% from the year-ago quarter. The decline was primarily due to a rise in general and administrative expenses and a decline in company-operated restaurant margin.
Net income during the fiscal first quarter was $37.4 million, down 9.6% from $41.4 million reported in the year-ago quarter. The downside was primarily due to a decrease in operating profit.
Adjusted EBITDA during the quarter totaled $106.9 million, down 11.6% from $121 million reported in the prior-year quarter. The downside was primarily due to a rise in general and administrative expenses and a decrease in company-operated restaurant margin. However, this was partially offset by higher franchise royalty revenues and fees.
Balance Sheet
Cash and cash equivalents as of Apr 3, 2022, totaled $741.2 million compared with $249.4 million on Jan 2, 2022. Inventories at the end of the fiscal first quarter amounted to $5.9 million, flat year over year. As of Apr 3, 2022, long-term debt was $2,836.8 million compared with $2,356.4 million at the end of Jan 2, 2022.
The company declared a quarterly dividend to 12.5 cents per share (or 50 cents annually) from the previous payout of 12 cents (or 48 cents annually). The dividend will be paid out on Jun 15, 2022, to shareholders on record as of Jun 1, 2022. In the first quarter, the company repurchased 0.7 million shares.
2022 Outlook
For 2022, the company continues to expect global system-wide sales growth to be 6-8%. Adjusted EBITDA is projected in the band of $490 million to $505 million. Adjusted EPS for 2022 is anticipated to be 82-86 cents, down from the prior estimate of 87-91 cents. The Zacks Consensus Estimate for 2022 earnings is pegged at 87 cents. The company anticipates cash flow from operations in the band of $305-$325 million, while capital expenditures are projected between $90 million and $100 million. Free cash flow is anticipated to be $215-$225 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -8% due to these changes.
VGM Scores
At this time, Wendy's has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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, Starbucks (SBUX - Free Report) , a stock from the same industry, has gained 12.9%. The company reported its results for the quarter ended March 2022 more than a month ago.
Starbucks reported revenues of $7.64 billion in the last reported quarter, representing a year-over-year change of +14.5%. EPS of $0.59 for the same period compares with $0.62 a year ago.
Starbucks is expected to post earnings of $0.78 per share for the current quarter, representing a year-over-year change of -22.8%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.
Starbucks has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.