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Wendy's (WEN) Stock Down on Q4 Earnings & Revenue Miss

The Wendy's Company WEN reported fourth-quarter fiscal 2020 results, wherein earnings and revenues missed the Zacks Consensus Estimate. However, the bottom and the top line grew year over year.
 
Following the earnings release, shares of the company dropped 5.5% during trading hours on Mar 3 as lower-than-expected revenues and earnings hurt investor sentiments.

Delving Deeper

During the fiscal fourth quarter, the company reported adjusted earnings of 17 cents per share, up 112.5% year over year. However, it missed the Zacks Consensus Estimate of 18 cents by 5.6%.

Quarterly revenues of $474.3 million missed the consensus mark of $480.3 million. However, the top line increased 11% on a year-over-year basis. The increase can be primarily attributed to higher sales at company-operated restaurants along with a rise in franchisee royalty revenue and fees.

Meanwhile, same-restaurant sales at International restaurants (excluding Venezuela and Argentina) declined 2.3% against 2.7% growth in the year-ago quarter. Comps at Global restaurants grew 4.7% compared with 4.3% growth in the prior-year quarter. Moreover, comps in the United States witnessed 5.5% growth compared with 4.5% growth in the year-ago quarter.

The Wendys Company Price, Consensus and EPS Surprise

 

The Wendys Company price-consensus-eps-surprise-chart | The Wendys Company Quote

System-Wide Sales Discussion

Global system-wide sales — including company-operated and franchise restaurants — were $3.1 million in the reported quarter, up 13.3% from the prior-year quarter. U.S. system-wide sales were $2.8 million in the quarter, up 14.2% year over year. However, system-wide sales in the International segment amounted to $0.3 million in the quarter, up 16% from the prior-year quarter level.

Operating Highlights

Company-operated restaurant margin was 17.6% in the reported quarter compared with 14.3% in the year-ago quarter. The increase was primarily attributed to higher average check and lower insurance costs. However, this was partially offset by customer count declines due to the pandemic and higher commodity costs.

General and administrative expenses in the quarter were $59.3 million, up 10% from $53.9 million recorded in the prior-year quarter. The increase was primarily due to higher professional fees owing to IT-related costs as well as the impact of the 53rd operating week. The gain was overshadowed by decline in travel-related expenses.

Quarterly operating profit amounted to $78.6 million, up 114.2% from the year-ago quarter’s reported figure. The increase was primarily attributed to higher franchise royalty revenue and fees, lower franchise support and lower reorganization and realignment costs along with an increase in company-operated restaurant margin. However, this was partially offset by a rise in breakfast advertising ($6.3 million) and higher general and administrative expenses.

Net income during the fiscal fourth quarter rose 46% to $38.7 million, compared with $26.5 million in the year-ago quarter. The increase was mainly due to a rise in operating profit.

Adjusted EBITDA during the quarter came in at $114.5 million, up 37.3% from $83.4 million in the prior-year quarter. The increase was backed by higher franchise royalty revenue and fees, lower franchise support and other costs, and an increase in company-operated restaurant margin, partially offset by investment in breakfast advertising and higher general and administrative expenses.

Balance Sheet

Cash and cash equivalents as of Jan 3, 2021, were $307 million compared with $300.2 million on Dec 29, 2019.

Inventories at the end of the fourth quarter amounted to $4.7 million, up from $3.9 million at 2019-end. Long-term debt was $2218.2 million as of Jan 3, 2021, compared with $2,257.6 million on Dec 29, 2019.

On Feb 23, the company declared a 29% increase in its regular quarterly cash dividend to 9 cents per share.

As of Jan 3, 2021, the company has approximately $58 million under its existing share repurchase authorization ($100 million) that expires in February 2022.

Other Developments

In the quarter under review, Wendy’s had 51 global restaurant openings with an increase of 14 net new unit. The company is likely to open restaurants in the U.K. in the first half of 2021.

2020 Highlights

Total revenues in 2020 came in at $1,733.8 million compared with $1,709.0 million in 2019, up 1.5%.

In 2020, operating margin slightly surged to 15.5% from 15.4% in 2019.

Total cash flow from operation activities decreased to $284.4 million from $288.9 million in 2019.

Adjusted earnings per share in 2020 came in at 57 cents, down from 59 cents in 2019.

2021 Outlook

For 2021, the company expects global system-wide sales growth in the range of 6% to 8%. Adjusted EBITDA is projected in the band of $445-$455 million and adjusted earnings per share for 2020 in the range of 67 cents to 69 cents. The company expects cash flow from operations in the band of $310 million to $330 million, while capital expenditure is expected between $80 million and $90 million and free cash flow between $230 million and $240 million.

Zacks Rank

Wendy's — shares space with Jack in the Box Inc. JACK, BJ's Restaurants, Inc. BJRI and Brinker International, Inc. EAT in the Zacks Retail – Restaurants industry — currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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