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Wendy's (WEN) Q3 Earnings Surpass, Revenues Lag Estimates
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The Wendy's Company (WEN - Free Report) reported third-quarter fiscal 2023 results, with earnings beating the Zacks Consensus Estimate, but revenues lagged the same. The top and bottom lines increased on a year-over-year basis. Solid same-restaurant sales and strength in digital momentum aided the company’s performance.
Q3 Earnings & Revenues
WEN reported adjusted earnings per share (EPS) of 27 cents, outpacing the Zacks Consensus Estimate by a penny. In the prior-year quarter, it reported adjusted EPS of 24 cents.
Revenues of $550.6 million missed the consensus mark of $555 million. However, the top line gained 3.4% on a year-over-year basis on the back of higher sales at company-operated restaurants and improved same-restaurant sales. Also, a rise in franchise royalty revenues and advertising funds revenues added to the upside.
Same-restaurant sales at international restaurants (excluding Argentina) rose 7.8% year over year compared with 10.8% a year ago. Our estimate was 4.7%.
Comps at global restaurants inched up 2.8% year over year compared with 6.9% in the prior-year quarter. Comps in the United States registered a 2.2% year-over-year improvement compared with 6.4% in the year-ago quarter.
In the quarter under review, Wendy’s inaugurated 51 restaurants globally, reflecting an increase of 20 net new units.
The Wendy's Company Price, Consensus and EPS Surprise
During the reported quarter, global system-wide sales — including company-operated and franchise restaurants — rose 4.8% year over year. System-wide sales in the U.S. and International segments were up 3.6% and 13.6% year over year, respectively.
Operating Highlights
During the quarter under review, the company-operated restaurant margin came in at 15.6% compared with 14.8% in the prior-year quarter. The uptick was driven by higher average check.
General and administrative expenses were $59.8 million compared with $62.5 million a year ago. The downside was due to a decline in professional fees owing to the completion of WEN’s ERP implementation. We suggested the metric to be $66.5 million.
Quarterly operating profit amounted to $101.6 million, up 3.6% from the year-ago levels. The positive trend was supported by increased franchise royalty revenues, a reduction in additional investment in breakfast advertising, and a decrease in general and administrative expenses.
Net income was $58 million, up 14.9% from $50.5 million in the year-ago quarter.
Adjusted EBITDA totaled $139.2 million, up 3.5% from $134.5 million in the prior-year quarter. This was primarily backed by higher franchise royalty revenues, and lower SG&A expenses. Our projection was $138.2 million.
Balance Sheet
Cash and cash equivalents as of Oct 1, 2023, totaled $598 million compared with $745.9 million as of Jan 1, 2023. Inventories at the end of the fiscal third quarter amounted to $6.85 million compared with $7.1 million as of Jan 1, 2023. As of Oct 1, 2023, long-term debt was $2,768.2 million compared with $2,822.2 million at the end of Jan 1, 2023.
Management declared a quarterly dividend of 25 cents per share. The dividend will be paid out on Dec 15, 2023, to shareholders on record as of Dec 1, 2023.
Outlook
For 2023, WEN now expects global system-wide sales growth in the range of 6-7% compared with the prior estimate of 6-8%. Adjusted EBITDA is projected in the band of $530-$540 million.
Adjusted EPS for 2023 is anticipated to be between $0.95 and $1. The Zacks Consensus Estimate is pegged at 98 cents.
The company suggests cash flow from operations in the band of $345-$360 million. Capital expenditures are envisioned to be between $80 million and $85 million. Free cash flow is forecast in the range of $265-$275 million.
For the 2024-25 period, WEN anticipates system-wide sales growth in mid-single digits. It expects free cash flow to grow in the high-single to low-double-digit range.
YUM! Brands, Inc. (YUM - Free Report) reported mixed third-quarter 2023 results, with earnings beating the Zacks Consensus Estimate but revenues missing the same.
YUM! Brands’ third-quarter 2023 adjusted EPS reached $1.44, increasing 32% from the prior year. Quarterly revenues of $1,708 million improved 4% year over year. YUM benefited from robust same-store sales and unit growth.
McDonald's Corporation (MCD - Free Report) reported third-quarter 2023 results, with earnings and revenues beating the Zacks Consensus Estimate. Both metrics surpassed the consensus estimate for the fifth straight quarter and increased on a year-over-year basis.
In the quarter under discussion, global comps of McDonald's expanded 8.8% compared with 11.7% in the prior-year quarter.
Yum China Holdings, Inc. (YUMC - Free Report) reported third-quarter 2023 results, with earnings and revenues missing the Zacks Consensus Estimate after beating in the preceding two quarters. Consumer demand weakened in late September through October, negatively impacting the company's quarterly results.
Total system sales of Yum China grew 15% year over year. System sales at KFC and Pizza Hut jumped 15% and 13% (excluding foreign currency translation), respectively.
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Wendy's (WEN) Q3 Earnings Surpass, Revenues Lag Estimates
The Wendy's Company (WEN - Free Report) reported third-quarter fiscal 2023 results, with earnings beating the Zacks Consensus Estimate, but revenues lagged the same. The top and bottom lines increased on a year-over-year basis. Solid same-restaurant sales and strength in digital momentum aided the company’s performance.
Q3 Earnings & Revenues
WEN reported adjusted earnings per share (EPS) of 27 cents, outpacing the Zacks Consensus Estimate by a penny. In the prior-year quarter, it reported adjusted EPS of 24 cents.
Revenues of $550.6 million missed the consensus mark of $555 million. However, the top line gained 3.4% on a year-over-year basis on the back of higher sales at company-operated restaurants and improved same-restaurant sales. Also, a rise in franchise royalty revenues and advertising funds revenues added to the upside.
Same-restaurant sales at international restaurants (excluding Argentina) rose 7.8% year over year compared with 10.8% a year ago. Our estimate was 4.7%.
Comps at global restaurants inched up 2.8% year over year compared with 6.9% in the prior-year quarter. Comps in the United States registered a 2.2% year-over-year improvement compared with 6.4% in the year-ago quarter.
In the quarter under review, Wendy’s inaugurated 51 restaurants globally, reflecting an increase of 20 net new units.
The Wendy's Company Price, Consensus and EPS Surprise
The Wendy's Company price-consensus-eps-surprise-chart | The Wendy's Company Quote
System-Wide Sales Discussion
During the reported quarter, global system-wide sales — including company-operated and franchise restaurants — rose 4.8% year over year. System-wide sales in the U.S. and International segments were up 3.6% and 13.6% year over year, respectively.
Operating Highlights
During the quarter under review, the company-operated restaurant margin came in at 15.6% compared with 14.8% in the prior-year quarter. The uptick was driven by higher average check.
General and administrative expenses were $59.8 million compared with $62.5 million a year ago. The downside was due to a decline in professional fees owing to the completion of WEN’s ERP implementation. We suggested the metric to be $66.5 million.
Quarterly operating profit amounted to $101.6 million, up 3.6% from the year-ago levels. The positive trend was supported by increased franchise royalty revenues, a reduction in additional investment in breakfast advertising, and a decrease in general and administrative expenses.
Net income was $58 million, up 14.9% from $50.5 million in the year-ago quarter.
Adjusted EBITDA totaled $139.2 million, up 3.5% from $134.5 million in the prior-year quarter. This was primarily backed by higher franchise royalty revenues, and lower SG&A expenses. Our projection was $138.2 million.
Balance Sheet
Cash and cash equivalents as of Oct 1, 2023, totaled $598 million compared with $745.9 million as of Jan 1, 2023. Inventories at the end of the fiscal third quarter amounted to $6.85 million compared with $7.1 million as of Jan 1, 2023. As of Oct 1, 2023, long-term debt was $2,768.2 million compared with $2,822.2 million at the end of Jan 1, 2023.
Management declared a quarterly dividend of 25 cents per share. The dividend will be paid out on Dec 15, 2023, to shareholders on record as of Dec 1, 2023.
Outlook
For 2023, WEN now expects global system-wide sales growth in the range of 6-7% compared with the prior estimate of 6-8%. Adjusted EBITDA is projected in the band of $530-$540 million.
Adjusted EPS for 2023 is anticipated to be between $0.95 and $1. The Zacks Consensus Estimate is pegged at 98 cents.
The company suggests cash flow from operations in the band of $345-$360 million. Capital expenditures are envisioned to be between $80 million and $85 million. Free cash flow is forecast in the range of $265-$275 million.
For the 2024-25 period, WEN anticipates system-wide sales growth in mid-single digits. It expects free cash flow to grow in the high-single to low-double-digit range.
Zacks Rank
Wendy's currently has a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Recent Retail-Wholesale Releases
YUM! Brands, Inc. (YUM - Free Report) reported mixed third-quarter 2023 results, with earnings beating the Zacks Consensus Estimate but revenues missing the same.
YUM! Brands’ third-quarter 2023 adjusted EPS reached $1.44, increasing 32% from the prior year. Quarterly revenues of $1,708 million improved 4% year over year. YUM benefited from robust same-store sales and unit growth.
McDonald's Corporation (MCD - Free Report) reported third-quarter 2023 results, with earnings and revenues beating the Zacks Consensus Estimate. Both metrics surpassed the consensus estimate for the fifth straight quarter and increased on a year-over-year basis.
In the quarter under discussion, global comps of McDonald's expanded 8.8% compared with 11.7% in the prior-year quarter.
Yum China Holdings, Inc. (YUMC - Free Report) reported third-quarter 2023 results, with earnings and revenues missing the Zacks Consensus Estimate after beating in the preceding two quarters. Consumer demand weakened in late September through October, negatively impacting the company's quarterly results.
Total system sales of Yum China grew 15% year over year. System sales at KFC and Pizza Hut jumped 15% and 13% (excluding foreign currency translation), respectively.