Wendy’s Stock: High-Yielder Reported Q1 Earnings Beat
May 10, 2024
Why WEN Stock Has Big Potential
The restaurant industry took a beating during the 2020 COVID-19 crisis, and some wondered if it would ever fully bounce back. It has, at least for restaurants with strong brand awareness that changed with the times. That includes Wendy’s Co (NASDAQ:WEN).
In 2020, the U.S. restaurant industry had total sales of $659.0 billion. That was $204.0 billion lower than its 2019 figure of $863.0 billion.
Things have been slowly turning around, though. In 2024, U.S. restaurant sales are projected to top $1.0 trillion for the first time in history. (Source: “2024 State of the Restaurant Industry,” National Restaurant Association, February 5, 2024.)
Not every restaurant will ride the wave, though. Some restaurant owners have been using technology more than others to tackle tough competition, reduce labor, cut costs, and boost business.
Thanks to stubbornly high inflation and record-high U.S. household debt, nearly half of U.S. consumers are more value-conscious than they were before. On the plus side, nine out of 10 adults say they enjoy going to restaurants. The restaurants that offer good deals could bring customers out of the shadows.
That’s where Wendy’s Co comes in. The Dublin, Ohio-based company operates, develops, and franchises quick-service restaurants around the world. The brand is best known for its made-to-order square hamburgers and its “Frosty” dessert.
The fast-food company operates through three segments: Wendy’s U.S., Wendy’s International, and Global Real Estate & Development. (Source: “Wendy’s Co,” Reuters, last accessed May 8, 2024.)
The Wendy’s U.S. segment operates and franchises “Wendy’s” restaurants in the U.S. The Wendy’s International segment operates and franchises Wendy’s restaurants outside the U.S. The Global Real Estate & Development segment involves “real estate activity for owned sites and sites leased from third parties, which are leased and/or subleased to franchisees.”
Wendy’s and its franchisees operate about 7,000 restaurants worldwide. (Source: “The Wendy’s Company Reports First Quarter 2024 Results,” Wendy’s Co, May 2, 2024.)
Wendy’s Co Built Momentum in 1st Quarter
Digital acceleration, a growing business footprint, same-restaurant store growth, an advertising blitz, and industry tailwinds have been helping Wendy’s achieve solid financial results.
In the first quarter, the company’s sales inched up by 1.1% year-over-year to $534.8 million. Its global same-restaurant sales growth was 0.9%. (Source: Ibid.)
While inflation and high prices have been keeping some customers at home, Wendy’s noted that its first-quarter digital sales jumped by 30% year-over-year. (Source: “First Quarter 2024 Conference Call,” Wendy’s Co, May 2, 2024.)
Moreover, the monthly active users on the company’s digital app grew by 40% quarter-over-quarter to six million. (Source: “Wendy’s Credits Loyalty Program, Mobile App Investments for Customer Growth,” Restaurant Dive, May 7, 2024.)
“We delivered global same-restaurant sales growth, which accelerated by 120 basis points on a two-year basis versus the previous quarter,” said Kirk Tanner, Wendy’s Co’s CEO. “This was driven in part by high-single digit year-over-year U.S. breakfast sales growth and global digital sales mix of nearly 17%.” (Source: “The Wendy’s Company Reports First Quarter 2024 Results,” Wendy’s Co, May 2, 2024, op. cit.)
The burger chain’s first-quarter net income climbed by 5.5% year-over-year to $42.0 million, or $0.20 per share. Its adjusted earnings per share (EPS) beat analyst estimates, jumping by 9.5% year-over-year to $0.23.
The company’s cash flow from operations jumped by 88.7% year-over-year to $100.0 million, while its free cash flow (FCF) slipped by 4.6% year-over-year to $60.8 million. The decrease in FCF was mainly a result of the company’s investment in advertising its breakfast meals.
Wendy’s Co’s advertising fund revenues were $104.9 million in the first quarter, up from $101.4 million in the same period last year. Its franchise royalty revenues were $125.7 million, up from $122.2 million in the first quarter of 2023.
Commenting on the results, Tanner said, “The momentum we built across our business in the first quarter puts us on track to achieve our 2024 outlook and on the path toward unlocking the full potential of the powerful Wendy’s brand.” (Source: Ibid.)
Management Reaffirmed 2024 Outlook
Despite the spending pressure that many consumers are experiencing these days, Wendy’s Co still expects to achieve the following in 2024:
- Global systemwide sales growth of five to six percent
- Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $535.0 to $545.0 million
- Adjusted EPS of $0.98 to $1.02
- Cash flow from operations of $370.0 to $390.0 million
- Capital expenditures of $90.0 to $100.0 million
- FCF of $280.0 to $290.0 million
(Source: Ibid.)
Wendy’s Stock Pays Cash Dividends of $0.25 Per Share
Thanks to a history of generating high FCF, Wendy’s has been able to provide investors with reliable dividends. Wendy’s has paid distributions for 22 years and raised its payouts for the last four years. (Source: “Dividend History,” Wendy’s Co, last accessed May 8, 2024.)
In early May, the company declared a quarterly dividend of $0.25 per share, to be paid on June 17. (Source: “The Wendy’s Company Reports First Quarter 2024 Results,” Wendy’s Co, May 2, 2024, op. cit.)
As of this writing, that translates to an inflation-thumping yield of 5.22%, which is more than twice WEN stock’s five-year average dividend yield of 2.49%.
A high dividend yield often comes at the expense of a low share price, but that isn’t the case with Wendy’s Co. Trading at $19.50 as of this writing, Wendy’s stock is up by six percent over the last month and 6.5% over the last six months.
Chart courtesy of StockCharts.com
WEN stock is down from its June 2021 record high of $26.73, but Wall Street analysts believe the stock has what it takes to hit fresh highs over the coming quarters. They’ve provided a 12-month share-price target of $21.00 to $29.00 per share. That points to potential gains from Wendy’s stock in the range of about eight percent to 49%.
The Lowdown on Wendy’s Co
Wendy’s is the second-largest quick-service restaurant company in the U.S. and one of the most recognized fast-food brands in the world.
Despite a tough economic climate, the company was able to report decent first-quarter results, which included an adjusted earnings beat, global same-restaurant store growth, and significant increases in digital sales and digital active monthly users.
These developments helped management maintain its full-year guidance, which includes growth in global sales, adjusted earnings, and FCF. Note that Wendy’s Co uses its FCF to pay dividends, buy back its own shares, and reduce its debt.
As such, the company should be able to continue providing WEN stockholders with reliably growing, high-yield dividends.
