Wendy’s: Company Reports First Quarter 2018 Results

Dublin / OH. (twc) The Wendy’s Company reported unaudited results for the first quarter ended April 1, 2018. «We are pleased with our continued sales momentum in the first quarter, in the face of adverse impacts from weather», President and Chief Executive Officer Todd Penegor said. «We have now recorded 21 consecutive quarters of positive same-restaurant sales in North America, and continue to capitalize on the strength of our balanced marketing approach and awareness around our fresh never frozen beef*. We continue to make progress with Image Activation and remain on track to grow our global unit count by approximately 2 percent in 2018. Our relentless focus on executing every element of The Wendy’s Way 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

Adjusted Revenues: The increase in adjusted revenues resulted primarily from increased rental revenue related to Franchise Flips completed in 2017 and positive same-restaurant sales at Company-operated and Franchise-operated restaurants which resulted in increased sales and franchise royalties, respectively. The Company estimates that weather adversely impacted same-restaurant sales for the North American system by approximately 50 basis-points.

Company-Operated Restaurant Margin: The decrease in Company-operated restaurant margin was primarily the result of higher commodity costs, the adverse impact of weather, and labor rate inflation, partially offset by pricing actions. The Company estimates that weather adversely impacted Company-operated same-restaurant sales by approximately 100 basis-points.

General + Administrative Expense: The decrease in general and administrative expenses resulted primarily from lower professional fees.

Adjusted Ebitda: The increase in adjusted Ebitda resulted primarily from revenue growth, including net rental income, partially offset by a decrease in Company-operated restaurant margin.

Adjusted Earnings Per Share: The increase in adjusted earnings per share resulted primarily from the positive impact of a lower tax rate from net excess tax benefits related to share-based payments and the Tax Cuts and Jobs Act of 2017.

Year-to-Date Free Cash Flow: The increase in free cash flow resulted from an increase in cash flows from operations and a decrease in capital expenditures. The increase in cash flows from operations resulted primarily from an increase in net income adjusted for non-cash expenses and a favorable change in working capital.

New Restaurant Development

In the first quarter of 2018 the Company had 33 global restaurant openings, with a slight decrease in net new unit growth. The decrease was primarily driven by the timing of North American restaurant closures within the year as we continue to build a stronger system. The Company continues to expect 2018 global net new unit growth of approximately 2 percent, with approximately 1 percent growth in North America and approximately 16 percent growth for International.

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, 44 percent of the global system was image activated. This compares to 43 percent image activated at the end of 2017. The Company continues to expect approximately 10 percent of the global system to be image activated on an annual basis through 2020.

Franchise Flips

In the first quarter of 2018, the Company did not facilitate any Franchise Flips. However, the Company will continue to facilitate Franchise Flips to ensure that restaurants are operated by well-capitalized franchisees that are committed to long-term growth. The Company continues to expect that approximately 200 Franchise Flips will be completed in 2018.

Company repurchases 2.4 million shares

The Company repurchased 2.4 million shares for USD 39.4 million in the first quarter at an average price of USD 16.58 per share. As part of these repurchases, the Company completed its 2017 share repurchase authorization of USD 150 million which expired on March 4, 2018 by purchasing 1.4 million shares for USD 22.6 million in the first quarter. The Company also purchased 1.0 million shares for USD 16.7 million on its existing USD 175 million share repurchase authorization. The Company has approximately USD 158.3 million remaining on its existing share repurchase authorization, which expires March 3, 2019.

Company declares quarterly dividend

The Company announced today the declaration of its regular quarterly cash dividend of 8.5 cents per share, payable on June 15, 2018, to shareholders of record as of June 1, 2018. The number of common shares outstanding as of May 2, 2018 was 239.2 million.

2018 outlook

This release includes forward-looking guidance for certain non-GAAP financial measures, including adjusted Ebitda, adjusted earnings per share, free cash flow and adjusted tax rate. The Company excludes certain expenses and benefits from adjusted Ebitda, adjusted earnings per share, free cash flow and adjusted tax rate, such as national advertising funds’ revenues and expenses, impairment of long-lived assets, reorganization and realignment costs, system optimization (gains) losses, net and timing and resolution of certain tax matters. 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, free cash flow or reported tax rate or a reconciliation of those projected measures.

The amounts shown below reflect the impact of the new revenue recognition accounting standard, certain other income statement reclassifications and the Tax Cuts and Jobs Act of 2017. The Company continues to expect aspects of the Tax Cuts and Jobs Act of 2017 to be clarified in the future, which could affect elements of the 2018 outlook.

During 2018, the Company now expects:

  • Depreciation and amortization expense of approximately USD 130 million.
  • An adjusted tax rate of approximately 21 to 23 percent.
  • Adjusted earnings per share of approximately USD 0.55 to USD 0.57, an increase of approximately 41 to 46 percent compared to recast 2017 results.

In addition, the Company continues to expect:

  • North America same-restaurant sales growth of approximately 2.0 to 2.5 percent.
  • Commodity inflation of approximately 1 to 2 percent.
  • Labor inflation of approximately 3 to 4 percent.
  • Company-operated restaurant margin of approximately 17 to 18 percent.
  • General and administrative expense of approximately USD 195 million.
  • Adjusted Ebitda of approximately USD 420 to USD 430 million, an increase of approximately 8 to 10 percent compared to recast 2017 results.
  • Adjusted Ebitda margin of approximately 33 to 34 percent.
  • Interest expense of approximately USD 120 million.
  • Cash flows from operations of approximately USD 295 to USD 320 million.
  • Capital expenditures of approximately USD 75 to USD 80 million.
  • Free cash flow of approximately USD 220 to USD 240 million, an increase of approximately 29 to 41 percent compared to 2017.

Company on track to achieve 2020 goals

The Company continues to expect to achieve the following goals by the end of 2020:

  • Global systemwide sales (in constant currency and excluding Venezuela) of approximately USD 12 billion.
  • Global restaurant count of approximately 7,250.
  • Global Image Activation of at least 70 percent.
  • Adjusted Ebitda margin of 37 to 39 percent.
  • Free cash flow of approximately USD 300 million (capital expenditures of approximately USD 65 million).