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Wendy's (WEN) Q2 Earnings Beat Estimates, Revenues Miss

·6 min read

The Wendy's Company WEN reported mixed second-quarter fiscal 2022 results, with earnings beating the Zacks Consensus Estimate and revenues missing the same. The top line rose year over year, while the bottom line declined on a year-over-year basis. Following the quarterly results, the company’s shares declined 1.8% on Aug 10.

Q2 Earnings & Revenues

During the fiscal second quarter, the company reported adjusted earnings of 24 cents per share. The bottom line beat the Zacks Consensus Estimate of 22 cents. However, the bottom line fell 11.1% year over year from adjusted earnings per share (EPS) of 27 cents reported in the prior-year quarter.

Quarterly revenues of $537.8 million fell short of the consensus mark of $541 million. However, the top line increased 9% on a year-over-year basis. The upside was primarily driven by higher sales at company-operated restaurants (which benefited from the acquisition of 93 franchise-operated restaurants in Florida in fourth-quarter 2021) and higher same-restaurant sales. Also, a rise in franchise royalty revenue and advertising funds revenue added to the upside.

The Wendy's Company Price, Consensus and EPS Surprise

 

The Wendy's Company Price, Consensus and EPS Surprise
The Wendy's Company Price, Consensus and EPS Surprise

The Wendy's Company price-consensus-eps-surprise-chart | The Wendy's Company Quote

 

During the quarter under review, same-restaurant sales at International restaurants (excluding Venezuela and Argentina) rose 15.2% year over year compared with growth of 31.4% in the year-ago quarter. Comps at Global restaurants rose 3.7% year over year compared with a 17.4% increase reported in the prior-year quarter. Comps in the United States witnessed an improvement of 2.3% year over year compared with an increase of 16.1% in the prior-year quarter.

In the quarter under review, Wendy’s inaugurated 47 restaurants globally, reflecting an increase of 24 net new units.

System-Wide Sales Discussion

During the fiscal second quarter, global system-wide sales — including company-operated and franchise restaurants — were nearly $3.4 million, up 5.2% year over year. During the quarter under review, system-wide sales in the U.S. and the International segments were approximately $3 million and $0.4 million, up 3.6% and 18.4% year over year, respectively.

Operating Highlights

During the fiscal second quarter, the company-operated restaurant margin came in at 14.5%, compared with 20.3% in the year-ago 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 United Kingdom market). However, this was partially offset by a higher average check.

General and administrative expenses in the quarter were $61.6 million compared with $63.1 million reported in the prior-year quarter. This was primarily on account of a lower incentive compensation accrual.

Quarterly operating profit amounted to $96.3 million, down 24% from the year-ago quarter. The decline was primarily due to lower system optimization gains (driven by lapping the sale of the New York market in the prior year quarter) and a decrease in company-operated restaurant margin. However, this was partially offset by a rise in franchise royalty revenue.

Net income during the fiscal second quarter was $48.2 million, down 26.7% from $65.7 million reported in the year-ago quarter. The downside was primarily due to a decrease in operating profit and higher interest expense (owing to the company's debt raise in the first quarter of fiscal 2022).

Adjusted EBITDA during the quarter totaled $132.9 million, up 1.4% from $131.1 million reported in the prior-year quarter. The upside was primarily backed by higher franchise royalty revenue and lower general and administrative expenses. However, this was partially offset by a decline in company-operated restaurant margin.

Balance Sheet

Cash and cash equivalents as of Jul 3, 2022, totaled $700.8 million compared with $741.2 million on Apr 3, 2022. Inventories at the end of the fiscal second quarter amounted to $6.5 million compared with $5.9 million reported in the previous quarter. As of Jul 3, 2022, long-term debt was $2,832.8 million compared with $2,836.8 million at the end of Apr 3, 2022.

The company declared a quarterly dividend of 12.5 cents per share. The dividend will be paid out on Sep 15, 2022, to shareholders on record as of Sep 1, 2022. In the fiscal second quarter, the company repurchased 2.8 million shares.

2022 Outlook

For 2022, the company continues to expect global system-wide sales growth to be 6-8%. Adjusted EBITDA is projected in the band of $490-$505 million. Adjusted EPS for 2022 is anticipated to be 84-88 cents, up from the prior estimate of 82-96 cents. The Zacks Consensus Estimate for 2022 earnings is pegged at 82 cents. The company anticipates cash flow from operations in the band of $305-$325 million, while capital expenditures are projected between $90 million and $100 million. Free cash flow is anticipated to be $215-$225 million.

Zacks Rank & Key Picks

Wendy's currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

Some better-ranked stocks in the Zacks Retail-Wholesale sector are Titan Machinery Inc. TITN, Arcos Dorados Holdings Inc. ARCO and Dollar Tree Inc. DLTR.

Titan Machinery sports a Zacks Rank #2 (Buy). TITN has a trailing four-quarter earnings surprise of 52.4%, on average. Shares of TITN have declined 11.2% so far this year.

The Zacks Consensus Estimate for Titan Machinery’s 2022 sales and EPS suggests growth of 23.8% and 6.4%, respectively, from the corresponding year-ago period’s levels.

Arcos Dorados carries a Zacks Rank #2. ARCO has a long-term earnings growth of 34.4%. Shares of the company have increased 35.2% so far this year.

The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 25.7% and 120.8%, respectively, from the year-ago period’s levels.

Dollar Tree carries a Zacks Rank #2. DLTR has a trailing four-quarter earnings surprise of 13.1%, on average. The stock has gained 18.1% so far this year.

The Zacks Consensus Estimate for Dollar Tree’s 2022 sales and EPS suggests growth of 6.7% and 40.5%, respectively, from the corresponding year-ago period’s levels.


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