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Wendy's (WEN) Q3 Earnings Beat Estimates, Revenues Miss

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  • CAKE
  • WEN

The Wendy's Company WEN reported mixed third-quarter fiscal 2021 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same. The bottom line beat the consensus mark for the third straight quarter.

President and CEO Todd Penegor, said, “We continued to grow our breakfast business, digital sales accelerated, and we meaningfully expanded our global footprint in the third quarter. Global Same-Restaurant sales grew in the high-single digits on a 2-year basis, reinforcing the strength of our brand in a challenging environment.”

Delving Deeper

During the fiscal third quarter, the company reported adjusted earnings of 19 cents per share which beat the Zacks Consensus Estimate of 18 cents. The bottom line was flat year over year.

Quarterly revenues of $470.3 million missed the consensus mark of $471 million. However, the top line improved 4% on a year-over-year basis. The upside can primarily be attributed to rise in franchisee royalty revenues, advertising funds and higher franchise fees.

During the quarter under review, same-restaurant sales at International restaurants (excluding Venezuela and Argentina) rose 14.7% year over year against a decline of 2.1% in the year-ago quarter. Comps at Global restaurants rose 3.3% year over year compared with 6.1% increase reported in the prior-year quarter. Comps in the United States witnessed growth of 2.1% year over year compared with an increase of 7% in the prior-year quarter.

In the quarter under review, Wendy’s inaugurated 48 restaurants globally, reflecting an increase of 25 net new units.

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

System-Wide Sales Discussion

During the fiscal third quarter, global system-wide sales — including company-operated and franchise restaurants — were nearly $3.1 million compared with $2.9 million in the prior-year quarter. During the quarter under review, U.S. system-wide sales amounted to $2.8 million compared with $2.7 million in the prior-year quarter. System-wide sales in the International segment totaled $0.4 million in the quarter compared with $0.3 million in the prior-year quarter.

Operating Highlights

During the fiscal third quarter, the company-operated restaurant margin came in at 14.4% compared with 16.9% in the year-ago quarter. The downside was primarily due to higher labor rate, increase in commodity costs, decline in traffic, and lower advertising spending in the prior year quarter.

General and administrative expenses in the quarter were $62.8 million, compared with $47.3 million in the prior-year quarter. This was primarily on account of higher incentive compensation, and stock compensation accrual and technology costs (related to the company's ERP implementation).

Quarterly operating profit amounted to $80.2 million, down 1.4% from the year-ago quarter. The decline was primarily due to rise in general and administrative expenses, decrease in company-operated restaurant margin, and higher franchise support and other costs.

Net income during the fiscal third quarter was $41.2 million, which rose 3.6% from $39.8 million reported in the year-ago quarter. The uptick came on the back of lower interest expense.

Adjusted EBITDA during the quarter totaled $112.2 million, down 5.6% from $118.8 million in the prior-year quarter. The downside was primarily due to rise in general and administrative expenses.

Balance Sheet

Cash and cash equivalents as of Oct 3, 2021, totaled $571.5 million compared with $568.1 million on Jul 4, 2021. Inventories at the end of fiscal third quarter amounted to $4.3 million, compared with $4.7 million in the previous quarter. As of Oct 3, 2021, long-term debt was $2,360.8 million compared with $2,218.2 million in the prior quarter.

Meanwhile, Wendy's declared a quarterly dividend of 12 cents per share. The dividend will be paid out on Dec 15, 2021 to shareholders on record as of Dec 1, 2021.

During the fiscal third quarter, the company repurchased 1.9 million shares worth $43.8 million. Management approved an additional $80 million to repurchase shares. As of Nov 11, 2021, the company had approximately $125.1 million available under its newly increased $300-million share repurchase authorization. The program is stated to expire in February 2022.

2021 Outlook

For 2021, the company now expects global system-wide sales growth to be 11-12%, compared with the prior estimate of 11-13%. Adjusted EBITDA is projected in the band of $465 million to $475 million. Adjusted earnings per share for 2021 is anticipated to be 79-80 cents compared with the prior projection of 79-81 cents. The company expects cash flow from operations in the band of $345 million to $365 million, while capital expenditure is projected between $75 million and $85 million. Free cash flow is anticipated to be $270-$280 million.

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

Peer Releases

Papa John’s International, Inc. PZZA reported robust third-quarter fiscal 2021 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate. During the fiscal third quarter, the company reported adjusted earnings of 83 cents per share, which surpassed the Zacks Consensus Estimate of 69 cents by 20.3%. The bottom line surged 137.1% from 35 cents in the prior-year quarter. Quarterly revenues of $512.8 million beat the consensus mark of $501 million by 2.3%. The top line increased 8.4% on a year-over-year basis.

Papa John’s benefited from solid comparable sales in North America on account of strong customer retention and innovation strategies. The company witnessed a rise in company-owned restaurant revenues, franchise royalties and commissary sales. International revenues benefited from higher franchise royalties and unit growth. This Zacks Rank #2 (Buy) company’s shares have gained 35.5% in the past three months compared with the industry’s growth of 5.8%.

The Cheesecake Factory Incorporated CAKE reported third-quarter fiscal 2021 results, wherein both earnings and revenues missed the Zacks Consensus Estimate. In the quarter under review, adjusted earnings per share (EPS) was 65 cents, which lagged the Zacks Consensus Estimate of 70 cents. In the prior-year quarter, the company had reported an adjusted loss of 33 cents per share. The upside was primarily driven by improvements in labor and other operating expenses.

Cheesecake Factory gained from solid off-premise sales growth. Quarter-to-date (through Nov 2), the off-premise model contributed 28% to total sales. Off-premise average weekly sales have doubled compared with fiscal 2019 levels. Shares of Cheesecake Factory have declined 21.3% in the past six months, against the industry’s growth of 5.7%. Cheesecake Factory carries a Zacks Rank #4 (Sell).

YUM! Brands, Inc. YUM reported strong third-quarter 2021 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate. Both the metrics improved year over year. During third-quarter 2021, the company’s adjusted earnings of $1.22 beat the Zacks Consensus Estimate of $1.06. In the prior-year quarter, the company had reported adjusted earnings of $1.01. Quarterly revenues of $1,606 million outpaced the consensus mark of $1,584 million. The top line improved 11% year over year.

YUM! Brands’ results in the quarter benefited from strong digital sales, robust unit development and a diversified global business model. The company strengthened its digital capabilities with the acquisition of Dragontail, which provides AI-based integrated kitchen order management and delivery technologies. The initiative paves the path for strengthening store operations and enhancing customer experience. During the third quarter, it reported digital sales of more than $5 billion. Shares of this Zacks Rank #3 company have gained 8.2% in the past six months.


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