Operations

Wendy’s boosts Q3 sales and margins, raises dividend

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November 4, 2020

The Wendy's Co. revenues for the third quarter ending Sept. 27, 2020, were $452.2 million, a 3.3% gain over the $437.9 million for last year's third quarter, yielding net income of $39.8 million, a 13.7% decline from the prior year's $46.1 million, according to a company earnings release.

Same restaurant global sales rose 6.1%, exceeding the 5.4% expected, while restaurant margin rose to 16.9% of sales, beating 15.8% expectations, according to Seeking Alpha. Company operated restaurant margin also increased by 0.7% from 16.2% to 16.9% for this year's third quarter, according to the earnings report.

"In addition to these very strong sales, our restaurant economic model continues to strengthen, with company-operated restaurant margin expansion compared to the prior year, despite significant commodity headwinds," President and Chief Executive Officer Todd Penegor said in the press release. "We remain focused on our goal of delivering efficient, accelerated growth behind our three major long-term growth pillars: building our breakfast daypart, growing our digital business, and expanding our international footprint. With the momentum we have in our business, I am more confident than ever that we will achieve our vision of becoming the world's most thriving and beloved restaurant brand."

Adjusted earnings per share was flat at 19 cents compared to last year's third quarter, while diluted EPS was 17 cents, a 15% decline from last year's 20 cents.

The company announced a 40% increase in its regular quarterly cash dividend to 7 cents per share, payable on Dec. 15, 2020 to shareholders of record as of Dec. 1, 2020. The company believes its strengthening liquidity position, along with the momentum it is seeing in its business, supports this increase, while still leaving flexibility to invest in growth.

Shares traded at $21.79 Wednesday on a 52-week range of $6.82-$24.91.

The increase in company-operated restaurant margin was primarily the result of a higher average check and lower than expected local advertising spend. The increase was partially offset by customer count declines as a result of the COVID-19 pandemic, higher commodity costs and labor rate increases.

Adjusted revenue was $367.5 million for the quarter, a 4.76% gain over last year's $351.1 million.

The increase in revenues and adjusted revenues was primarily driven by higher sales at company-operated restaurants and by an increase in franchisee royalty revenue and fees, according to the company earnings release. These were driven by an increase in same-restaurant sales which benefited from the positive impact of the company's new breakfast daypart in the U.S.

Flat adjusted earnings per share was impacted by an increase in adjusted EBITDA that was offset by the impact of a higher tax rate primarily as the result of a tax reserve release the company recognized in Q3 2019.

The decrease in net income resulted primarily from a higher provision for income taxes due to the impacts of a lower tax rate in the prior year, primarily as the result of a tax reserve release the company recognized in Q3 2019.

Operating profit rose 2.9% from $79 million to $81.3 million over last year's third quarter, primarily from higher franchise royalty revenue and fees, lower franchise support and other costs, and an increase in company-operated restaurant margin, partially offset by an incremental company investment in breakfast advertising of $6.2 million, higher reorganization and realignment costs and a decrease in net rental income.

The higher reorganization and realignment costs relate primarily to a new operations and field realignment plan that was initiated in September 2020. The plan realigns the operations team, including transitioning from separate leaders of company and franchise operations to a single leader of all U.S. restaurant operations. The company also expects to incur contract termination charges, including the planned closure of certain field offices.

As previously announced, due to the current unprecedented global market and economic conditions, the company withdrew its outlook for the 2020 fiscal year and its 2021-2024 long-term outlook. The company intends to provide an updated financial outlook when it can reasonably estimate the impact of the COVID-19 pandemic or when more stable market conditions resume.