Wendy's (WEN) Stock Down as Q1 Earnings & Revenues Miss

The Wendy's Company WEN reported first-quarter fiscal 2022 results, wherein earnings and revenues missed the Zacks Consensus Estimate. The bottom line lagged the consensus mark after beating the same for four consecutive quarters. Following the quarterly results, the company’s shares declined 11.2% on May 11.

Q1 Earnings & Revenues

During the fiscal first quarter, the company reported adjusted earnings of 17 cents per share that lagged the Zacks Consensus Estimate of 18 cents. However, the bottom line fell 15% year over year from adjusted earnings per share (EPS) of 20 cents reported in the prior-year quarter.

Quarterly revenues of $488.6 million fell short of the consensus mark of $496 million. However, the top line increased 6.2% on a year-over-year basis. The upside was primarily driven by an increase in sales at company-operated restaurants, which benefited from the acquisition of 93 franchise-operated restaurants in Florida in fourth-quarter 2021.

During the quarter under review, same-restaurant sales at International restaurants (excluding Venezuela and Argentina) rose 14.1% year over year compared with growth of 7.9% in the year-ago quarter. Comps at Global restaurants rose 2.4% year over year compared with a 13% increase reported in the prior-year quarter. Comps in the United States witnessed an improvement of 1.1% year over year compared with an increase of 13.5% in the prior-year quarter.

In the quarter under review, Wendy’s inaugurated 93 restaurants globally, reflecting an increase of 67 net new units.

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 first quarter, global system-wide sales — including company-operated and franchise restaurants — were nearly $3.1 million, up 4.1% year over year. During the quarter under review, system-wide sales in the U.S. and the International segments were approximately $2.7 million and $0.4 million, up 2.5% and 18.4% year over year, respectively.

Operating Highlights

During the fiscal first quarter, the company-operated restaurant margin came in at 11.6%, compared with 17% in the year-ago quarter. The downside was primarily due to a higher labor rate, increase in commodity costs and decline in customer counts.

General and administrative expenses in the quarter were $62.3 million compared with $52.6 million in the prior-year quarter. This was primarily on account of higher salaries.

Quarterly operating profit amounted to $74.9 million, down 9.9% from the year-ago quarter. The decline was primarily due to a rise in general and administrative expenses and a decline in company-operated restaurant margin.

Net income during the fiscal first quarter was $37.4 million, down 9.6% from $41.4 million reported in the year-ago quarter. The downside was primarily due to a decrease in operating profit.

Adjusted EBITDA during the quarter totaled $106.9 million, down 11.6% from $121 million reported in the prior-year quarter. The downside was primarily due to a rise in general and administrative expenses and a decrease in company-operated restaurant margin. However, this was partially offset by higher franchise royalty revenues and fees.

Balance Sheet

Cash and cash equivalents as of Apr 3, 2022, totaled $741.2 million compared with $249.4 million on Jan 2, 2022. Inventories at the end of the fiscal first quarter amounted to $5.9 million, flat year over year. As of Apr 3, 2022, long-term debt was $2,836.8 million compared with $2,356.4 million at the end of Jan 2, 2022.

The company declared a quarterly dividend to 12.5 cents per share (or 50 cents annually) from the previous payout of 12 cents (or 48 cents annually). The dividend will be paid out on Jun 15, 2022, to shareholders on record as of Jun 1, 2022. In the first quarter, the company repurchased 0.7 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 million to $505 million. Adjusted EPS for 2022 is anticipated to be 82-86 cents, down from the prior estimate of 87-91 cents. The Zacks Consensus Estimate for 2022 earnings is pegged at 87 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).

Some better-ranked stocks in the same space are BBQ Holdings, Inc. BBQ, Jack in the Box Inc. JACK and Arcos Dorados Holdings Inc. ARCO.

BBQ Holdings sports a Zacks Rank #1 (Strong Buy). BBQ Holdings has a long-term earnings growth of 14%. Shares of the company have increased 38.9% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for BBQ Holdings' 2022 sales and EPS suggests growth of 40.9% and 66.2%, respectively, from the year-ago period's levels.

Jack in the Box carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 11.8%, on average. Shares of the company have declined 32.5% in the past year.

The Zacks Consensus Estimate for JACK’s current-year sales suggests growth of 5%, from the year-ago period's levels.

Arcos Dorados carries a Zacks Rank #2. Arcos Dorados has a long-term earnings growth of 31.3%. Shares of the company have surged 13.1% in the past year.

The Zacks Consensus Estimate for Arcos Dorados' 2022 sales and EPS suggests growth of 16.6% and 66.7%, respectively, from the year-ago period's levels.

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