Mixed 4Q for Wendy's - Analyst Blog
March 01 2013 - 7:50AM
Zacks
The Wendy's
Company (WEN) recently reported its fourth-quarter 2012
adjusted earnings of 9 cents per share, ahead of the Zacks
Consensus Estimate as well as the year-ago earnings per share of 4
cents.
In 2012, the company’s adjusted
earnings per share were 17 cents, which was in line with the Zacks
Consensus Estimate but ahead of the year-ago quarter’s earnings of
15 cents per share.
Total revenues in the fourth
quarter climbed 2.4% annually to $629.9 million, but fell short of
the current Zacks Consensus Estimate of $638.0 million. The
revenues in the quarter have gained from the company’s new
acquisitions and unit openings. In 2012, total revenues increased
3% year over year to nearly $2.51 billion.
Operational
Highlights
Wendy’s Franchise sales declined
0.8% to nearly $76 million. Same-store sales at North America
Company-operated restaurants declined 0.2% versus a rise of 5.1% in
the year-earlier quarter. Wendy’s North America Franchise
same-store sales also declined 0.6%.
Company-operated restaurant margins
in the quarter rose 90 basis points (bps) to 15.9%, driven by
increased Image Activation sales and decreased breakfast
advertising expenses, which negated the adverse impact from
commodity cost inflation.
Adjusted EBITDA rose 19% to $95.9
million owing to high restaurant margin and reduced general and
administrative costs.
Share Buyback
In the fourth quarter, Wendy’s
declared to repurchase up to $100 million worth of its common stock
through December 29, 2013.
Dividend Hike
During the quarter, the company
hiked its cash dividend by 100% to 4 cents per share from 2 cents
per share paid previously. This equates to an annual pay out of 16
cents per share.
Moreover, the company has recently
declared its quarterly dividend of 4 cents per share, which will be
paid to shareholders on March 15, 2013, of record as of March 1,
2013.
Store Update
Wendy’s opened 39 franchised and 12
owned restaurants in the quarter, and shut down 5 company-owned and
29 franchised restaurants. At the end of the quarter, the company
was operating 6,560 restaurants worldwide including 6,186
restaurants in North America.
Moreover, in 2012 the company
purchased 56 franchised restaurants and sold 30 units to
franchisees.
Outlook
Maintained
The company maintained its guidance
for the full year of 2013. Wendy’s projects that its adjusted
earnings will be within 18 cents - 20 cents per share, up 13%-25%
year over year. Management reiterated its adjusted EBITDA guidance
of $350 - $360 million.
The company expects North America
company-operated restaurants same-store sales to increase by 2% -
3%.
Margins at Wendy’s are expected to
be within 14.2% - 14.5%. The guidance for margins includes
same-store sales as well as Image Activation growth and favorable
cost-effective initiatives, which are partially offset by increased
commodity costs of 90 - 120 basis points owing to rising beef
costs.
Capital expenditure will likely be
about $245 million in 2013. Wendy’s plans to revamp 100 franchised
as well as 100 company-operated units. Additionally, the company is
planning to spend $10 million to re-image its restaurants.
On the expansion front, management
plans to open 25 company-owned and 40 franchise units. The company
is also planning to unveil nearly 60 franchisee and joint-venture
outlets overseas. Further, the company plans to shut down 90 - 100
franchise restaurants in North America and 15 -20 restaurants
overseas. The company’s guidance also includes the revamping of 600
restaurants by 2015.
Our Take
Wendy's has outlined a multi-year
turnaround plan to improve its restaurant operating margins,
reinvigorate brands, revitalize same-store sales and expand
internationally. The company also concentrates on enhancing
shareholders’ value through dividend distribution. Although Wendy’s
is striving to stand out by re-imaging restaurants, upgrading
menus, resorting to other marketing initiatives, and closing
underperforming stores, we believe all its attempts need sometime
before they fully pay off.
Currently, Wendy's retains a Zacks
Rank#3 (Hold). Another restaurateur Red Robin Gourmet
Burgers Inc.’s (RRGB) adjusted earnings in the fourth
quarter of 2012 was way ahead of the Zacks Consensus Estimate as
well as the year-ago quarter’s earnings. Red Robin Gourmet
currently carries a Zacks Rank#1 (Strong Buy).
Other restaurant companies like
Krispy Kreme Doughnuts, Inc. (KKD) and
Burger King Worldwide, Inc (BKW) both with a Zacks
Rank #2 (Buy) are expected to perform well, going ahead.
BURGER KING WWD (BKW): Free Stock Analysis Report
KRISPY KREME (KKD): Free Stock Analysis Report
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
WENDYS CO/THE (WEN): Free Stock Analysis Report
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