Why Wendy's Stock Dropped Today
What happened
Shares of The Wendy's Company (NASDAQ: WEN) fell on Wednesday, following the release of the fast-food chain's first-quarter earnings results. As of 3 p.m. ET, Wendy's stock price was down more than 10%.
So what
Wendy's revenue rose 6.2% year over year to $488.6 million. The gains were driven in part by the restaurant-company's acquisition of 93 previously franchised locations in Florida.
Wendy's same-store sales grew by 2.4% globally, including a 1.1% increase in the U.S. This muted comp growth, however, wasn't enough to offset higher commodity and labor costs. These costs, combined with expenses related to Wendy's expansion in the United Kingdom, drove a 5.4 percentage-point decline in its company-operated restaurant margin to 11.6%.
Wendy's operating profit, in turn, fell 9.9% to $74.9 million. Adjusted earnings per share, meanwhile, declined by 15% to $0.17.
Cost inflation took a bite out of Wendy's profits. Image source: Getty Images.
Now what
CEO Officer Todd Penegor said Wendy's remains on track to achieve its target store-count growth rate of 5% to 6% in 2022. Management also reiterated other aspects of its full-year guidance, including:
- Global systemwide sales growth of 6% to 8%
- Adjusted earnings per share of $0.82 to $0.86
- Free cash flow of $215 million to $225 million
Wendy's robust cash generation is allowing it to return capital to shareholders via dividends and stock buybacks. In April, Wendy's board of directors boosted its share-repurchase authorization by $150 million to a total of $250 million.
Wendy's shares are now yielding more than 3% and the company is ramping up its share repurchases. As a result, its sizable capital-return program could help to stabilize its stock price after today's decline.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
