The Wendy's Co.
) recently posted second quarter 2012 adjusted earnings of 5 cents
per share, in line with the Zacks Consensus Estimate as well as the
year-ago earnings per share. On a GAAP basis, the company reported
loss of a penny per share, as against the year-ago quarter's
earnings of 3 cents per share.
Total revenue in the quarter under review inched up 3.8% year over
year to $645.9 million, which fell short of the Zacks Consensus
Estimate of $648.0 million. An increase in average check
facilitated sales growth.
Wendy's North American company-operated same-store sales increased
3.2%, representing the fifth consecutive quarter of positive
same-store sales at the company-operated outlets. Franchise
same-store sales rose 3.2%.
The rollout of Dave's Hot 'n Juicy Cheeseburgers in many markets,
along with the introduction of Spicy Guacamole Chicken Club
sandwich and premium Signature dishes as a part of its brand
repositioning program helped drive the quarterly comps. Further,
improvements in the existing core products, such as premium salads,
French fries and sandwiches ensured value proposition and aided the
company's second-quarter comps.
Company-operated restaurant margins expanded 20 basis points (bps)
to 14.1%, buoyed by an improved same-store as well as beneficial
product mix, partially offset by increased spending towards labor
and higher commodity costs mainly beef.
Wendy's ended the quarter with cash and cash equivalents of $435.0
million, long-term debt of around $1.4 billion and shareholders'
equity of around $2.0 billion.
The company did not buy back any share in the quarter. However, it
rewarded the stock holders in the form of dividend payments
amounting to $7.8 million.
Wendy's opened 13 franchised restaurants in the quarter and shut
down 19 company-owned and 28 franchised restaurants. At the end of
the quarter, Wendy's had 6,547 restaurants worldwide.
The company also closed the acquisition of 30 franchise units in
Austin, Texas during the second quarter. In July, Wendy's again
purchased 24 franchised units in the Albuquerque, New Mexico area.
For 2012, management continues to believe that the Wendy's chain
will generate adjusted EBITDA in the range of $320-$335 million.
Beyond 2012, annual adjusted EBITDA growth is expected to be in the
high-single digit to low-double digit range.
Wendy's benefited from the reimaging program undertaken in 2011.
For 2012, approximately 50 additional company-operated restaurants
are expected to undergo a face-lift and a substantially higher
number of company-owned and franchise units are slated for a revamp
in 2013 and beyond. Wendy's also plans to unveil 20 new
company-operated restaurants, among which at least 17 units will be
opened in a reimaged suit.
Following the considerable success achieved from the reimaged
restaurants, management plans to speed up overhaul activity in
2013, and intends to refurbish around 50% of company-operated
restaurants by 2015.
The company also plans to merge its Atlanta restaurant support
center with the Dublin, Ohio restaurant support center in late
2012, that will likely involve $23 million cost of consolidation.
Wendy's repositioning efforts seem to be paying off. In addition to
reimaging restaurants and upgrading menus, the company is taking
resort to other initiatives. Notable among these are the expansion
of the breakfast line-up to a new market, day part extension,
rollout of high-quality coffee offering, promotion of limited-time
offers, closure of underperforming units and franchisee
The year 2012 is considered to be Wendy's transitional year. In an
inflationary environment, we like the company's focus on
supply-chain improvement to combat the commodity cost pressure.
However, Wendy's faces stiff competition from industry biggies like
Yum! Brands Inc.
) in both domestic and international market places. The company is
expected to incur a high pre-opening cost associated with the
reimaging activities in the latter half of 2012.
At the current level, we prefer to remain on the sidelines as we
believe all its above-said initiatives need sometime before they
fully pay off.
Currently, Wendy's retains a Zacks #3 Rank, which translates into a
short-term Hold rating. We maintain our long-term Neutral
recommendation on the stock.
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