The Wendy's Company Results

The Wendy's Company Reports Second Quarter 2019 Results

Reports 3.3% Global Systemwide Sales Growth

The Wendy's Company

The Wendy's Company (Nasdaq: WEN) today reported unaudited results for the second quarter ended June 30, 2019.

"We delivered another quarter of strong earnings growth and are pleased with our continued progress to build an even stronger foundation for the Wendy's® brand," President and Chief Executive Officer Todd Penegor said. "We are executing on our plan to accelerate same-restaurant sales in North America and drive global restaurant expansion, fueled by a healthy restaurant economic model Our relentless focus on bringing every element of The Wendy's Way to life by providing food our customers love, friendly service, value, and an inviting atmosphere will continue to drive growth in the future."

Second Quarter 2019 Summary

Operational Highlights

Second Quarter

Year-to-Date

2019

2018

2019

2018

(Unaudited)

(Unaudited)

Systemwide Sales Growth (1)

North America

3.0%

2.7%

3.0%

2.7%

International(2)

10.4%

12.8%

10.2%

13.2%

Global

3.3%

3.1%

3.3%

3.2%

North America Same-Restaurant Sales Growth (1)

1.4%

1.9%

1.4%

1.8%

Restaurant Openings

North America - Total / Net

20 / 3

25 / 13

49 / 8

41 / 4

International - Total / Net

8 / 6

11 / 10

22 / 0

28 / 18

Global - Total / Net

28 / 9

36 / 23

71 / 8

69 / 22

Systemwide Sales (In US$ Millions) (3)

North America

$2,664

$2,602

$5,122

$5,006

International(2)

$140

$132

$273

$259

Global

$2,804

$2,734

$5,395

$5,265

 

(1) Systemwide sales growth and same-restaurant sales growth are calculated on a constant currency basis and include sales by both Company-operated and franchise restaurants.

(2) Excludes Venezuela, and beginning in the third quarter of 2018, Argentina.

(3) Systemwide sales include sales at both Company-operated and franchise restaurants.

Financial Highlights

Second Quarter

Year-to-Date

2019

2018

B / (W)

2019

2018

B / (W)

(In Millions Except Per Share Amounts)

(Unaudited)

(Unaudited)

Total Revenues

$

435.3

$

411.0

5.9

%

$

843.9

$

791.6

6.6

%

Adjusted Revenues(1)

$

348.7

$

326.4

6.8

%

$

676.8

$

628.1

7.8

%

Company-Operated Restaurant Margin

16.5

%

17.4

%

(0.9)

%

15.8

%

15.8

%

%

General and Administrative Expense

$

50.8

$

49.2

(3.3)

%

$

100.1

$

99.5

(0.6)

%

Operating Profit

$

80.6

$

71.5

12.7

%

$

146.8

$

126.7

15.9

%

Net Income

$

32.4

$

29.9

8.4

%

$

64.3

$

50.0

28.6

%

Adjusted EBITDA

$

117.8

$

109.5

7.6

%

$

219.5

$

200.4

9.5

%

Reported Diluted Earnings Per Share

$

0.14

$

0.12

16.7

%

$

0.27

$

0.20

35.0

%

Adjusted Earnings Per Share

$

0.18

$

0.14

28.6

%

$

0.32

$

0.25

28.0

%

Cash Flows from Operations

$

154.1

$

148.4

3.8

%

Capital Expenditures

$

(25.5)

$

(23.9)

6.7

%

Free Cash Flow(2)

$

125.3

$

117.8

6.4

%

(1) Total revenues less advertising funds revenue.

(2) Cash flows from operations minus capital expenditures and the impact of our advertising funds.

Second Quarter Financial Highlights

Revenues and Adjusted Revenues

The increase in revenues and adjusted revenues was primarily driven by higher sales at Company-operated restaurants and an increase in franchise royalty revenue.  Higher sales at Company-operated restaurants was the result of an increase in the number of restaurants in operation and positive same-restaurant sales.  The increase in franchise royalty revenue was primarily driven by positive same-restaurant sales and new restaurant development.  Revenues and adjusted revenues also benefited from an increase in franchise rental income which was driven by approximately $10 million in pass-through payments related to subleases as the result of the new lease accounting standard.

Company-Operated Restaurant Margin

The decrease in Company-operated restaurant margin was primarily the result of labor rate inflation, customer count declines, and higher commodity costs, partially offset by pricing actions.

General and Administrative Expense

The increase in general and administrative expenses was primarily due to the timing of employee compensation expenses and investments in resources to support our Digital Experience and International organizations, partially offset by lower employee compensation and related expenses as a result of the Company's G&A savings initiative.

Operating Profit

The increase in operating profit resulted primarily from an increase in franchise royalty revenue and an increase in net franchise rental income.

Net Income

The increase in net income resulted primarily from an increase in operating profit, partially offset by a loss on early extinguishment of debt that the Company incurred as part of its debt refinancing in the second quarter of 2019.

Adjusted EBITDA

The increase in adjusted EBITDA resulted primarily from an increase in franchise royalty revenue and net franchise rental income.

Adjusted Earnings Per Share

The increase in adjusted earnings per share resulted primarily from an increase in adjusted EBITDA, fewer shares outstanding as a result of the Company's share repurchase programs and lower depreciation expense.

Free Cash Flow

The increase in free cash flow resulted primarily from an increase in cash flows from operations, driven primarily by an increase in net income.

New Restaurant Development

In the second quarter of 2019 the Company had 28 global restaurant openings, and an increase of 9 net new restaurants.  The Company continues to expect 2019 global net new restaurant growth of approximately 1.5 percent.

Image Activation

Image Activation, which includes reimaging existing restaurants and building new restaurants, remains an integral part of our global growth strategy. At the end of the second quarter of 2019, approximately 53 percent of the global system was image activated.  This compares to approximately 50 percent image activated at the end of 2018.

Company Repurchases 1.1 Million Shares for $20.4 Million in Second Quarter

The Company repurchased 1.1 million shares for $20.4 million in the second quarter at an average price of $18.86 per share and has repurchased 0.5 million shares for $10.0 million in the third quarter to date.  The Company currently has $186.8 million remaining on its existing $225 million share repurchase authorization that expires on March 1, 2020.

2019 Outlook

During 2019, the Company Continues to Expect:

  • Global systemwide sales growth of approximately 3.0 to 4.0 percent.
  • General and administrative expense of approximately $195 million.
  • Adjusted EBITDA growth of approximately 2.5 to 4.5 percent.
  • Adjusted tax rate of approximately 22 to 23 percent.
  • Adjusted earnings per share growth of approximately 3.5 to 7.0 percent.
  • Cash flows from operations of approximately $305 to $320 million*.
  • Capital expenditures of approximately $75 to $80 million.
  • Free cash flow of approximately $230 to $240 million, approximately flat to up 4.0 percent compared to 2018*.

* The Company now expects the impact of the proposed settlement of the Financial Institutions case to take place in early 2020 as opposed to late 2019.

Company on Track to Achieve 2020 Goals:

  • Global systemwide sales of approximately $11.5 billion.
  • Free cash flow of approximately $275 million, excluding the approximately $20 million tax-effected impact from the proposed settlement of the Financial Institutions case, which is now expected to take place in early 2020. Including the impact of the proposed settlement, the Company expects free cash flow of approximately $255 million.



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