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Wendy's Previews 4Q

Zacks Equity Research

The Wendy's Company (WEN) recently declared its preliminary fourth quarter and full year 2012 results. The company is scheduled to report its detailed financial results on Feb 28, 2013.

Fourth-Quarter Highlights

The company posted fourth-quarter 2012 adjusted earnings of 8 cents per share, ahead of the current Zacks Consensus Estimate as well as the year-ago earnings per share of 4 cents.

Adjusted EBITDA rose 19% to $95.9 million owing to high restaurant margin and reduced general and administrative costs.

Total revenue in the fourth-quarter climbed 2.4% annually to $629.9 million, but fell short of the current Zacks Consensus Estimate of $638.0 million. Wendy’s Franchise sales declined 0.8% to $76 million.

Same-store sales at North America Company-operated restaurants declined 0.2% versus a rise of 5.1% in the year-earlier quarter. Wendy’s North America Franchise same-store sales also declined 0.6%.

Company-operated restaurant margins in the quarter rose 90 basis points (bps) to 15.9%, driven by increased Image Activation sales and decreased breakfast advertising expenses, which negated the adverse impact from commodity cost inflation.

Full Year 2012 Highlights

In 2012, the company’s adjusted earnings per share were 16 cents which was ahead of the Zacks Consensus Estimate of 13 cents and year-ago earnings of 15 cents.

The company’s total revenue increased 3% year over year to nearly $2.51 billion. Wendy’s Franchise sales were $307 million, up 0.7% year over year. North American Company-operated restaurants’ same-store sales and Franchise same-store sales both increased 1.6% in 2012.

Company-operated restaurant margin remained flat year over year at 14.0%. Adjusted EBITDA rose 0.7% to $333.3 million in 2012.

Share Buyback

In fourth quarter, Wendy’s declared to repurchase up to $100 million worth of its common stock through December 29, 2013.

Dividend Hike

During the quarter, the company hiked its cash dividend by 100% to 4 cents per share from 2 cents per share paid previously. This equates to an annual pay out of 16 cents per share.

Store Update

Wendy’s opened 39 franchised and 12 owned restaurants in the quarter and shut down 5 company-owned and 29 franchised restaurants. At the end of the quarter, the company was operating 6,560 restaurants worldwide including 6,186 restaurants in North America.

Moreover, in 2012 the company purchased 56 franchised restaurants and sold 30 units to franchisees.


The company projects that its adjusted earnings will be within 18 cents - 20 cents per share in 2013, up 13%-25% year over year. At present, Zacks Consensus Estimate for 2013 is 17 cents per share. Management reiterated its adjusted EBITDA guidance of $350 - $360 million for 2013.

The company expects North America company-operated restaurants same-store sales to increase by 2% - 3%.

Margins at Wendy’s are expected to be within 14.2% - 14.5%. The guidance for margin includes same-store sales as well as Image Activation growth and favorable cost-effective initiatives, partially offset by increased commodity costs of 90 - 120 basis points owing to rising beef costs.

Capital expenditure will likely be about $245 million in 2013. Wendy’s plans to revamp 25 new and 100 existing company-operated units in North America.

Additionally, the company is planning to spend $10 million to reimage its restaurants. Wendy’s is expecting to reimage nearly 200 restaurants in 2013.

On the expansion front, management plans to open 25 new restaurants and 40 franchise units. The company is also planning to unveil nearly 60 franchisee and joint-venture outlets overseas. The company also plans to close 90 - 100 franchise restaurants in North America and 15 -20 restaurants overseas.

The company’s guidance includes the revamping of 600 restaurants by 2015.

Wendy's is considered as one of the leading quick-service restaurant companies. It has undertaken a massive remodeling program and is also investing to improve its breakfast line-up and drive traffic and sales.

Wendy’s faces stiff competition from industry biggies like McDonald’s Corporation (MCD) and Yum! Brands Inc. (YUM) in both domestic and international markets.

Currently, Wendy's retains a Zacks Rank#4 (Sell). We maintain our long-term ‘Neutral’ recommendation on the stock.

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