The Wendy's Co.
) witnessed an 8.2% surge in share prices to $7.23 on Jul 23,
2013 on announcement of strong preliminary second-quarter 2013
results and a dividend hike. The company is scheduled to report
its detailed financial results on Aug 7, 2013.
The company's second-quarter 2013 adjusted earnings of 8 cents
per share beat the Zacks Consensus Estimate of 6 cents by 33.3%
and the year-ago earnings per share of 5 cents by 60%. Margin
expansion led to solid earnings. Wendy's has in fact delivered
positive earnings surprises of 50% and 100% in the previous two
Total revenue in the second-quarter inched up 0.7% to $650.5
million but fell short of the Zacks Consensus Estimate of $655.0
million. The slight year-year-year growth in revenues can be
attributed to improved company-owned sales while franchise sales
were almost flat. Same-restaurant sales nudged up 0.4% in the
second quarter while franchised units saw a 0.3% rise in comps.
Adjusted earnings before interest, taxes, depreciation and
amortization (EBITDA) rose 15% to $102.1 million owing to high
restaurant margin and reduced general and administrative costs.
North America company-operated restaurant margins expanded 260
bps to 16.7% leveraging a number of initiatives that were put
into effect last year. A favorable sales mix, improved labor
management, decreased breakfast advertising expenses and lower
paper costs contributed to margin expansion.
The company hiked its cash dividend by 25% to 5 cents per share
from 4 cents per share paid previously. This equates to an annual
pay out of 20 cents per share payable on Sep 17, 2013, to
shareholders of record as of Sep 3, 2013. The company's forward
annualized dividend yield becomes 2.77% as of Jul 23, 2013.
Prior to this, during the fourth quarter of 2012, the company
hiked its cash dividend by 100% to 4 cents per share from 2 cents
per share paid previously. Such a shareholder friendly step
pushed up the stock price.
On the guidance front as well, Wendy's soothed investors' nerve.
Wendy's expects average comps in company-operated restaurants in
North America to grow 2% - 3% for 2013. Comps will increase in
the second half of the year.
It also expects increased year-over-year profitability in the
second half of 2013. Margins at Wendy's are projected within a
range of 14.2% - 14.5% for 2013 and will be led by higher comps
gain from the re-imaging initiative and cost-saving
The company reaffirmed its adjusted earnings per share
guidance in the range of 20-22 cents and EBITDA guidance in the
range of $350-$360 million, representing a 5% - 8% year-over-year
On the expansion front, management plans to open 25 company-owned
and 40 franchised units in 2013. The company is also planning to
unveil nearly 60 franchisee and joint-venture outlets overseas.
Further, the company plans to shut down 90-100 franchise
restaurants and 20-30 company-operated restaurants in North
America and 15-20 restaurants overseas. Wendy's also plans to
re-image 100 company-operated restaurants. Capital expenditure
will likely be about $245 million in 2013. The company's
long-term guidance also includes the revamping of 600 restaurants
Wendy's is progressing slowly but steadily. Despite a sluggish
sales scenario, the continued decent performance on the earnings
front signals that the restaurateur is successfully transitioning
itself. Menu innovation, re-imaging of units, net domestic unit
growth and international expansion as well as streamlining of the
cost structure will likely set a more bullish tone for Wendy's in
the near future.
Wendy's currently carries a Zacks Rank #1 (Strong Buy). Some
other companies from the restaurant sector that are worth a look
AFC Enterprises Inc.
The Cheesecake Factory Inc.
Dunkin' Brands Group Inc.
) all carrying a Zacks Rank #2 (Buy).
AFC ENTERPRISES (AFCE): Free Stock Analysis
CHEESECAKE FACT (CAKE): Free Stock Analysis
DUNKIN BRANDS (DNKN): Free Stock Analysis
WENDYS CO/THE (WEN): Free Stock Analysis
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