Why Is Wendy's (WEN) Down 5.4% Since Last Earnings Report?
It has been about a month since the last earnings report for Wendy's (WEN). Shares have lost about 5.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Wendy's due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Wendy's Q4 Earnings Surpass Estimates, Increase Y/Y
Wendy's reported fourth-quarter fiscal 2022 results, with earnings beating the Zacks Consensus Estimate and revenues meeting the same. The top and bottom lines increased on a year-over-year basis.
President and Chief Executive Officer Todd Penegor stated, “In the fourth quarter, our breakfast sales accelerated while our global digital business reached record highs, and over the course of the year we opened over 275 restaurants across the globe despite a difficult operating environment. We anticipate our significant business momentum and the sound execution of our key priorities will deliver a new gear of efficient, accelerated growth for the next several years.
Q4 Earnings & Revenues
For the fiscal fourth quarter, the company reported adjusted earnings per share (EPS) of 22 cents, beating the Zacks Consensus Estimate of 20 cents. In the prior-year quarter, WEN reported an adjusted EPS of 16 cents.
During the quarter, the company reported revenues of $536.5 million, meeting the consensus mark. The top line increased 13.4% 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 revenues and advertising funds revenues added to the upside.
During the quarter under review, same-restaurant sales at international restaurants (excluding Venezuela and Argentina) rose 9.9% year over year compared with growth of 18.1% in the year-ago quarter. Comps at Global restaurants rose 6.4% year over year compared with a 7.3% increase reported in the prior-year quarter. Comps in the United States witnessed an improvement of 5.9% year over year compared with an increase of 6.1% in the prior-year quarter.
In the quarter under review, Wendy’s inaugurated 78 restaurants globally, reflecting an increase of 15 net new units.
System-Wide Sales Discussion
During the fiscal fourth quarter, global system-wide sales — including company-operated and franchise restaurants — were nearly $3.4 million, up 7.9% 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 7.2% and 12.8% year over year, respectively.
During the fiscal fourth quarter, the company-operated restaurant margin came in at 14.5%. The margins were flat (on a year-over-year basis) primarily due to a higher average check, offset by higher commodity costs, customer count declines, higher labor costs, and increased investments (to support the entry into the United Kingdom market).
General and administrative expenses in the quarter were $68.5 million compared with $64.4 million reported in the prior-year quarter. The increase was mainly due to a rise in salaries and benefits partially offset by lower incentive compensation accrual.
Quarterly operating profit amounted to $84 million, up 9.2% from the year-ago quarter. The increase was backed by solid contributions from franchise royalty and advertising funds revenue.
Net income during the fiscal fourth quarter was $41.3 million, down 20.8% from $52.1 million reported in the year-ago quarter.
Adjusted EBITDA during the quarter totaled $123.5 million, up 20.3% from $102.7 million reported in the prior-year quarter. The increase was primarily backed by higher franchise royalty revenue, higher sales at Company-operated restaurants, a lower incremental Company investment in breakfast advertising and higher other operating income.
Cash and cash equivalents as of Jan 1, 2023, totaled $745.9 million compared with $731.8 million on Oct 2, 2022. Inventories at the end of the fiscal fourth quarter amounted to $7.1 million compared with $6.6 million reported in the previous quarter. As of Jan 1, 2023, long-term debt was $2,822.2 million compared with $2,827.5 million at the end of Oct 2, 2022.
The company declared a quarterly dividend of 25 cents per share. The dividend will be paid out on Mar 15, 2023, to shareholders on record as of Mar 1, 2023.
Total revenues in 2022 amounted to $2,095.5 million compared with $1,897 million in 2021.
Adjusted EBITDA in 2022 came in at $497.8 million compared with $467 million in 2021.
In 2022, diluted EPS came in at 86 cents per share compared with 82 cents reported in the previous year.
For 2023, the company now expects global system-wide sales growth to be in the range of 6-8%. Adjusted EBITDA is projected in the band of $530-$540 million. Adjusted EPS for 2023 is anticipated to be in the range of $0.95-$1.
The company anticipates cash flow from operations to be in the band of $340-$360 million, while capital expenditures are projected between $75 million and $85 million. Free cash flow is anticipated to be $265-$275 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
At this time, Wendy's has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Wendy's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Wendy's belongs to the Zacks Retail - Restaurants industry. Another stock from the same industry, Domino's Pizza (DPZ), has gained 7.3% over the past month. More than a month has passed since the company reported results for the quarter ended December 2022.
Domino's Pizza reported revenues of $1.39 billion in the last reported quarter, representing a year-over-year change of +3.7%. EPS of $4.43 for the same period compares with $4.25 a year ago.
Domino's Pizza is expected to post earnings of $2.62 per share for the current quarter, representing a year-over-year change of +4.8%. Over the last 30 days, the Zacks Consensus Estimate has changed -2%.
Domino's Pizza has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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