Wendy’s Drops 4% In Pre-Market As Quarterly Sales Disappoint

Shares of Wendy’s are declining 3.9% in Wednesday’s pre-market session after the fast-food chain’s third-quarter sales narrowly lagged analysts’ expectations.

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Wendy’s (WEN) revenue increased 3.3% in the third quarter to $452.2 million, but fell short of the $454 million expected by analysts. Higher sales at Wendy’s restaurants and an increase in franchisee royalty revenue and fees helped push total revenue up during the quarter, the company said. Same-restaurant sales, which benefited from the company’s new breakfast offerings in the US, rose 6.1%, surpassing the Street consensus of 5.4% growth.

Wendy’s earned an adjusted 19 cents per share in the quarter ended Sept. 27, scraping past analysts’ estimates for 17 cents.

“In the third quarter we posted our highest Global same-restaurant sales growth performance in over 15 years on top of outsized growth in the prior year.” Wendy’s CEO Todd Penegor said. “In addition to these very strong sales, our restaurant economic model continues to strengthen, with Company-operated restaurant margin expansion compared to the prior year, despite significant commodity headwinds.”

Penegor added that the company remains focused on building its breakfast daypart, growing its digital business, and expanding its international footprint.

In addition, Wendy’s announced a 40% increase in its regular quarterly cash dividend to 7 cents per share, payable on December 15, 2020 to shareholders of record as of December 1, 2020. Wendy’s yield for the dividend is 1.82%. The fast-food chain repurchased 0.1 million shares for $1.7 million in the third quarter and has repurchased the same amount of shares for $2 million thus far in the fourth quarter.

WEN shares have recovered after hitting a multi-year low at the outbreak of the coronavirus pandemic earlier this year and are now trading 4.1% higher than at the start of 2020. (See WEN stock analysis on TipRanks)

Wedbush analyst Nick Setyan recently reiterated a Buy rating on the stock with a $28 price target (21% upside potential) saying that WEN is well-positioned for “accelerated top- and bottom-line growth in a post-COVID environment”.

“Given the available capacity both in terms of market share and real-estate, the added breakfast sales layer, post-COVID operating efficiencies, particularly around labor, that could result in structurally higher four-wall margins, and a palpable increase in interest from franchisees to develop units across the system, we fully expect domestic unit growth to step up in 2022 above pre-COVID LT guidance,” Setyan wrote in a note to investors.

“Continued digital investments/adoption, including the launch of loyalty, continued menu innovation at both end of the barbell, and remodels remain ongoing contributors,” the analyst added.

The rest of the Street is cautiously optimistic on the stock. The Moderate Buy analyst consensus is evenly split between 5 Buys and 5 Holds. Looking ahead, the $25.30 average price target indicates 9.3% upside potential over the coming 12 months.