The Wendy's Co.
) recently reported its preliminary fourth quarter and full year
2013 results that were above expectations. The company also
provided an improved outlook for 2014 that resulted in a 6.4%
increase in share price on Jan 13, 2014. The company
retained its long-term view. Wendy's is scheduled to report its
detailed financial results on Feb 27, 2014.
Fourth-Quarter Prelim Numbers
The company's fourth-quarter 2013 adjusted earnings is likely to
be in the range of 10 cents to 11 cents per share, above the year
ago figure of 9 cents per share and also the Zacks Consensus
Estimate of 6 cents, attributable to strong margins.
Total revenue in the fourth-quarter declined 6.0% year over year
to $592.4 million. The top line also fell short of the Zacks
Consensus Estimate of $615.0 million. The downside reflects
reduction in the number of company-operated restaurants as a
result of the company's system optimization initiative.
The company experienced growth in comps during the quarter driven
by successful promotions of Pretzel Pub Chicken sandwich and
Bacon Portabella Melt on Brioche. Comps at North America
company-operated restaurants were up 3.1%, much better than a
decline of 0.2% in the prior year quarter. Meanwhile, franchised
units saw a 2.8% rise in comps compared to a decline of 0.6% in
the prior-year quarter.
Also, the company experienced increase in franchise royalties and
rental income that also contributed to the top line.
Adjusted earnings before interest, taxes, depreciation and
amortization (EBITDA) declined 7.2% to $89.0 million due to
higher incentive compensation, professional services and
franchise incentives. However, these were partly offset by higher
North America company-operated restaurant margins increased 40
basis points (bps) to 16.3% driven by comps growth and lower
paper and beverage costs. These were, however, partly offset by
higher commodity costs and higher repair and maintenance expense.
Full Year 2013 Numbers
The company's full year 2013 adjusted earnings are expected to be
in the range of 29 cents to 30 cents per share, higher than the
Zacks Consensus Estimate of 25 cents per share and the year-ago
figure of 17 cents.
Total revenue declined 0.7% year over year to $2.49 billion and
also fell short of the Zacks Consensus Estimate by $4.6 million.
Comps at North America company-operated restaurants were up 1.9%
compared to 1.6% in 2012. Meanwhile, franchised units saw an
increase of 1.7% in comps compared to 1.6% in the prior year
Adjusted EBITDA edged up 10.1% year over year to $367.1 million.
North America company-operated restaurant margins surged 140 bps
Improved 2014 Outlook
The company projects that its adjusted earnings will be within 34
cents - 36 cents per share in 2014, up 17%-20% year over year.
Also, the guidance was above the Zacks Consensus Estimate of 28
cents per share. Management expects adjusted EBITDA guidance in
the range of $390.0 million to $400.0 million, representing an
increase of 6.0% to 9.0% year over year.
The company expects North America company-operated restaurants
same-store sales to increase 2.5% - 3.5%, better than 1.9% in
Margins at Wendy's are expected to be within 16.8% - 17.0%,
helped by strong comps and aggressive cost-savings initiatives
taken by the company. It also reflects the impact of flat
commodity costs, as higher beef costs will be offset by lower
Capital expenditure is expected to be in the range of $280.0
million to $290.0 million.
Reaffirmed Long-Term View
The company reaffirmed its outlook for the long term. It expects
adjusted EBITDA growth in high single-digit to low double-digit
range and adjusted earnings per share growth in mid-teens over
Share Repurchase Update
During the fourth quarter and full year, the company repurchased
shares worth $28.0 million and $69.0 million, respectively. Also,
the board of directors authorized a new share repurchase program
of up to $275 million.
System Optimization Initiative
As of Dec 29, 2013, the company's total number of restaurants was
6,558, including 6,158 in North America and 400 internationally.
The company's system optimization initiative that was launched in
Jul 2013 is progressing well. As a result of this initiative, the
company sold, or has signed letters of intent to sell 384
restaurants as of the end of 2013. By second quarter of 2014, the
company expects to sell approximately 415 restaurants and earn
proceeds of approximately $235.0 million.
As per the system optimization program, the company is also
working on image activation and intends to double the pace in
2014. It plans to reimage 200 company-operated restaurants and
150 to 200 franchised restaurants.
By 2017, the company targets to re-image 85.0% of its
Wendy's is progressing steadily. Despite a sluggish sales
scenario, the decent performance on the earnings front signals
that the restaurateur is successfully transitioning itself and
working on its cost structure. Menu innovation, re-imaging of
units, net domestic unit growth and international expansion set a
more bullish tone for Wendy's for the near future.
The company presently has a short-term Zacks Rank #2 (Buy). Some
other stocks worth considering include
Fiesta Restaurant Group, Inc.
The Cheesecake Factory Incorporated
Cracker Barrel Old Country Store, Inc.
). While Fiesta Restaurant Group carries a Zacks Rank #1 (Strong
Buy), The Cheesecake Factory and Cracker Barrel carry a Zacks
Rank #2 (Buy).
CHEESECAKE FACT (CAKE): Free Stock Analysis
CRACKER BARREL (CBRL): Free Stock Analysis
FIESTA RESTRNT (FRGI): Free Stock Analysis
WENDYS CO/THE (WEN): Free Stock Analysis
To read this article on Zacks.com click here.