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What's in the Cards for Wendy's (WEN) this Earnings Season?

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Fast-food chain, The Wendy’s Company (WEN - Free Report) , is slated to release second-quarter 2017 results on Aug 9, before the market opens.

Last quarter, the company delivered a positive earnings surprise of 12.50%. In fact, Wendy’s has surpassed estimates in three of the trailing four quarters, with an average positive surprise of 5.63%.

Let’s see how things are shaping up for this announcement.

Wendy's Company (The) Price and EPS Surprise

Factors to Consider

The first quarter of 2017 marked the 17th consecutive quarter of same-store sales growth for Wendy’s, indicating long-term strength and relevance of the brand. We expect the company to maintain the trend in the second quarter, through its solid menu pipeline, limited time offers (LTO), marketing initiatives and increased emphasis on core and price value offerings.

Additionally, increased investments in technology like mobile payment, mobile ordering and customer self-order kiosks are expected to quicken service, resulting in increased customer count. Meanwhile, re-imaging of restaurants is anticipated to increase traffic and drive higher sales.

We note that Wendy’s has been witnessing year-over-year revenue decline over the last few quarters due to reduced number of company-operated restaurants, resulting from the company’s system optimization initiative. Although the initiative was completed in fourth-quarter 2016, the company experienced a slump in revenues in first-quarter 2017 too. It remains to be seen if the company could realize the benefits of optimization in the to-be-reported quarter or if the trend of declining revenues would continue.

Meanwhile, increased costs related to other sales-boosting initiatives and persistent higher wages, could weigh on margins. Furthermore, a soft consumer spending environment in the U.S. restaurants space might further hurt traffic and thereby comps in the quarter.

Earnings Whispers

Our proven model does not conclusively show earnings beat for Wendy’s this quarter. This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Wendy’s has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 13 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Wendy's sports a Zacks Rank #2, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revision.

Stocks to Consider

Here are some companies in the broader Retail-Wholesale sector to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Alibaba Group Holding Limited (BABA - Free Report) has an Earnings ESP of +4.11% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dillard's, Inc. (DDS - Free Report) has an Earnings ESP of +30.00% and a Zacks Rank #3.

Nordstrom, Inc. (JWN - Free Report) has an Earnings ESP of +3.28% and a Zacks Rank #3.

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