Fast-food chain Wendy’s (NASDAQ:WEN) reported revenue ahead of Wall Street’s expectations in Q4 CY2024, with sales up 6.2% year on year to $574.3 million. Its non-GAAP profit of $0.25 per share was in line with analysts’ consensus estimates.
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Wendy's (WEN) Q4 CY2024 Highlights:
- Revenue: $574.3 million vs analyst estimates of $562.6 million (6.2% year-on-year growth, 2.1% beat)
- Adjusted EPS: $0.25 vs analyst estimates of $0.24 (in line)
- Adjusted EBITDA: $137.5 million vs analyst estimates of $133.7 million (23.9% margin, 2.8% beat)
- Adjusted EPS guidance for the upcoming financial year 2025 is $1 at the midpoint, missing analyst estimates by 3.4%
- EBITDA guidance for the upcoming financial year 2025 is $555 million at the midpoint, above analyst estimates of $549.6 million
- Operating Margin: 16.7%, in line with the same quarter last year
- Free Cash Flow Margin: 4.6%, down from 8.6% in the same quarter last year
- Same-Store Sales rose 4.3% year on year (1.3% in the same quarter last year)
- Market Capitalization: $2.90 billion
"I am proud of our fourth quarter performance, delivering a strong quarter while outpacing the category. This resulted in our 14th consecutive year of global same-restaurant sales growth," said Kirk Tanner, President and Chief Executive Officer.
Company Overview
Founded by Dave Thomas in 1969, Wendy’s (NASDAQ:WEN) is a renowned fast-food chain known for its fresh, never-frozen beef burgers, flavorful menu options, and commitment to quality.
Traditional Fast Food
Traditional fast-food restaurants are renowned for their speed and convenience, boasting menus filled with familiar and budget-friendly items. Their reputations for on-the-go consumption make them favored destinations for individuals and families needing a quick meal. This class of restaurants, however, is fighting the perception that their meals are unhealthy and made with inferior ingredients, a battle that's especially relevant today given the consumers increasing focus on health and wellness.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.
With $2.25 billion in revenue over the past 12 months, Wendy's is a mid-sized restaurant chain, which sometimes brings disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale.
As you can see below, Wendy’s 5.6% annualized revenue growth over the last five years (we compare to 2019 to normalize for COVID-19 impacts) was tepid, but to its credit, it opened new restaurants and increased sales at existing, established dining locations.
This quarter, Wendy's reported year-on-year revenue growth of 6.2%, and its $574.3 million of revenue exceeded Wall Street’s estimates by 2.1%.
Looking ahead, sell-side analysts expect revenue to grow 1.3% over the next 12 months, a deceleration versus the last five years. This projection is underwhelming and indicates its menu offerings will see some demand headwinds.
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Restaurant Performance
Number of Restaurants
A restaurant chain’s total number of dining locations influences how much it can sell and how quickly revenue can grow.
Over the last two years, Wendy's opened new restaurants quickly, averaging 1.6% annual growth. This was faster than the broader restaurant sector.
When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.
Note that Wendy's reports its restaurant count intermittently, so some data points are missing in the chart below.
Same-Store Sales
The change in a company's restaurant base only tells one side of the story. The other is the performance of its existing locations, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales provides a deeper understanding of this issue because it measures organic growth at restaurants open for at least a year.
Wendy’s demand has been healthy for a restaurant chain over the last two years. On average, the company has grown its same-store sales by a robust 2.9% per year. This performance suggests its rollout of new restaurants could be beneficial for shareholders. When a chain has demand, more locations should help it reach more customers and boost revenue growth.
In the latest quarter, Wendy’s same-store sales rose 4.3% year on year. This growth was an acceleration from its historical levels, which is always an encouraging sign.
Key Takeaways from Wendy’s Q4 Results
We enjoyed seeing Wendy's exceed analysts’ same-store sales expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. On the other hand, full-year EPS guidance fell short of expectations. Overall, we think this quarter was mixed. The stock remained flat at $14.30 immediately following the results.
Wendy's had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
