The Wendy's Company Reports Second Quarter 2023 Results
The increase in revenues resulted primarily from higher sales at Company-operated restaurants, an increase in franchise royalty revenue, and an increase in advertising funds revenue. These increases were primarily driven by higher same-restaurant sales.
The Wendy's Company (Nasdaq: WEN) today reported unaudited results for the second quarter ended July 2, 2023.
"I am proud of the entire Wendy's® system for delivering another quarter of meaningful sales and profit growth alongside sustained progress against our strategic growth pillars," President and Chief Executive Officer Todd Penegor said. "We continued to drive significant profit expansion, supported by strong same-restaurant sales momentum, resulting in an over 200 basis point year-over-year increase in U.S. Company-operated restaurant margin. During the quarter, our breakfast and late-night dayparts delivered outsized growth and we sustained our digital strength. We also continued to make progress against our development goal with 80 global restaurant openings year to date. With the results we delivered in the first half of the year and the significant runway remaining for each of our strategic growth pillars, I am confident we will deliver our short and long-term outlook, driving meaningful global growth in 2023 and beyond."
Second Quarter 2023 Summary
| Operational Highlights | Second Quarter | Year-to-Date | |||||
| 2022 | 2023 | 2022 | 2023 | ||||
| Systemwide Sales Growth(1) | |||||||
| U.S. | 3.5 % | 6.1 % | 3.0 % | 7.3 % | |||
| International(2) | 22.7 % | 12.7 % | 21.1 % | 16.6 % | |||
| Global | 5.6 % | 6.9 % | 4.9 % | 8.4 % | |||
| Same-Restaurant Sales Growth(1) | |||||||
| U.S. | 2.3 % | 4.9 % | 1.7 % | 6.0 % | |||
| International(2) | 15.2 % | 7.2 % | 14.7 % | 10.3 % | |||
| Global | 3.7 % | 5.1 % | 3.1 % | 6.5 % | |||
| Systemwide Sales (In US$ Millions)(3) | |||||||
| U.S. | $3,001 | $3,185 | $5,713 | $6,129 | |||
| International(2) | $419 | $461 | $779 | $879 | |||
| Global | $3,420 | $3,646 | $6,491 | $7,009 | |||
| Restaurant Openings | |||||||
| U.S. - Total / Net | 29 / 14 | 19 / 4 | 74 / 45 | 39 / (1) | |||
| International - Total / Net | 18 / 10 | 22 / 16 | 66 / 46 | 41 / 21 | |||
| Global - Total / Net | 47 / 24 | 41 / 20 | 140 / 91 | 80 / 20 | |||
| Global Reimaging Completion Percentage | 75 % | 82 % | |||||
| (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 Argentina. | |||||||
| (3) Systemwide sales include sales at both Company-operated and franchise restaurants. | |||||||
| Financial Highlights | Second Quarter | Year-to-Date | |||||||||
| 2022 | 2023 | B / (W) | 2022 | 2023 | B / (W) | ||||||
| (In Millions Except Per Share Amounts) | (Unaudited) | (Unaudited) | |||||||||
| Total Revenues | $ 537.8 | $ 561.6 | 4.4 % | $ 1,026.4 | $ 1,090.4 | 6.2 % | |||||
| Adjusted Revenues(1) | $ 432.9 | $ 451.8 | 4.4 % | $ 829.0 | $ 879.2 | 6.1 % | |||||
| U.S. Company-Operated Restaurant Margin | 15.0 % | 17.3 % | 2.3 % | 13.6 % | 16.0 % | 2.4 % | |||||
| General and Administrative Expense | $ 61.6 | $ 62.7 | (1.8) % | $ 124.0 | $ 125.0 | (0.8) % | |||||
| Operating Profit | $ 96.3 | $ 109.3 | 13.5 % | $ 171.2 | $ 193.8 | 13.2 % | |||||
| Reported Effective Tax Rate | 26.4 % | 24.4 % | 2.0 % | 26.4 % | 25.9 % | 0.6 % | |||||
| Net Income | $ 48.2 | $ 59.6 | 23.7 % | $ 85.6 | $ 99.5 | 16.2 % | |||||
| Adjusted EBITDA | $ 132.9 | $ 144.5 | 8.7 % | $ 239.8 | $ 270.1 | 12.6 % | |||||
| Reported Diluted Earnings Per Share | $ 0.22 | $ 0.28 | 27.3 % | $ 0.39 | $ 0.46 | 17.9 % | |||||
| Adjusted Earnings Per Share | $ 0.24 | $ 0.28 | 16.7 % | $ 0.40 | $ 0.49 | 22.5 % | |||||
| Cash Flows from Operations | $ 98.2 | $ 141.5 | 44.1 % | ||||||||
| Capital Expenditures | $ (30.9) | $ (30.2) | 2.5 % | ||||||||
| Free Cash Flow(2) | $ 95.2 | $ 133.5 | 40.2 % | ||||||||
| (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
Total Revenues
The increase in revenues resulted primarily from higher sales at Company-operated restaurants, an increase in franchise royalty revenue, and an increase in advertising funds revenue. These increases were primarily driven by higher same-restaurant sales.
U.S. Company-Operated Restaurant Margin
The increase in U.S. Company-operated restaurant margin was primarily the result of a higher average check. This increase was partially offset by higher labor costs, customer count declines, and higher commodity costs.
General and Administrative Expense
The increase in general and administrative expense was primarily driven by a higher incentive compensation accrual.
Operating Profit
The increase in operating profit resulted primarily from higher franchise royalty revenue and an increase in U.S. Company-operated restaurant margin.
Net Income
The increase in net income resulted primarily from an increase in operating profit and higher other income primarily driven by an increase in interest income. These increases were partially offset by a decrease in investment income.
Adjusted EBITDA
The increase in adjusted EBITDA resulted primarily from higher franchise royalty revenue and an increase in U.S. Company-operated restaurant margin.
Adjusted Earnings Per Share
The increase in adjusted earnings per share was driven by an increase in adjusted EBITDA and higher interest income. These increases were partially offset by a decrease in investment income.
Year to Date Free Cash Flow
The increase in free cash flow resulted primarily from higher net income adjusted for non-cash expenses and a decrease in payments for incentive compensation. These increases were partially offset by an increase in cash paid for income taxes.
Company Declares Quarterly Dividend
The Company announced today the declaration of its regular quarterly cash dividend of 25 cents per share. The dividend is payable on September 15, 2023, to shareholders of record as of September 1, 2023. The number of common shares outstanding as of August 2, 2023 was approximately 209.3 million.
Share Repurchases
The Company repurchased 2.2 million shares for $49.5 million in the second quarter of 2023. In the third quarter of 2023, the Company has repurchased 0.7 million shares for $15.2 million through August 2. As of August 2, approximately $396.6 million remains available under the Company's existing share repurchase authorization that expires in February 2027.
2023 Outlook and Long-Term Outlook for 2024-2025
During 2023 the Company Continues to Expect:
- Global systemwide sales growth: 6 to 8 percent
- Adjusted EBITDA: $530 to $540 million
- Adjusted earnings per share: $0.95 to $1.00
- Cash flows from operations: $340 to $360 million
- Capital expenditures: $75 to $85 million
- Free cash flow: $265 to $275 million
Company Maintains Long-Term Outlook for 2024-2025:
- Systemwide sales growth: Mid-Single Digits
- Free cash flow growth: High-Single to Low-Double Digits
| The Wendy's Company and Subsidiaries Condensed Consolidated Statements of Operations Three and Six Month Periods Ended July 3, 2022 and July 2, 2023 (In Thousands Except Per Share Amounts) (Unaudited) | |||||||
| Three Months Ended | Six Months Ended | ||||||
| 2022 | 2023 | 2022 | 2023 | ||||
| Revenues: | |||||||
| Sales | $ 230,869 | $ 240,688 | $ 440,144 | $ 468,637 | |||
| Franchise royalty revenue | 125,013 | 132,128 | 236,758 | 254,278 | |||
| Franchise fees | 18,423 | 20,920 | 35,654 | 40,447 | |||
| Franchise rental income | 58,610 | 58,033 | 116,481 | 115,840 | |||
| Advertising funds revenue | 104,868 | 109,796 | 197,389 | 211,170 | |||
| 537,783 | 561,565 | 1,026,426 | 1,090,372 | ||||
| Costs and expenses: | |||||||
| Cost of sales | 197,285 | 201,010 | 382,338 | 397,546 | |||
| Franchise support and other costs | 9,912 | 13,787 | 21,728 | 27,047 | |||
| Franchise rental expense | 32,076 | 32,396 | 61,012 | 63,025 | |||
| Advertising funds expense | 110,973 | 109,618 | 208,773 | 211,279 | |||
| General and administrative | 61,637 | 62,742 | 123,983 | 125,018 | |||
| Depreciation and amortization (exclusive of amortization of cloud computing arrangements shown separately below) | 33,428 | 33,498 | 66,659 | 66,970 | |||
| Amortization of cloud computing arrangements | — | 2,266 | — | 3,848 | |||
| System optimization (gains) losses, net | (152) | 6 | (3,686) | 1 | |||
| Reorganization and realignment costs | 156 | 681 | 620 | 7,489 | |||
| Impairment of long-lived assets | 1,860 | 78 | 2,476 | 454 | |||
| Other operating income, net | (5,673) | (3,791) | (8,639) | (6,057) | |||
| 441,502 | 452,291 | 855,264 | 896,620 | ||||
| Operating profit | 96,281 | 109,274 | 171,162 | 193,752 | |||
| Interest expense, net | (32,125) | (31,136) | (58,490) | (62,841) | |||
| Loss on early extinguishment of debt | — | — | — | (1,266) | |||
| Investment (loss) income, net | (4) | (6,827) | 2,107 | (10,389) | |||
| Other income, net | 1,238 | 7,573 | 1,445 | 14,909 | |||
| Income before income taxes | 65,390 | 78,884 | 116,224 | 134,165 | |||
| Provision for income taxes | (17,239) | (19,252) | (30,671) | (34,712) | |||
| Net income | $ 48,151 | $ 59,632 | $ 85,553 | $ 99,453 | |||
| Net income per share: | |||||||
| Basic | $ .23 | $ .28 | $ .40 | $ .47 | |||
| Diluted | .22 | .28 | .39 | .46 | |||
| Number of shares used to calculate basic income per share | 213,673 | 210,624 | 214,646 | 211,585 | |||
| Number of shares used to calculate diluted income per share | 215,242 | 212,928 | 216,704 | 213,978 | |||
| The Wendy's Company and Subsidiaries Condensed Consolidated Balance Sheets As of January 1, 2023 and July 2, 2023 (In Thousands Except Par Value) (Unaudited) | |||
| January 1, | July 2, | ||
| ASSETS | |||
| Current assets: | |||
| Cash and cash equivalents | $ 745,889 | $ 635,433 | |
| Restricted cash | 35,203 | 36,091 | |
| Accounts and notes receivable, net | 116,426 | 142,590 | |
| Inventories | 7,129 | 6,549 | |
| Prepaid expenses and other current assets | 26,963 | 29,925 | |
| Advertising funds restricted assets | 126,673 | 116,858 | |
| Total current assets | 1,058,283 | 967,446 | |
| Properties | 895,778 | 888,798 | |
| Finance lease assets | 234,570 | 227,994 | |
| Operating lease assets | 754,498 | 728,362 | |
| Goodwill | 773,088 | 773,686 | |
| Other intangible assets | 1,248,800 | 1,231,823 | |
| Investments | 46,028 | 35,883 | |
| Net investment in sales-type and direct financing leases | 317,337 | 315,944 | |
| Other assets | 170,962 | 183,817 | |
| Total assets | $ 5,499,344 | $ 5,353,753 | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||
| Current liabilities: | |||
| Current portion of long-term debt | $ 29,250 | $ 29,250 | |
| Current portion of finance lease liabilities | 18,316 | 19,213 | |
| Current portion of operating lease liabilities | 48,120 | 49,161 | |
| Accounts payable | 43,996 | 38,640 | |
| Accrued expenses and other current liabilities | 116,010 | 132,440 | |
| Advertising funds restricted liabilities | 132,307 | 121,217 | |
| Total current liabilities | 387,999 | 389,921 | |
| Long-term debt | 2,822,196 | 2,781,096 | |
| Long-term finance lease liabilities | 571,877 | 567,475 | |
| Long-term operating lease liabilities | 792,051 | 764,625 | |
| Deferred income taxes | 270,421 | 275,086 | |
| Deferred franchise fees | 90,231 | 89,729 | |
| Other liabilities | 98,849 | 94,706 | |
| Total liabilities | 5,033,624 | 4,962,638 | |
| Commitments and contingencies | |||
| Stockholders' equity: | |||
| Common stock, $0.10 par value; 1,500,000 shares authorized; 470,424 shares issued; 213,101 and 209,969 shares outstanding, respectively | 47,042 | 47,042 | |
| Additional paid-in capital | 2,937,885 | 2,945,754 | |
| Retained earnings | 414,749 | 408,449 | |
| Common stock held in treasury, at cost; 257,323 and 260,455 shares, respectively | (2,869,780) | (2,951,061) | |
| Accumulated other comprehensive loss | (64,176) | (59,069) | |
| Total stockholders' equity | 465,720 | 391,115 | |
| Total liabilities and stockholders' equity | $ 5,499,344 | $ 5,353,753 | |
| The Wendy's Company and Subsidiaries Condensed Consolidated Statements of Cash Flows Six Month Periods Ended July 3, 2022 and July 2, 2023 (In Thousands) (Unaudited) | |||
| Six Months Ended | |||
| 2022 | 2023 | ||
| Cash flows from operating activities: | |||
| Net income | $ 85,553 | $ 99,453 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | |||
| Depreciation and amortization (exclusive of amortization of cloud computing arrangements shown separately below) | 66,659 | 66,970 | |
| Amortization of cloud computing arrangements | — | 3,848 | |
| Share-based compensation | 12,470 | 10,218 | |
| Impairment of long-lived assets | 2,476 | 454 | |
| Deferred income tax | 7,306 | 4,254 | |
| Non-cash rental expense, net | 16,684 | 19,552 | |
| Change in operating lease liabilities | (22,913) | (23,528) | |
| Net (recognition) receipt of deferred vendor incentives | 5,039 | 6,881 | |
| System optimization gains, net | (3,686) | 1 | |
| Distributions received from joint ventures, net of equity in earnings | 1,108 | 542 | |
| Long-term debt-related activities, net | 3,731 | 5,334 | |
| Cloud computing arrangements expenditures | (13,213) | (16,817) | |
| Changes in operating assets and liabilities and other, net | (63,019) | (35,658) | |
| Net cash provided by operating activities | 98,195 | 141,504 | |
| Cash flows from investing activities: | |||
| Capital expenditures | (30,941) | (30,164) | |
| Franchise development fund | (1,312) | (395) | |
| Dispositions | 1,016 | 280 | |
| Notes receivable, net | 2,445 | 1,335 | |
| Net cash used in investing activities | (28,792) | (28,944) | |
| Cash flows from financing activities: | |||
| Proceeds from long-term debt | 500,000 | — | |
| Repayments of long-term debt | (12,125) | (46,434) | |
| Repayments of finance lease liabilities | (9,495) | (12,336) | |
| Deferred financing costs | (10,232) | — | |
| Repurchases of common stock | (51,950) | (86,930) | |
| Dividends | (53,546) | (105,715) | |
| Proceeds from stock option exercises | 1,959 | 7,847 | |
| Payments related to tax withholding for share-based compensation | (1,904) | (2,708) | |
| Net cash provided by (used in) financing activities | 362,707 | (246,276) | |
| Net cash provided by (used in) operations before effect of exchange rate changes on cash | 432,110 | (133,716) | |
| Effect of exchange rate changes on cash | (2,428) | 2,161 | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 429,682 | (131,555) | |
| Cash, cash equivalents and restricted cash at beginning of period | 366,966 | 831,801 | |
| Cash, cash equivalents and restricted cash at end of period | $ 796,648 | $ 700,246 | |
| The Wendy's Company and Subsidiaries Reconciliations of Net Income to Adjusted EBITDA and Revenues to Adjusted Revenues Three and Six Month Periods Ended July 3, 2022 and July 2, 2023 (In Thousands) (Unaudited) | |||||||
| Three Months Ended | Six Months Ended | ||||||
| 2022 | 2023 | 2022 | 2023 | ||||
| Net income | $ 48,151 | $ 59,632 | $ 85,553 | $ 99,453 | |||
| Provision for income taxes | 17,239 | 19,252 | 30,671 | 34,712 | |||
| Income before income taxes | 65,390 | 78,884 | 116,224 | 134,165 | |||
| Other income, net | (1,238) | (7,573) | (1,445) | (14,909) | |||
| Investment loss (income), net | 4 | 6,827 | (2,107) | 10,389 | |||
| Loss on early extinguishment of debt | — | — | — | 1,266 | |||
| Interest expense, net | 32,125 | 31,136 | 58,490 | 62,841 | |||
| Operating profit | 96,281 | 109,274 | 171,162 | 193,752 | |||
| Plus (less): | |||||||
| Advertising funds revenue | (104,868) | (109,796) | (197,389) | (211,170) | |||
| Advertising funds expense (a) | 106,243 | 108,481 | 200,007 | 208,749 | |||
| Depreciation and amortization (exclusive of amortization of cloud computing arrangements shown separately below) | 33,428 | 33,498 | 66,659 | 66,970 | |||
| Amortization of cloud computing arrangements | — | 2,266 | — | 3,848 | |||
| System optimization (gains) losses, net | (152) | 6 | (3,686) | 1 | |||
| Reorganization and realignment costs | 156 | 681 | 620 | 7,489 | |||
| Impairment of long-lived assets | 1,860 | 78 | 2,476 | 454 | |||
| Adjusted EBITDA | $ 132,948 | $ 144,488 | $ 239,849 | $ 270,093 | |||
| Revenues | $ 537,783 | $ 561,565 | $ 1,026,426 | $ 1,090,372 | |||
| Less: | |||||||
| Advertising funds revenue | (104,868) | (109,796) | (197,389) | (211,170) | |||
| Adjusted revenues | $ 432,915 | $ 451,769 | $ 829,037 | $ 879,202 | |||
| (a) | Excludes advertising funds expense of $3,850 and $7,244 for the three and six months ended July 3, 2022, respectively, and $658 and $1,206 for the three and six months ended July 2, 2023, respectively, related to the Company's funding of incremental advertising. In addition, excludes other international-related advertising deficit of $880 and $1,522 for the three and six months ended July 3, 2022, respectively, and $479 and $1,324 for the three and six months ended July 2, 2023, respectively. |
| The Wendy's Company and Subsidiaries Reconciliation of Net Income and Diluted Earnings Per Share to Adjusted Income and Adjusted Earnings Per Share Three and Six Month Periods Ended July 3, 2022 and July 2, 2023 (In Thousands Except Per Share Amounts) (Unaudited) | |||||||
| Three Months Ended | Six Months Ended | ||||||
| 2022 | 2023 | 2022 | 2023 | ||||
| Net income | $ 48,151 | $ 59,632 | $ 85,553 | $ 99,453 | |||
| Plus (less): | |||||||
| Advertising funds revenue | (104,868) | (109,796) | (197,389) | (211,170) | |||
| Advertising funds expense (a) | 106,243 | 108,481 | 200,007 | 208,749 | |||
| System optimization (gains) losses, net | (152) | 6 | (3,686) | 1 | |||
| Reorganization and realignment costs | 156 | 681 | 620 | 7,489 | |||
| Impairment of long-lived assets | 1,860 | 78 | 2,476 | 454 | |||
| Loss on early extinguishment of debt | — | — | — | 1,266 | |||
| Total adjustments | 3,239 | (550) | 2,028 | 6,789 | |||
| Income tax impact on adjustments (b) | (473) | (154) | 149 | (2,085) | |||
| Total adjustments, net of income taxes | 2,766 | (704) | 2,177 | 4,704 | |||
| Adjusted income | $ 50,917 | $ 58,928 | $ 87,730 | $ 104,157 | |||
| Diluted earnings per share | $ .22 | $ .28 | $ .39 | $ .46 | |||
| Total adjustments per share, net of income taxes | .02 | — | .01 | .03 | |||
| Adjusted earnings per share | $ .24 | $ .28 | $ .40 | $ .49 | |||
| (a) | Excludes advertising funds expense of $3,850 and $7,244 for the three and six months ended July 3, 2022, respectively, and $658 and $1,206 for the three and six months ended July 2, 2023, respectively, related to the Company's funding of incremental advertising. In addition, excludes other international-related advertising deficit of $880 and $1,522 for the three and six months ended July 3, 2022, respectively, and $479 and $1,324 for the three and six months ended July 2, 2023, respectively. |
| (b) | The benefit from income taxes on "Reorganization and realignment costs" was $142 and $1,657 for the three and six months ended July 2, 2023. The provision for (benefit from) income taxes on "System optimization losses (gains), net" was $39 and $(1) for the three months ended July 3, 2022 and July 2, 2023, respectively, and $930 for the six months ended July 3, 2022. There was no benefit from income taxes on "System optimization losses (gains), net" for the six months ended July 2, 2023. The (benefit from) provision for income taxes related to the advertising funds was $(3) and $12 for the three months ended July 3, 2022 and July 2, 2023, respectively, and $8 for the six months ended July 2, 2023. There was no benefit from income taxes related to the advertising funds for the six months ended July 3, 2022. The benefit from income taxes on all other adjustments was calculated using an effective tax rate of 25.23% and 29.38% for the three months ended July 3, 2022 and July 2, 2023, respectively, and 25.22% and 25.33% for the six months ended July 3, 2022 and July 2, 2023, respectively. |
| The Wendy's Company and Subsidiaries Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow Six Month Periods Ended July 3, 2022 and July 2, 2023 (In Thousands) (Unaudited) | |||
| Six Months Ended | |||
| 2022 | 2023 | ||
| Net cash provided by operating activities | $ 98,195 | $ 141,504 | |
| Plus (less): | |||
| Capital expenditures | (30,941) | (30,164) | |
| Advertising funds impact (a) | 27,964 | 22,117 | |
| Free cash flow | $ 95,218 | $ 133,457 | |
| (a) | Represents the net change in the restricted operating assets and liabilities of our advertising funds, which is included in "Changes in operating assets and liabilities and other, net," and the excess of advertising funds expense over advertising funds revenue, which is included in "Net income." |
SOURCE The Wendy’s Company