The Wendy's Company ( WEN ) recently reported
its first-quarter 2013 adjusted earnings of 3 cents per share,
beating the Zacks Consensus Estimate of 2 cents. Quarterly earnings
also surpassed the comparable year-ago quarter's earnings of one
cent per share. Earnings in the quarter were helped by Wendy's
top-line growth and margin expansion in company-operated
restaurants. The company's 'Right Price, Right Size Menu'
initiative also pushed up quarterly earnings.
Quarterly revenues increased 1.8% year over year to $603.7
million, but fell short of the current Zacks Consensus Estimate of
$611.0 million by 1.2%. Amid a sluggish industry sales environment,
the company's positive comparable restaurant sales (comps), higher
sales gain from the new unit openings and traffic growth drove the
top-line in the quarter.
Comps at North America company-operated restaurants grew 1%,
driven by product mix, better pricing and Wendy's Image Activation
programs. However, comps in the quarter were adversely affected by
the early Easter, adverse weather conditions, lower transactions,
and termination of breakfast operation.
Wendy's Franchise sales declined 0.3% to $73 million. Franchise
comps in North America were up only 0.6% during first-quarter.
North American company-operated restaurant margins expanded 100
basis points (bps) to 12.8%, driven by improved comps, better
pricing as well as product mix, lower beverage cost and decreased
breakfast advertising expenses, offset by a 90 bps rise in
Adjusted EBITDA rose 21% to $77.3 million owing to higher
restaurant margin and reduced general and administrative costs.
Since the starting of Wendy's Image Activation program, it has
launched 86 new as well as restored restaurants. At the end of the
quarter, the company was operating 6,500 restaurants worldwide.
Wendy's has recently raised its earnings guidance for 2013.
Wendy's projects that its adjusted earnings per share will be
within 20 cents - 22 cents, up from the previous estimate of 18
cents - 20 cents. Earnings, which are expected to be up 18%-29%
year over year, will benefit from the company's debt refinancing
However, management has reiterated its adjusted EBITDA guidance
of $350 - $360 million.
Wendy's continues to expect that the average comps in North
America company-operated restaurants will grow by 2% - 3%.
Margins at Wendy's are projected to be within 14.2% - 14.5%, led
by higher comps, sales gain from Image Activation initiative, and
favorable cost-effective initiatives. However, margins in the
quarter are expected to be adversely affected by 90 - 120 bps
increase in commodity costs.
On the expansion front, management plans to open 25
company-owned and 40 franchise units in North America. The company
is also planning to unveil nearly 60 franchisee and joint-venture
outlets overseas. Further, the company plans to shut down 90 - 100
franchised as well as 20-300 company-operated restaurants in North
America and 15 -20 restaurants overseas. The company's guidance
also includes the revamping of 600 restaurants by 2015.
Wendy's' year-over-year increase in revenues, earnings as well
as margin improvement is impressive. Wendy's has initiated a
multi-year turnaround plan to improve its restaurant operating
margins, reinvigorate brands, revitalize comps and expand
internationally. The company is also focused on enhancing
shareholder value through dividends and share repurchases.
However, although Wendy's' repositioning efforts seem to be on
track, the turnaround process is yet to pay off. Along with this,
food cost inflation is expected to remain a headwind for the
Currently, Wendy's retains a Zacks Rank#1 (Strong Buy). Some
other restaurateurs like McDonald's Corp. ( MCD ) missed our
estimates on both lines this season while Yum! Brands
Inc. ( YUM
) beat earnings but missed out on revenues. Another company,
The Cheesecake Factory Inc. ( CAKE ) was ahead of
estimates on both counts.CHEESECAKE FACT (CAKE): Free Stock Analysis
ReportMCDONALDS CORP (MCD): Free Stock Analysis
ReportYUM! BRANDS INC (YUM): Free Stock Analysis
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