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Wendy's (WEN) Banks on Digital Initiatives, High Costs Ail
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The Wendy's Company (WEN - Free Report) is poised to benefit from digitization, unit expansion and Breakfast daypart offerings. Also, the emphasis on menu innovation initiatives bodes well. However, inflationary pressures are a concern.
Let us discuss the factors that highlight why investors should retain the stock for the time being.
Growth Catalysts
Wendy’s is focused on digitalization to drive growth. In the first quarter of fiscal 2023, the company had nearly 11% of its sales generated through digital channels in the United States and approximately 19% in international markets. This was driven by gains in delivery and mobile ordering sales and several successful promotions.
The company has been witnessing higher average checks. WEN emphasized expanding its delivery and mobile order access and efficiency, fine-tuning user experience and developing a one-to-one marketing program to boost the digital business and drive growth. Wendy's focuses on maximizing the restaurant economic model and growing digital sales to approximately $1.5 billion in 2023.
In the first quarter of 2023, the company announced a partnership with Google to pilot Wendy's Fresh AI, a voice AI solution for drive-through ordering. Backed by Google Cloud's generative AI and large language model technology, the solution paves a path for fast and frictionless service offerings, customer satisfaction and profitability. Wendy's is optimistic in this regard and anticipates launching the pilot in June 2023.
Wendy’s remains steadfast in expanding its presence globally. Moving into 2023, the company emphasized a solid development pipeline locked under its ground breaker development incentive, potential franchise candidates (more than 300) in the recruiting pipeline and a new global design standard to support AUVs, reduce build costs and improve operating efficiency. The company stated expansion in Ireland, Spain, Australia and Latin America is in the pipeline. In 2023, WEN anticipates net units to grow 2-3% on a year-over-year basis.
Wendy’s focuses on Breakfast daypart offerings to drive incremental sales. In the first quarter of fiscal 2023, the company reported a strong breakfast performance in Canada.
The company has been benefiting from its marketing, high-quality offerings, repeat ordering and high customer satisfaction levels. It stated the benefits of the French Toast Sticks and traffic-driving Croissant promotion. Wendy's emphasized menu innovation, creating awareness for new products and promoting targeted trial-driving offers to drive growth. For 2023, the company has set aside $2 million for its investment in breakfast advertising.
WEN’s brand transformation initiative also includes menu innovation, promotional offers and bold new packaging intended for driving sales. In the second quarter of 2023, Wendy's planned a variety of product promotions for different price points and occasions. Customers can expect the return of their favorite Strawberry Frosty and the introduction of the Ghost Pepper Ranch Chicken Sandwich to the Made to Crave lineup.
Wendy's is also focused on enhancing offerings in the breakfast and late-night options. These initiatives aim to provide customers with diverse and appealing choices while driving growth. In 2023, the company anticipates the Fast Food Done Right strategy, which includes strategic menus and price innovations, to help offset pressure from labor and commodity inflation.
Concerns
Image Source: Zacks Investment Research
Shares of Wendy’s have declined 2.4% year to date against the industry’s growth of 12.9%. The downside was mainly caused by commodity and wage inflation, supply-chain challenges and a challenging macro environment.
In the first quarter of fiscal 2023, the company’s total cost of sales came in at $196.5 million compared with $185.1 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). 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 are as follows:
The Zacks Consensus Estimate for Chipotle’s 2024 sales and EPS suggests growth of 12.6% and 19.8%, respectively, from the year-ago period’s levels.
Chuy's Holdings, Inc. (CHUY - Free Report) sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 23.4%, on average. Shares of CHUY have increased 100.9% in the past year.
The Zacks Consensus Estimate for Chuy’s Holdings’ 2023 sales and EPS suggests growth of 9.9% and 27%, respectively, from the year-ago period’s levels.
Arcos Dorados Holdings Inc. (ARCO - Free Report) carries a Zacks Rank #2 (Buy). ARCO has a long-term earnings growth rate of 9.5%. The stock has rallied 33.4% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS suggests growth of 13.4% and 4.4%, respectively, from the year-ago period’s levels.
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Wendy's (WEN) Banks on Digital Initiatives, High Costs Ail
The Wendy's Company (WEN - Free Report) is poised to benefit from digitization, unit expansion and Breakfast daypart offerings. Also, the emphasis on menu innovation initiatives bodes well. However, inflationary pressures are a concern.
Let us discuss the factors that highlight why investors should retain the stock for the time being.
Growth Catalysts
Wendy’s is focused on digitalization to drive growth. In the first quarter of fiscal 2023, the company had nearly 11% of its sales generated through digital channels in the United States and approximately 19% in international markets. This was driven by gains in delivery and mobile ordering sales and several successful promotions.
The company has been witnessing higher average checks. WEN emphasized expanding its delivery and mobile order access and efficiency, fine-tuning user experience and developing a one-to-one marketing program to boost the digital business and drive growth. Wendy's focuses on maximizing the restaurant economic model and growing digital sales to approximately $1.5 billion in 2023.
In the first quarter of 2023, the company announced a partnership with Google to pilot Wendy's Fresh AI, a voice AI solution for drive-through ordering. Backed by Google Cloud's generative AI and large language model technology, the solution paves a path for fast and frictionless service offerings, customer satisfaction and profitability. Wendy's is optimistic in this regard and anticipates launching the pilot in June 2023.
Wendy’s remains steadfast in expanding its presence globally. Moving into 2023, the company emphasized a solid development pipeline locked under its ground breaker development incentive, potential franchise candidates (more than 300) in the recruiting pipeline and a new global design standard to support AUVs, reduce build costs and improve operating efficiency. The company stated expansion in Ireland, Spain, Australia and Latin America is in the pipeline. In 2023, WEN anticipates net units to grow 2-3% on a year-over-year basis.
Wendy’s focuses on Breakfast daypart offerings to drive incremental sales. In the first quarter of fiscal 2023, the company reported a strong breakfast performance in Canada.
The company has been benefiting from its marketing, high-quality offerings, repeat ordering and high customer satisfaction levels. It stated the benefits of the French Toast Sticks and traffic-driving Croissant promotion. Wendy's emphasized menu innovation, creating awareness for new products and promoting targeted trial-driving offers to drive growth. For 2023, the company has set aside $2 million for its investment in breakfast advertising.
WEN’s brand transformation initiative also includes menu innovation, promotional offers and bold new packaging intended for driving sales. In the second quarter of 2023, Wendy's planned a variety of product promotions for different price points and occasions. Customers can expect the return of their favorite Strawberry Frosty and the introduction of the Ghost Pepper Ranch Chicken Sandwich to the Made to Crave lineup.
Wendy's is also focused on enhancing offerings in the breakfast and late-night options. These initiatives aim to provide customers with diverse and appealing choices while driving growth. In 2023, the company anticipates the Fast Food Done Right strategy, which includes strategic menus and price innovations, to help offset pressure from labor and commodity inflation.
Concerns
Image Source: Zacks Investment Research
Shares of Wendy’s have declined 2.4% year to date against the industry’s growth of 12.9%. The downside was mainly caused by commodity and wage inflation, supply-chain challenges and a challenging macro environment.
In the first quarter of fiscal 2023, the company’s total cost of sales came in at $196.5 million compared with $185.1 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). 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 are as follows:
Chipotle Mexican Grill, Inc. (CMG - Free Report) sports a Zacks Rank #1 (Strong Buy). CMG has a long-term earnings growth rate of 31.8%. The stock has improved 64.7% in the past year. You can see the complete list of today’s Zacks Rank #1 stocks here.
The Zacks Consensus Estimate for Chipotle’s 2024 sales and EPS suggests growth of 12.6% and 19.8%, respectively, from the year-ago period’s levels.
Chuy's Holdings, Inc. (CHUY - Free Report) sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 23.4%, on average. Shares of CHUY have increased 100.9% in the past year.
The Zacks Consensus Estimate for Chuy’s Holdings’ 2023 sales and EPS suggests growth of 9.9% and 27%, respectively, from the year-ago period’s levels.
Arcos Dorados Holdings Inc. (ARCO - Free Report) carries a Zacks Rank #2 (Buy). ARCO has a long-term earnings growth rate of 9.5%. The stock has rallied 33.4% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS suggests growth of 13.4% and 4.4%, respectively, from the year-ago period’s levels.