Wendy’s Earnings and Franchise Sales Keeping Its Turnaround Alive
Wendy's reported mixed second-quarter 2014 results before markets opened Thursday morning. Revenues were boosted by the sale of 418 company-owned stores to franchisees.
Wendy’s Co. (NASDAQ: WEN) reported second-quarter 2014 results before markets opened Thursday. The fast-food restaurant chain posted diluted earnings per share (EPS) of $0.09 on revenues of $523.4 million. In the same period a year ago, the company reported EPS of $0.08 on revenues of $650.5 million. Second-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $0.10 and $518.11 million in revenues.
The company reaffirmed its full-year guidance for adjusted EBITDA of $390 to $400 million, up between 6% and 9% from the prior year’s total. Wendy’s also expects to meet its EPS range of $0.34 to $0.36 for the full year.
At company-operated stores, same-store sales rose 3.9% year-over-year, and franchise stores saw an increase of 3.1%. Margins at company-operated stores rose 110 basis points to 17.8%, which the company attributes to higher same-store sales and the positive impact of its “system optimization initiative.” Higher commodity prices nicked 80 basis points off margins.
The company expects third-quarter temporary store closures to keep adjusted EBITDA at the same level as a year ago. By the fourth quarter, the temporary closures to update the company’s image are expected to generate a “significant year-over-year increase in adjusted EBITDA.”
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Second-quarter revenues were boosted by the sale of 418 company-owned stores to franchisees over the past 12 months, and now Wendy’s wants to sell 135 Canadian stores to franchisees.
The company’s CEO also said:
Our second-quarter Adjusted EBITDA and Adjusted Earnings Per Share growth were in line with our expectations. Also included in our expectations was a 20-percent year-over-year net reduction in revenue resulting from the franchising of 418 Company-operated restaurants during the past year. … Along with our new Canadian growth strategy, our goal of returning our U.S. restaurant system to positive net development will be a key component of our long-term strategic plan.
The consensus estimates for the third quarter call for EPS of $0.09 on revenues of $514.7 million. The current full-year 2014 consensus calls for EPS of $0.35 on revenues of $2.06 billion.
It is worth noting that in a recent survey by Consumer Reports magazine, Wendy’s was the top-rated publicly-traded burger joint, finishing ninth with a score of 6.8, compared with top-ranked The Habit’s top score of 8.1. McDonald’s Corp. (NYSE: MCD) scored 5.8 to finish last.
Wendy’s shares were up about 1.5% in premarket trading Thursday, at $8.10 in a 52-week range of $7.50 to $10.27. Thomson Reuters had a consensus analyst price target of around $9.30 before the report.
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Paul Ausick has been writing for 247Wallst.com for more than a decade. He has written extensively on investing in the energy, defense, and technology sectors. In a previous life, he wrote technical documentation and managed a marketing communications group in Silicon Valley.
He has a bachelor's degree in English from the University of Chicago and now lives in Montana, where he fishes for trout in the summer and stays inside during the winter.
