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Here's Why Investors Should Retain Wendy's (WEN) Stock Now
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The Wendy's Company (WEN - Free Report) is likely to benefit from solid comps growth, digital initiatives, and Breakfast daypart offerings. This and the focus on unit expansion efforts bode well. However, high commodity and labor costs are a concern.
Let us discuss the factors highlighting why investors should retain the stock for the time being.
Growth Catalysts
Wendy’s The company continues to impress investors with robust global same-restaurant sales growth. During the fiscal third quarter, same-restaurant sales at international restaurants (excluding Argentina) rose 7.8% year over year compared with 10.8% a year ago. Comps at global restaurants inched up 2.8% year over year compared with 6.9% in the prior-year quarter. Higher average checks, strategic pricing actions and product innovations primarily backed the upside. Given the emphasis on global expansion and menu innovation efforts, the company anticipates the momentum to continue in the upcoming periods. For fiscal 2023, the company expects global same-restaurant sales growth to be in the mid-single-digit range.
WEN has been focusing on digitalization to drive growth. During third-quarter fiscal 2023, the company had nearly 12% of its sales generated through digital channels in the United States and approximately 18% in international markets. The company reported benefits from strength across digital channels, third-party delivery partnerships and an uptick in loyalty programs.
Given the strong adoption of digital channels and a rise in monthly active users, the company is optimistic and anticipates the momentum to continue in the upcoming periods. It emphasized expanding its delivery and mobile order access and efficiency, fine-tuning user experience and developing a one-to-one marketing program to boost its digital business and drive growth. In 2023, the company anticipates digital sales of approximately $1.8 billion.
Wendy’s focuses on Breakfast daypart Offerings to drive incremental sales. During the third-quarter fiscal 2023, the company reported strong breakfast performance courtesy of its menu innovation and promotions. The company reported sequential sales improvement, backed by its value offering (2 for 3 breakfast Biggie Bag bundles). It also expanded its menu offerings with the additions of Loaded Nacho Cheeseburger, Kcell fries, Frosty Cream Cold Brew and English Muffin. Moving ahead, the company intends to focus on enhancing its offerings in the breakfast and late-night options to support the restaurant's economic model and drive sales.
Wendy’s is steadfast in expanding its presence globally. Year-to-date (through Oct 1, 2023), the company opened 152 restaurants. The company stated that 100% of its 2023 pipeline is either open or under construction. During the third quarter of fiscal 2023, the company reported solid commitments with new and existing franchisees in the United States, Canada, Mexico, the U.K. and Japan. Also, it emphasized its collaboration with Flint Group to develop 200 Wendy's restaurants in Australia. The company has a strong pipeline and is on track to achieve its target of approximately 2% net unit growth in 2023. For fiscal 2024 and 2025, the company anticipates global net unit growth in the range of 2-3% and 3-4%, respectively, year over year.
Concerns
Image Source: Zacks Investment Research
Shares of Wendy’s have declined 9.8% in the past year against the Industry’s growth of 3%. The downside was mainly caused by commodity and wage inflation and a challenging macro environment.
In the third quarter of fiscal 2023, the company’s total cost of sales came in at $199.5 million compared with $196.2 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. Also, inflationary pressures in the U.K. market added to the negatives. In 2023, WEN anticipates commodity and labor inflation to be in the mid-single digits.
Zacks Rank & Key Picks
Wendy’s currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector include:
The Zacks Consensus Estimate for Wingstop’s 2024 sales and EPS suggests rises of 15.6% and 17.2%, respectively, from the year-ago period’s levels.
Brinker International, Inc. (EAT - Free Report) currently carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 223.6%, on average. Shares of EAT have increased 9.2% in the past year.
The Zacks Consensus Estimate for EAT’s fiscal 2024 sales and EPS indicates a 5% and a 25.1% rise, respectively, from the year-ago period’s levels.
Chuy's Holdings, Inc. (CHUY - Free Report) currently carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 24.8%, on average. The stock has gained 7.7% in the past year.
The Zacks Consensus Estimate for Chuy's Holdings’ 2024 sales and EPS suggests an increase of 4.3% and 2.7%, respectively, from the year-ago period’s levels.
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Here's Why Investors Should Retain Wendy's (WEN) Stock Now
The Wendy's Company (WEN - Free Report) is likely to benefit from solid comps growth, digital initiatives, and Breakfast daypart offerings. This and the focus on unit expansion efforts bode well. However, high commodity and labor costs are a concern.
Let us discuss the factors highlighting why investors should retain the stock for the time being.
Growth Catalysts
Wendy’s The company continues to impress investors with robust global same-restaurant sales growth. During the fiscal third quarter, same-restaurant sales at international restaurants (excluding Argentina) rose 7.8% year over year compared with 10.8% a year ago. Comps at global restaurants inched up 2.8% year over year compared with 6.9% in the prior-year quarter. Higher average checks, strategic pricing actions and product innovations primarily backed the upside. Given the emphasis on global expansion and menu innovation efforts, the company anticipates the momentum to continue in the upcoming periods. For fiscal 2023, the company expects global same-restaurant sales growth to be in the mid-single-digit range.
WEN has been focusing on digitalization to drive growth. During third-quarter fiscal 2023, the company had nearly 12% of its sales generated through digital channels in the United States and approximately 18% in international markets. The company reported benefits from strength across digital channels, third-party delivery partnerships and an uptick in loyalty programs.
Given the strong adoption of digital channels and a rise in monthly active users, the company is optimistic and anticipates the momentum to continue in the upcoming periods. It emphasized expanding its delivery and mobile order access and efficiency, fine-tuning user experience and developing a one-to-one marketing program to boost its digital business and drive growth. In 2023, the company anticipates digital sales of approximately $1.8 billion.
Wendy’s focuses on Breakfast daypart Offerings to drive incremental sales. During the third-quarter fiscal 2023, the company reported strong breakfast performance courtesy of its menu innovation and promotions. The company reported sequential sales improvement, backed by its value offering (2 for 3 breakfast Biggie Bag bundles). It also expanded its menu offerings with the additions of Loaded Nacho Cheeseburger, Kcell fries, Frosty Cream Cold Brew and English Muffin. Moving ahead, the company intends to focus on enhancing its offerings in the breakfast and late-night options to support the restaurant's economic model and drive sales.
Wendy’s is steadfast in expanding its presence globally. Year-to-date (through Oct 1, 2023), the company opened 152 restaurants. The company stated that 100% of its 2023 pipeline is either open or under construction. During the third quarter of fiscal 2023, the company reported solid commitments with new and existing franchisees in the United States, Canada, Mexico, the U.K. and Japan. Also, it emphasized its collaboration with Flint Group to develop 200 Wendy's restaurants in Australia. The company has a strong pipeline and is on track to achieve its target of approximately 2% net unit growth in 2023. For fiscal 2024 and 2025, the company anticipates global net unit growth in the range of 2-3% and 3-4%, respectively, year over year.
Concerns
Image Source: Zacks Investment Research
Shares of Wendy’s have declined 9.8% in the past year against the Industry’s growth of 3%. The downside was mainly caused by commodity and wage inflation and a challenging macro environment.
In the third quarter of fiscal 2023, the company’s total cost of sales came in at $199.5 million compared with $196.2 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. Also, inflationary pressures in the U.K. market added to the negatives. In 2023, WEN anticipates commodity and labor inflation to be in the mid-single digits.
Zacks Rank & Key Picks
Wendy’s currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector include:
Wingstop Inc. (WING - Free Report) sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 28.9%, on average. The stock has increased 46.3% in the past year. You can see the complete list of today’s Zacks Rank #1 stocks here.
The Zacks Consensus Estimate for Wingstop’s 2024 sales and EPS suggests rises of 15.6% and 17.2%, respectively, from the year-ago period’s levels.
Brinker International, Inc. (EAT - Free Report) currently carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 223.6%, on average. Shares of EAT have increased 9.2% in the past year.
The Zacks Consensus Estimate for EAT’s fiscal 2024 sales and EPS indicates a 5% and a 25.1% rise, respectively, from the year-ago period’s levels.
Chuy's Holdings, Inc. (CHUY - Free Report) currently carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 24.8%, on average. The stock has gained 7.7% in the past year.
The Zacks Consensus Estimate for Chuy's Holdings’ 2024 sales and EPS suggests an increase of 4.3% and 2.7%, respectively, from the year-ago period’s levels.