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Why Is Wendy's (WEN) Down 7.8% Since Last Earnings Report?
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It has been about a month since the last earnings report for Wendy's (WEN - Free Report) . Shares have lost about 7.8% 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 catalysts.
Wendy's Q2 Earnings Match Estimates, Revenues Lag
The Wendy's Company 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.
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 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.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
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 B on the value side, putting it in the top 40% 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
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, Chipotle Mexican Grill (CMG - Free Report) , a stock from the same industry, has gained 6.6%. The company reported its results for the quarter ended June 2023 more than a month ago.
Chipotle reported revenues of $2.51 billion in the last reported quarter, representing a year-over-year change of +13.6%. EPS of $12.65 for the same period compares with $9.30 a year ago.
Chipotle is expected to post earnings of $10.42 per share for the current quarter, representing a year-over-year change of +9.6%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.8%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Chipotle. Also, the stock has a VGM Score of C.
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Why Is Wendy's (WEN) Down 7.8% Since Last Earnings Report?
It has been about a month since the last earnings report for Wendy's (WEN - Free Report) . Shares have lost about 7.8% 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 catalysts.
Wendy's Q2 Earnings Match Estimates, Revenues Lag
The Wendy's Company 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.
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 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.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
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 B on the value side, putting it in the top 40% 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
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, Chipotle Mexican Grill (CMG - Free Report) , a stock from the same industry, has gained 6.6%. The company reported its results for the quarter ended June 2023 more than a month ago.
Chipotle reported revenues of $2.51 billion in the last reported quarter, representing a year-over-year change of +13.6%. EPS of $12.65 for the same period compares with $9.30 a year ago.
Chipotle is expected to post earnings of $10.42 per share for the current quarter, representing a year-over-year change of +9.6%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.8%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Chipotle. Also, the stock has a VGM Score of C.