Must-know: Wendy's quarterly overview for 2Q14 (Part 6 of 9)
Same-store sales guidance
Wendy’s (WEN) management lowered its outlook for full-year same-store sales growth to be less than the low-end of 2.5% to 3.5%. The company will continue with its system optimization strategy, in which it’ll sell its company-operated restaurants to the franchisee. So far, the company has sold 418 company-operated restaurants to franchisees in the U.S. and will sell 135 more restaurants in Canada by the end of the first quarter in 2015. With this initiative, Wendy’s plans to lower the total system company ownership from 15% to 13%.
Based on the guidance, the Wall Street analysts estimate earnings per share (or EPS) of $0.079 for the third quarter of 2014 (or 3Q14) and $0.082 for 4Q14.
G&A, EBITDA, and net income
Management expects to reduce ~$8 million in general and administrative costs (or G&A) in the first quarter of 2015. The adjusted earnings before interest, taxes, depreciation, and amortization (or EBITDA) is expected to be further reduced by $5 million in 2015. Management stated that it doesn’t expect EBITDA for 2016 to be further impacted. Management expects that there will be no impact to net income in 2015 and expects a slight accretion in 2016.
Share repurchase program
In the earnings call, management announced that its board approved a new share repurchase program. This would allow the company to repurchase shares up to $100 million, or ~3% of market cap as of the second quarter end, through the end of 2015. Companies often reward shareholders by repurchasing its own shares and increasing the value per share assuming the revenue growth is constant. Companies, such as McDonald’s (MCD) and Yum! Brands (YUM), in the restaurant industry have an active share repurchase program, an alternative means to return cash to shareholders.
Capital Expenditure (or CapEx)
The company expects a CapEx on the higher side in the range of $280 million to $290 million, compared to $224 million a year ago. This increase is anticipated primarily due to an increase in Image Activation activity in the year.
An investor can get exposure to the restaurant industry through ETFs such as the Consumer Discretionary Select Sector SPDR Fund (XLY) and the PowerShares Dynamic Food and Beverage ETF (PBJ).
Browse this series on Market Realist:
- Part 1 - Must-know: Wendy’s quarterly earnings overview
- Part 2 - Must-know: Why Wendy’s is selling its company-owned restaurants
- Part 3 - Must-know: Why Wendy’s top line declined
- Investment & Company Information