Shares of The Wendy's Company WEN have declined 12.8% year to date (YTD), compared with the industry’s decrease of 2.1%. The decline can be attributed to commodities costs and reduced customer count.
The situation with commodities hasn't shifted much. The company is still seeing inflationary pressures on beef and fries. While WEN intends to strategically adjust, select menu prices and product offerings to mitigate the challenges, potential delays in implementation and competitive pressures may hinder its ability to offset cost increases fully. For the fiscal 2024, the company projects labor inflation to be in the 3-5% range.
Efforts to Bring the Stock Back on Track
The company is focusing on expansion efforts to drive growth. For fiscal 2024 and 2025, the company anticipates global net unit growth in the range of 2% and 3-4%, respectively, year over year. Wendy’s European expansion is picking up speed. The company announced that it will be entering the Republic of Ireland and Romania, with experienced franchisees set to start opening restaurants in 2025.
Robust comparable sales growth is likely to aid the company. In the fiscal second quarter, same-restaurant sales at international restaurants (excluding Argentina) rose 2.5% year over year compared with 7.2% in the year-ago period. Comps at global restaurants inched up 0.8% year over year compared with 5.1% in the prior-year quarter. Comps in the United States registered a 0.6% year-over-year improvement compared with 4.9% in the year-ago quarter.
Furthermore, emphasis on introducing innovative offerings and providing compelling value propositions to enhance customer satisfaction and sustain restaurant margins are expected to drive performance throughout the year. For fiscal 2024, the company expects global same-restaurant sales growth to be in the 1-3% range.
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This Zacks Rank #3 (Hold) company is poised to accelerate its digital business after making substantial strides in the digital journey, witnessing digital sales growth from less than $250 million in 2019 to nearly $2 billion in 2023. The advantages of increased frequency and transactions facilitated by digital channels are apparent, with significant potential remaining to unlock digital sales growth and seize margin expansion opportunities.
In the fiscal second quarter, the company reported growth in digital sales globally, with a more than 40% increase year over year. International markets, including the United Kingdom, Canada and APMEA, reported strong digital adoption. In the United States, digital sales surged 40% year over year, bolstered by initiatives to enhance mobile ordering and delivery channels. WEN’s international digital sales grew more than 30% in second-quarter 2024.
Conclusion
Investors currently holding Wendy’s stock might consider maintaining their positions given the company’s strategic expansion plans and digital growth potential. However, new investors should be cautious. The stock’s recent performance, ongoing commodity cost pressures and the slower-than-expected recovery in same-restaurant sales suggest that a fresh buy could be risky at this time.
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Today, See These 5 Potential Home Runs >>Texas Roadhouse, Inc. (TXRH) : Free Stock Analysis Report
The Wendy's Company (WEN) : Free Stock Analysis Report
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