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Wendy's (WEN) Q2 Earnings Match Estimates, Revenues Lag

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The Wendy's Company (WEN - Free Report) reported second-quarter fiscal 2023 results, with earnings meeting the Zacks Consensus Estimate and revenues missing the same. The top and the bottom line increased on a year-over-year basis.

During the quarter, solid same-restaurant sales and strength in digital momentum (backed by breakfast and late-night dayparts offerings) aided the company’s performance. Also, significant profit expansion in terms of U.S. company-operated restaurant margin improvements (200 basis points year-over-year) added to the positives.

Q2 Earnings & Revenues

In the fiscal second quarter, the company reported adjusted earnings per share (EPS) of 28 cents, in line with the Zacks Consensus Estimate. In the prior-year quarter, WEN reported an adjusted EPS of 24 cents.

The Wendy's Company Price, Consensus and EPS Surprise

The Wendy's Company Price, Consensus and EPS Surprise

The Wendy's Company price-consensus-eps-surprise-chart | The Wendy's Company Quote

During the quarter, the company reported revenues of $561.6 million, missing the consensus mark of $569 million. However, the top line increased 4.4% 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 7.2% year over year compared with growth of 15.2% reported in the year-ago quarter. Our estimate for the metric was 6.2%.

Comps at Global restaurants increased 5.1% year over year compared with a 3.7% increase reported in the prior-year quarter. Comps in the United States registered a 4.9% year-over-year improvement compared with an increase of 2.3% reported in the prior-year quarter.

In the quarter under review, Wendy’s inaugurated 41 restaurants globally, reflecting an increase of 20 net new units.

System-Wide Sales Discussion

During the fiscal second quarter, global system-wide sales — including company-operated and franchise restaurants — were approximately $3.7 million, up 6.6% year over year. During the quarter under review, system-wide sales in the U.S. and the International segments were nearly $3.2 million and $0.5 million, up 6.1% and 9.9% year over year, respectively.

Operating Highlights

During the fiscal second quarter, the company-operated restaurant margin came in at 17.3% compared with 15% reported in the prior-year quarter. The upside was backed by a rise in average checks. However, this was partially offset by higher commodity and labor costs and customer count declines.

General and administrative expenses in the quarter were $62.7 million compared with $61.6 million reported in the prior-year quarter. The upside was due to a rise in incentive compensation accrual. Our estimate for the metric was $67.5 million.

Quarterly operating profit amounted to $109.3 million, up 13.5% from the year-ago quarter’s levels. The upside was backed by a rise in franchise royalty revenue and company-operated restaurant margin. Our estimate for the metric was $100.3 million.

Net income during the fiscal second quarter was $59.6 million, up 23.7% from $48.2 million reported in the year-ago quarter. Our estimate for the metric was $55.3 million.

Adjusted EBITDA during the quarter totaled $144.5 million, up 8.7% from $132.9 million reported in the prior-year quarter. The increase was primarily backed by higher franchise royalty revenue, and company-operated restaurant margin. Our estimate for the metric was $143.4 million.

Balance Sheet

Cash and cash equivalents as of Jul 2, 2023, totaled $635.4 million compared with $676.5 million on Apr 2, 2023. Inventories at the end of the fiscal second quarter amounted to $6.5 million almost flat sequentially. As of Jul 2, 2023, long-term debt was $2,781.1 million compared with $2,786.5 million at the end of Apr 2, 2023.

The company declared a quarterly dividend of 25 cents per share. The dividend will be paid out on Sep 15, 2023, to shareholders on record as of Sep 1, 2023.

Outlook

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.

For the 2024-25 period, the company anticipates systemwide sales growth in mid-single digits. It expects free cash flow to grow in the high-single to low-double digits range.

Zacks Rank 

Wendy's currently has a Zacks Rank #4 (Hold).

You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

Peer Releases

Restaurant Brands International, Inc. (QSR - Free Report) reported impressive second-quarter 2023 results, with earnings and revenues surpassing the Zacks Consensus Estimate. The top and the bottom line increased on a year-over-year basis. The upside was primarily driven by strong global comparable sales, unit growth and a healthy balance of traffic and check.

During the quarter, QSR reported adjusted EPS of 85 cents, surpassing the Zacks Consensus Estimate of 76 cents. The bottom line increased 3.7% from an adjusted EPS of 82 cents reported in the prior-year quarter. Quarterly net revenues of $1,775 million surpassed the consensus mark of $1,746 million. The top line increased 8.3% on a year-over-year basis. The upside was driven by a rise in system-wide sales at Tim Hortons, Burger King, Popeyes and Firehouse Subs. However, this was partially offset by unfavorable FX movements.

The Cheesecake Factory Incorporated (CAKE - Free Report) reported second-quarter fiscal 2023 results, wherein earnings beat the Zacks Consensus Estimate but revenues missed the same. The bottom and the top lines increased year over year. An increase in comparable restaurant sales backed by improving consumer demand and new restaurant openings drove the company’s performance.

During the quarter, CAKE reported adjusted EPS of 88 cents, beating the Zacks Consensus Estimate of 81 cents by 8.6%. The reported figure represented a 69.2% year-over-year increase. Total revenues of $866.2 million missed the consensus estimate of $881 million by 1.7%. However, the top line increased 4% on a year-over-year basis.

Chipotle Mexican Grill, Inc. (CMG - Free Report) released mixed second-quarter fiscal 2023 results, with earnings beating the Zacks Consensus Estimate and revenues missing the same. The top and the bottom line increased on a year-over-year basis.

During the quarter, Chipotle reported adjusted EPS of $12.65, beating the Zacks Consensus Estimate of $12.25. The bottom line increased 36% from the $9.30 reported in the year-ago quarter. Quarterly revenues of $2,514.8 million missed the consensus mark of $2,524 million. The top line increased 13.6% on a year-over-year basis. The upside can primarily be attributed to strong comparable restaurant sales growth and new restaurant openings.

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