Wendy’s: Company Reports First Quarter 2019 Results

Dublin / OH. (twc) The Wendy’s Company reported unaudited results for the first quarter ended March 31, 2019. «We delivered strong earnings growth in the first quarter and are proud of 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.»

First 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 and fees. 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 royalty revenue and fees was primarily driven by positive same-restaurant sales and new restaurant development. Revenues and adjusted revenues also benefited from an increase in rental revenue which was driven by approximately USD 9.5 million in pass-through payments related to subleases as the result of the new lease accounting standard.

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 customer count declines.

General and Administrative Expense: The decrease in general and administrative expenses was primarily due to lower employee compensation and related expenses as a result of the Company’s G+amp;A savings initiative partially offset by an investment in resources to support our Digital Experience and International organizations.

Operating Profit: The increase in operating profit resulted primarily from an increase in franchise royalty revenue and fees and an increase in Company-operated restaurant margin.

Net Income: The increase in net income resulted primarily from an increase in operating profit and rolling over the loss on early extinguishment of debt that the Company incurred as part of its debt refinancing in the first quarter of 2018. This was partially offset by an increase in income taxes due to a higher tax rate as the Company received a benefit in the first quarter of 2018 from net excess tax benefits related to share-based payments.

Adjusted Ebitda: The increase in adjusted Ebitda resulted primarily from an increase in franchise royalty revenue and fees and an increase in Company-operated restaurant margin.

Adjusted Earnings Per Share: The increase in adjusted earnings per share resulted primarily from an increase in adjusted Ebitda and fewer shares outstanding as a result of the Company’s share repurchase programs. This was partially offset by an increase in income taxes due to a higher tax rate.

Free Cash Flow:
The increase in free cash flow resulted from an increase in cash flows from operations, excluding the impact of our advertising funds, driven primarily by an increase in net income.

New Restaurant Development

In the first quarter of 2019 the Company had 43 global restaurant openings, with a slight decrease in net new unit growth. The decrease was primarily driven by the timing of International restaurant closures within the year. 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 first quarter, approximately 51 percent of the global system was image activated. This compares to approximately 50 percent image activated at the end of 2018.

Company Evolves Leadership Structure to Further Accelerate Growth

The Company announced today an evolution of its leadership structure to align with our long-term growth plans. To continue to drive further accountability and efficiencies across the organization, the Company is creating two new positions, a President, U.S. and Chief Commercial Officer and a President, International and Chief Development Officer.

Kurt Kane will be promoted to President, U.S. and Chief Commercial Officer. Kurt joined Wendy’s in 2015, serving primarily as our Chief Concept and Marketing Officer and was recently promoted to Executive Vice President in 2018. In this new role, Kurt will assume responsibilities for the entire U.S. business, including operations, marketing, and R+amp;D. He will also continue to lead our Digital Experience organization.

Abigail Pringle will be promoted to President, International and Chief Development Officer. Abigail joined Wendy’s in 2002 and has held many leadership positions and was recently promoted to Chief Global Development Officer and International in 2018. In this new role, Abigail will continue to lead our International business, which will now include Canada. She will also continue to lead our Global Development organization.

As a result of these leadership changes, Bob Wright, Executive Vice President, Chief Operations Officer will depart the organization after transitioning through the end of May.

Company Repurchases 1.7 Million Shares for USD 29.3 Million in First Quarter

The Company repurchased 1.7 million shares for USD 29.3 million in the first quarter at an average price of USD 16.83 per share and has repurchased 0.3 million shares for USD 5.7 million in the second quarter to date. The Company currently has USD 211.5 million remaining on its existing USD 225 million share repurchase authorization that expires on March 1, 2020.

Company Declares Quarterly Dividend

The Company announced today the declaration of its regular quarterly cash dividend of 10 cents per share, payable on June 17, 2019, to shareholders of record as of June 3, 2019. The number of common shares outstanding as of May 1, 2019was 230.7 million.

2019 Outlook

This release includes forward-looking guidance for certain non-GAAP financial measures, including systemwide sales, adjusted Ebitda, adjusted earnings per share, adjusted tax rate and free cash flow. The Company excludes certain expenses and benefits from adjusted Ebitda, adjusted earnings per share, free cash flow and adjusted tax rate, such as advertising funds’ revenues and expenses, impairment of long-lived assets, reorganization and realignment costs, system optimization (gains) losses, net, timing and resolution of certain tax matters, and the legal reserve relating to the Financial Institutions case. Due to the uncertainty and variability of the nature and amount of those expenses and benefits, the Company is unable without unreasonable effort to provide projections of net income, earnings per share, or reported tax rate or a reconciliation of those projected measures.

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 USD 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 USD 285 to USD 300 million, including the impact of the proposed settlement of the Financial Institutions case. Excluding the impact of the proposed settlement, the Company expects cash flows from operations of approximately USD 305 to USD 320 million.
  • Capital expenditures of approximately USD 75 to USD 80 million.
  • Free cash flow of approximately USD 210 to USD 220 million, including the impact of the settlement of the Financial Institutions case. Excluding the approximately USD 20 million tax effected impact of the settlement, the Company expects free cash flow of approximately USD 230 to USD 240 million, approximately flat to up 4.0 percent compared to 2018.

Company on Track to Achieve 2020 Goals:

  • Global systemwide sales of approximately USD 11.5 billion.
  • Free cash flow of approximately USD 275 million.
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