The Wendy's Company Results

The Wendy's Company Reports Third Quarter 2019 Results

The Wendy's Company

The Wendy's Company (Nasdaq: WEN) today reported unaudited results for the third quarter ended September 29, 2019.

"We delivered a strong quarter of sales and earnings growth, demonstrating that we are building an even stronger foundation for the Wendy's® brand," President and Chief Executive Officer Todd Penegor said. "We remain relentlessly focused on executing our plan to accelerate same-restaurant sales and drive global restaurant expansion across the globe.  We are well positioned to drive growth in 2020 and beyond to achieve our vision of becoming the world's most thriving and beloved restaurant brand, and to become an accelerated, efficient growth company."

Third Quarter 2019 Summary

Operational Highlights

Third Quarter

Year-to-Date

2019

2018

2019

2018

(Unaudited)

(Unaudited)

Systemwide Sales Growth(1)

North America

5.5%

1.2%

3.8%

2.2%

International(2)

9.2%

13.2%

9.8%

13.2%

Global

5.7%

1.7%

4.1%

2.7%

North America Same-Restaurant Sales Growth(1)

4.4%

(0.2)%

2.4%

1.1%

Restaurant Openings

North America - Total / Net

27 / 15

23 / 7

76 / 23

64 / 11

International - Total / Net

13 / 9

14 / 6

35 / 9

42 / 24

Global - Total / Net

40 / 24

37 / 13

111 / 32

106 / 35

Systemwide Sales (In US$ Millions)(3)

North America

$2,660

$2,523

$7,782

$7,530

International(2)

$138

$127

$411

$386

Global

$2,798

$2,650

$8,193

$7,916

(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

Third Quarter

Year-to-Date

2019

2018

B / (W)

2019

2018

B / (W)

(In Millions Except Per Share Amounts)

(Unaudited)

(Unaudited)

Total Revenues

$

437.9

$

400.6

9.3

%

$

1,281.8

$

1,192.1

7.5

%

Adjusted Revenues(1)

$

351.1

$

319.0

10.1

%

$

1,027.9

$

947.1

8.5

%

Company-Operated Restaurant Margin

16.2%

15.7%

0.5

%

15.9%

15.8%

0.1

%

General and Administrative Expense

$

46.2

$

46.5

0.6

%

$

146.3

$

146.1

(0.1)

%

Operating Profit

$

79.0

$

77.3

2.2

%

$

225.9

$

204.1

10.7

%

Net Income

$

46.1

$

391.2

(88.2)

%

$

110.4

$

441.3

(75.0)

%

Adjusted EBITDA

$

109.9

$

107.2

2.5

%

$

329.4

$

307.6

7.1

%

Reported Diluted Earnings Per Share

$

0.20

$

1.60

(87.5)

%

$

0.47

$

1.79

(73.7)

%

Adjusted Earnings Per Share

$

0.19

$

0.17

11.8

%

$

0.51

$

0.42

21.4

%

Cash Flows from Operations

$

237.5

$

229.7

3.4

%

Capital Expenditures

$

(41.0)

$

(39.7)

(3.3)

%

Free Cash Flow(2)

$

192.3

$

181.1

6.2

%

(1) Total revenues less advertising funds revenue.

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

Third 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 positive same-restaurant sales and an increase in the number of restaurants in operation.  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.  This incremental revenue was completely offset by a corresponding increase in franchise rental expense.

Company-Operated Restaurant Margin

The increase in Company-operated restaurant margin was primarily the result of pricing actions and positive mix benefits, partially offset by labor rate inflation and higher commodity costs.

General and Administrative Expense

The decrease in general and administrative expenses was primarily due to a $2.8 million reduction in our legal reserve as a result of an increase in anticipated insurance proceeds available for use related to the proposed settlement of the Financial Institutions case.  Excluding this reserve adjustment, general and administrative expense would have increased by approximately $2.5 million, or 5 percent, primarily driven by a higher incentive compensation accrual.

Operating Profit

The increase in operating profit resulted primarily from an increase in franchise royalty revenue and Company-operated restaurant margin, partially offset by an increase in franchise support and other costs and higher depreciation expense.

Net Income

The decrease in net income resulted primarily from the sale of our ownership interest in Inspire Brands in the third quarter of 2018 for $450 million (~$353 million, net of tax).

Adjusted EBITDA

The increase in adjusted EBITDA resulted primarily from an increase in franchise royalty revenue and Company-operated restaurant margin, partially offset by an increase in franchise support and other costs.

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 a lower tax rate as the result of an expected tax reserve release, partially offset by higher 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, excluding the sale of our ownership interest in Inspire Brands in the third quarter of 2018 for $450 million (~$353 million, net of tax).

New Restaurant Development

In the third quarter of 2019 the Company had 40 global restaurant openings, and an increase of 24 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 third quarter of 2019, approximately 56 percent of the global system was image activated.  This compares to approximately 50 percent image activated at the end of 2018.

Company Repurchases 1.3 Million Shares for $26.4 Million in Third Quarter

The Company repurchased 1.3 million shares for $26.4 million in the third quarter at an average price of $19.91 per share and has repurchased 0.4 million shares for $9.2 million in the fourth quarter to date.  The Company currently has $161.1 million remaining on its existing $225 million share repurchase authorization that expires on March 1, 2020.

The Company recently announced at its 2019 Investor Day that it intends to launch a $100 million accelerated share repurchase program in the fourth quarter of 2019.  This program is part of the Company's existing $225 million share repurchase authorization that expires on March 1, 2020.

2019 and 2020 Outlook

Company Provides Updated 2019 Outlook

Metric

Outlook as of 9/9/19*

Updated Outlook

Global systemwide sales

~3.0 to 4.0 percent

~3.5 to 4.0 percent

G&A expense

~$195 million

~$195 to $200 million

Adjusted EBITDA growth

~flat to down 2.0 percent

~flat to down 1.0 percent

Adjusted tax rate

~22-23 percent

~21-22 percent

Adjusted EPS growth

Down ~3.5 to 6.5 percent

Up ~1.5 percent to down

~1.5 percent

Cash flows from operations

~$290 to $305 million

No change

Capital expenditures

~$75 to $80 million

No change

Free cash flow

~$215 to $225 million

No change

* Outlook as of September 9, 2019 when the Company announced its intention to launch breakfast across the U.S. system in 2020.

Company on Track to Achieve New 2020 Goals:

  • Global systemwide sales of approximately $12.0-$12.5 billion.
  • Adjusted EBITDA of approximately $425-$435 million.
  • Free cash flow of approximately $235-$245 million, excluding the approximately $20 million tax-effected impact from the proposed settlement of the Financial Institutions case, which the Company expects to occur in early 2020. Including the impact of the proposed settlement, the Company expects free cash flow of approximately $215-$225 million.

About Wendy's

Wendy's® was founded in 1969 by Dave Thomas in Columbus, Ohio. Dave built his business on the premise, "Quality is our Recipe®," which remains the guidepost of the Wendy's system. Wendy's is best known for its made-to-order square hamburgers, using fresh, never frozen beef*, freshly-prepared salads with hand-chopped lettuce, and other signature items like chili, baked potatoes and the Frosty® dessert. The Wendy's Company (Nasdaq: WEN) is committed to doing the right thing and making a positive difference in the lives of others. This is most visible through the Company's support of the Dave Thomas Foundation for Adoption® and its signature Wendy's Wonderful Kids® program, which seeks to find every child in the North American foster care system a loving, forever home. Today, Wendy's and its franchisees employ hundreds of thousands of people across more than 6,700 restaurants worldwide with a vision of becoming the world's most thriving and beloved restaurant brand.



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