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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 bodes well. However, high labor costs are a concern.
Let us discuss the factors that highlight why investors should retain the stock for the time being.
Growth Catalysts
Wendy’s continues to impress investors with robust global same-restaurant sales growth. During the fiscal first quarter, Same-restaurant sales at international restaurants (excluding Argentina) rose 3.2% year over year compared with 13.9% in the year-ago period. Comps at global restaurants inched up 0.9% year over year compared with 8% in the prior-year quarter. Higher average checks (backed by carryover pricing) and product innovations primarily backed the upside.
Wendy’s is focused on introducing innovative offerings and providing compelling value propositions to enhance customer satisfaction and sustain restaurant margins. For the fiscal 2024, the company anticipates global same-restaurant sales growth to be in the range of 3-4%.
The company is gearing up to expand its digital operations after experiencing significant growth in digital sales, rising from under $250 million in 2019 to almost $2 billion in 2023. Wendy’s plans to invest approximately $15 million primarily in 2024 to enhance its mobile app experience and loyalty capabilities. These improvements aim to provide customers with a seamless experience and leverage customer data for segmentation and personalization.
WEN is focusing on its breakfast offerings to drive incremental sales. The company reported single-digit year-over-year growth in U.S. breakfast sales during the fiscal first quarter. The success is attributed to purposeful innovation, quality focus, attractive value propositions and increased media support. The company sees significant growth potential in the breakfast business without additional labor, thus improving the restaurants' economic model.
The company emphasized a new global restaurant design aimed at boosting operating efficiency. The design integrates digital access and optimized layouts to enhance convenience, speed, and accuracy while lowering build costs by almost 10%. It expects global net unit growth in the range of 2% for the fiscal 2024 and 3-4% for the fiscal 2025, year over year.
Concerns
Image Source: Zacks Investment Research
The stock has declined 21.4% in the past year compared with the Industry’s 5.5% fall. The downside was mainly caused by wage inflation and a challenging macro environment.
During first-quarter fiscal 2024, general and administrative expenses came in at $63.8 million compared with $62.3 million reported in the prior-year quarter. The upside was primarily caused by an increase in stock compensation and an increase in employee compensation and benefits. Also, Inflationary pressures on labor added to the downside.
The company expects these headwinds to persist for some time. While it intends to strategically adjust select menu prices and product offerings to mitigate challenges, potential delays in implementation and competitive pressures may hinder WEN’s ability to offset cost increases fully. For the fiscal 2024, the company projects labor inflation to be within the 3-5% range.
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 WING’s 2024 sales and earnings per share (EPS) suggests rises of 27.5% and 36.7%, respectively, from the year-ago period’s levels.
Brinker International, Inc. (EAT - Free Report) carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 213.4% on average. Shares of EAT have surged 58.3% in the past year.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 5% and 39.2% growth, respectively, from the year-ago period’s levels.
Carrols Restaurant Group, Inc. carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 114.3%, on average. TAST’s shares have surged 77% in the past year.
The Zacks Consensus Estimate for TAST’s 2024 sales and EPS indicates 3.8% and 30.2% growth, 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 bodes well. However, high labor costs are a concern.
Let us discuss the factors that highlight why investors should retain the stock for the time being.
Growth Catalysts
Wendy’s continues to impress investors with robust global same-restaurant sales growth. During the fiscal first quarter, Same-restaurant sales at international restaurants (excluding Argentina) rose 3.2% year over year compared with 13.9% in the year-ago period. Comps at global restaurants inched up 0.9% year over year compared with 8% in the prior-year quarter. Higher average checks (backed by carryover pricing) and product innovations primarily backed the upside.
Wendy’s is focused on introducing innovative offerings and providing compelling value propositions to enhance customer satisfaction and sustain restaurant margins. For the fiscal 2024, the company anticipates global same-restaurant sales growth to be in the range of 3-4%.
The company is gearing up to expand its digital operations after experiencing significant growth in digital sales, rising from under $250 million in 2019 to almost $2 billion in 2023. Wendy’s plans to invest approximately $15 million primarily in 2024 to enhance its mobile app experience and loyalty capabilities. These improvements aim to provide customers with a seamless experience and leverage customer data for segmentation and personalization.
WEN is focusing on its breakfast offerings to drive incremental sales. The company reported single-digit year-over-year growth in U.S. breakfast sales during the fiscal first quarter. The success is attributed to purposeful innovation, quality focus, attractive value propositions and increased media support. The company sees significant growth potential in the breakfast business without additional labor, thus improving the restaurants' economic model.
The company emphasized a new global restaurant design aimed at boosting operating efficiency. The design integrates digital access and optimized layouts to enhance convenience, speed, and accuracy while lowering build costs by almost 10%. It expects global net unit growth in the range of 2% for the fiscal 2024 and 3-4% for the fiscal 2025, year over year.
Concerns
Image Source: Zacks Investment Research
The stock has declined 21.4% in the past year compared with the Industry’s 5.5% fall. The downside was mainly caused by wage inflation and a challenging macro environment.
During first-quarter fiscal 2024, general and administrative expenses came in at $63.8 million compared with $62.3 million reported in the prior-year quarter. The upside was primarily caused by an increase in stock compensation and an increase in employee compensation and benefits. Also, Inflationary pressures on labor added to the downside.
The company expects these headwinds to persist for some time. While it intends to strategically adjust select menu prices and product offerings to mitigate challenges, potential delays in implementation and competitive pressures may hinder WEN’s ability to offset cost increases fully. For the fiscal 2024, the company projects labor inflation to be within the 3-5% range.
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 negative earnings surprise of 21.4%, on average. The stock has gained 91.3% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for WING’s 2024 sales and earnings per share (EPS) suggests rises of 27.5% and 36.7%, respectively, from the year-ago period’s levels.
Brinker International, Inc. (EAT - Free Report) carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 213.4% on average. Shares of EAT have surged 58.3% in the past year.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 5% and 39.2% growth, respectively, from the year-ago period’s levels.
Carrols Restaurant Group, Inc. carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 114.3%, on average. TAST’s shares have surged 77% in the past year.
The Zacks Consensus Estimate for TAST’s 2024 sales and EPS indicates 3.8% and 30.2% growth, respectively, from the year-ago period’s levels.