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Wendy's (WEN) Banks on Expansion Efforts, High Costs Ail
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The Wendy's Company (WEN - Free Report) is poised to benefit from unit expansion, digitization, and Breakfast daypart offerings. Also, the emphasis on menu innovation initiatives bodes well. However, inflationary pressures and constrained traffic are a concern.
Let us discuss the factors highlighting why investors should retain the stock for now.
Growth Catalysts
Wendy’s remains steadfast in expanding its presence globally. Moving into 2023, the company emphasized a solid development pipeline locked under its groundbreaker development incentive, potential franchise candidates (more than 300) in recruiting pipeline and a new global design standard to support AUVs, reduce build costs and improve operating efficiency. The company reported development agreements in the Philippines and India. Also, it stated expansion in Ireland, Spain, Australia and Latin America is in the pipeline. In 2023, the company anticipates net units to grow 2-3% on a year-over-year basis.
Wendy’s is capitalizing on the benefits of technology. It is investing in areas like mobile payment, mobile ordering and customer self-order kiosks that provide benefits like consumer convenience, increased customer count, higher checks and faster speed of service. On the mobile ordering front, it is progressing rapidly to ensure the facility can explore additional prospects through mobile grab-and-go and curbside delivery, plus loyalty. Delivery continues to be a major initiative by the company. WEN intends to expand its delivery and mobile order access and efficiency, fine-tuning user experience and developing a one-to-one marketing program to boost digital business and drive growth. In 2023, the company anticipates digital sales of approximately $1.5 billion.
Moreover, the company continues to focus on Breakfast daypart offerings to drive incremental sales. During the fiscal fourth quarter, average weekly U.S. breakfast sales were up more than $3,000 per restaurant. It also registered a significant increase in restaurant average unit volumes (or AUV). Notably, the company is benefitting from the launch of French Toast Sticks. Also, it stated benefits from a $3 Croissant promotion. Wendy’s is optimistic on the back of its marketing efforts, high-quality offerings, repeat ordering and high customer satisfaction levels. For 2023, the company has set aside $2 million for investment in breakfast advertising.
The company’s brand transformation initiative also includes menu innovation, promotional offers and bold new packaging, intended for driving sales. In terms of menu additions, In fourth-quarter fiscal 2022, the company unveiled a new menu item on its breakfast menu, French Toast Sticks. This major innovation received appreciation, aiding net sales. WEN intends to focus on the barbell approach, promoting check-building premium products (through Made to Crave platform) and traffic-driving value options (that support the restaurant economic model) to drive growth.
Concerns
Wendy’s has been continuously shouldering increased expenses, which have been detrimental to margins. During the fiscal fourth quarter, the company’s total cost of sales came in at $194.7 million compared with $154.2 million reported in the prior-year quarter. The downside was primarily due to higher commodity and labor costs, a decline in customer counts and increased investments (to support the entry into the U.K. market). This was partially offset by a higher average check. The company anticipates the inflationary pressures on labor and commodity price to continue for some time.
Image Source: Zacks Investment Research
Although the company reopened most of its restaurants, traffic is still low compared with pre-pandemic levels. The company intends to monitor the situation regularly to gauge the impacts of COVID-19. Shares of Wendy’s have declined 6.6% in the past three months against the Industry’s growth of 3.6%.
Chuy’s Holdings currently sports a Zacks Rank #1. CHUY has a trailing four-quarter earnings surprise of 19.1%, on average. Shares of CHUY have increased 37.7% in the past year.
The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 10.8% and 19%, respectively, from the corresponding year-ago period’s levels.
Arcos Dorados currently sports a Zacks Rank #1. ARCO has a long-term earnings growth of 7.8%. Shares of the company have declined 1.8% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2024 sales and EPS suggests growth of 8% and 11.4%, respectively, from the year-ago period’s levels.
Bloomin' Brands carries a Zacks Rank #2 (Buy). BLMN has a long-term earnings growth rate of 12.3%. The stock has gained 15.9% in the past year.
The Zacks Consensus Estimate for Bloomin' Brands 2024 sales and EPS suggests growth of 2.4% and 5.5%, respectively, from the year-ago period’s reported levels.
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Wendy's (WEN) Banks on Expansion Efforts, High Costs Ail
The Wendy's Company (WEN - Free Report) is poised to benefit from unit expansion, digitization, and Breakfast daypart offerings. Also, the emphasis on menu innovation initiatives bodes well. However, inflationary pressures and constrained traffic are a concern.
Let us discuss the factors highlighting why investors should retain the stock for now.
Growth Catalysts
Wendy’s remains steadfast in expanding its presence globally. Moving into 2023, the company emphasized a solid development pipeline locked under its groundbreaker development incentive, potential franchise candidates (more than 300) in recruiting pipeline and a new global design standard to support AUVs, reduce build costs and improve operating efficiency. The company reported development agreements in the Philippines and India. Also, it stated expansion in Ireland, Spain, Australia and Latin America is in the pipeline. In 2023, the company anticipates net units to grow 2-3% on a year-over-year basis.
Wendy’s is capitalizing on the benefits of technology. It is investing in areas like mobile payment, mobile ordering and customer self-order kiosks that provide benefits like consumer convenience, increased customer count, higher checks and faster speed of service. On the mobile ordering front, it is progressing rapidly to ensure the facility can explore additional prospects through mobile grab-and-go and curbside delivery, plus loyalty. Delivery continues to be a major initiative by the company. WEN intends to expand its delivery and mobile order access and efficiency, fine-tuning user experience and developing a one-to-one marketing program to boost digital business and drive growth. In 2023, the company anticipates digital sales of approximately $1.5 billion.
Moreover, the company continues to focus on Breakfast daypart offerings to drive incremental sales. During the fiscal fourth quarter, average weekly U.S. breakfast sales were up more than $3,000 per restaurant. It also registered a significant increase in restaurant average unit volumes (or AUV). Notably, the company is benefitting from the launch of French Toast Sticks. Also, it stated benefits from a $3 Croissant promotion. Wendy’s is optimistic on the back of its marketing efforts, high-quality offerings, repeat ordering and high customer satisfaction levels. For 2023, the company has set aside $2 million for investment in breakfast advertising.
The company’s brand transformation initiative also includes menu innovation, promotional offers and bold new packaging, intended for driving sales. In terms of menu additions, In fourth-quarter fiscal 2022, the company unveiled a new menu item on its breakfast menu, French Toast Sticks. This major innovation received appreciation, aiding net sales. WEN intends to focus on the barbell approach, promoting check-building premium products (through Made to Crave platform) and traffic-driving value options (that support the restaurant economic model) to drive growth.
Concerns
Wendy’s has been continuously shouldering increased expenses, which have been detrimental to margins. During the fiscal fourth quarter, the company’s total cost of sales came in at $194.7 million compared with $154.2 million reported in the prior-year quarter. The downside was primarily due to higher commodity and labor costs, a decline in customer counts and increased investments (to support the entry into the U.K. market). This was partially offset by a higher average check. The company anticipates the inflationary pressures on labor and commodity price to continue for some time.
Image Source: Zacks Investment Research
Although the company reopened most of its restaurants, traffic is still low compared with pre-pandemic levels. The company intends to monitor the situation regularly to gauge the impacts of COVID-19. Shares of Wendy’s have declined 6.6% in the past three months against the Industry’s growth of 3.6%.
Zacks Rank & Key Picks
Wendy’s currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Zacks Retail-Wholesale sector are Chuy's Holdings, Inc. (CHUY - Free Report) , Arcos Dorados Holdings Inc. (ARCO - Free Report) and Bloomin' Brands, Inc. (BLMN - Free Report) .
Chuy’s Holdings currently sports a Zacks Rank #1. CHUY has a trailing four-quarter earnings surprise of 19.1%, on average. Shares of CHUY have increased 37.7% in the past year.
The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 10.8% and 19%, respectively, from the corresponding year-ago period’s levels.
Arcos Dorados currently sports a Zacks Rank #1. ARCO has a long-term earnings growth of 7.8%. Shares of the company have declined 1.8% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2024 sales and EPS suggests growth of 8% and 11.4%, respectively, from the year-ago period’s levels.
Bloomin' Brands carries a Zacks Rank #2 (Buy). BLMN has a long-term earnings growth rate of 12.3%. The stock has gained 15.9% in the past year.
The Zacks Consensus Estimate for Bloomin' Brands 2024 sales and EPS suggests growth of 2.4% and 5.5%, respectively, from the year-ago period’s reported levels.