Wendy's Q1 Adj. Profit Tops View, But Revenue Miss; Backs 2015 Outlook

(RTTNews) - Fast food chain Wendy's Co. (WEN) reported Wednesday a profit for the first quarter that nearly halved from last year, which was boosted by system optimization gains. Sales at established Wendy's stores in North America were up 2.6 percent, and increased 3.4 percent at franchise stores.

Results for the quarter were primarily hurt by reductions in gains on the sale of Company-operated restaurants. However, adjusted earnings per share topped analysts' expectations by a penny. Quarterly revenues missed their estimates. The company also reaffirmed its full-year 2015 guidance.

"Our first-quarter results demonstrate continued progress with Wendy's brand transformation. We generated an increase in same-restaurant sales of 2.6 percent at Company-operated restaurants and a 160-basis-point year-over-year improvement in restaurant operating margin," President and CEO Emil Brolick said.

The Dublin, Ohio-based third largest quick-service restaurant company reported net income of $27.51 million or $0.07 per share for the first quarter, nearly halving from $46.30 million or $0.12 per share in the prior-year quarter. Excluding the charges, the company reported adjusted earnings of $23.91 million or $0.06 per share, compared to $18.81 million or $0.05 per share in the year-ago quarter.

On average, 17 analysts polled by Thomson Reuters expected the company to report earnings of $0.05 per share for the quarter. Analysts' estimates typically exclude special items.

Consolidated revenues for the quarter declined to $466.25 million from $523.20 million in the same quarter last year, and missed eleven Wall Street analysts' consensus estimate of $475.63 million.

The 10.9 percent decrease in revenues resulted from the ownership of 240 fewer company-operated restaurants at the end of the 2015 first quarter.

North America system-wide same-restaurant sales increased 3.2 percent, same-restaurant sales increased 2.6 percent at North America company-operated restaurants and 3.4 percent at North America franchise-operated restaurants.

Company-operated restaurant margin improved 160 basis points to 14.7 percent from last year.

Operating profit margin contracted 580 basis points to 11.2 percent from last year, due primarily to year-over year reductions in gains on the sale of company-operated restaurants, partly offset by a reduction in costs related to the Company's system optimization initiative.

The company now announced intent to sell bakery operations in May 2015 itself, and said the previously announced sale of company-operated restaurants are on schedule.

As previously announced, the company plans to reduce its company-operated restaurant ownership to about 5 percent of the total system by mid-2016.

The Company now intends to sell a total of about 640 restaurants by end of 2016, with about 380 restaurants in 2015, and about 260 restaurants in 2016. This includes the previously announced sale of 100 Canadian restaurants before the end of June 2015. The company has re-engaged the Cypress Group to assist with the sale of these 540 domestic restaurants, which will result in pretax cash proceeds of about $400 to $475 million.

Wendy's also expects to complete the previously announced debt refinancing on June 1, and announced intent to return net proceeds to shareholders via share repurchase program. It will provide updated guidance on June 3 to reflect debt refinancing, anticipated share repurchase program and planned sale of bakery operations.

Meanwhile, the company continues to expect 2015 adjusted earnings in the range of $0.33 to $0.35 per share. Analysts expect earnings of $0.33 per share in fiscal 2015. It projects same-restaurant sales growth of 2.5 to 3 percent at Company-operated restaurants.

Due to the sale of 640 company-operated restaurants, Wendy's expects high single-digit adjusted earnings per share growth in 2016 and 2017, followed by mid-to-high teens growth in 2018.

Further, the company and its franchisees plan to reimage about 450 total system-wide restaurants and build 80 new restaurants in 2015, adding to the 486 reimages and new restaurants completed or under construction in 2014. The Company plans to reimage at least 60 percent of Wendy's North America System-wide restaurants by the end of 2020.

In Wednesday's regular trading session, WEN is currently trading at $11.00, up $0.57 or 5.47% on a volume of 3.28 million shares. In the past 52-week period, the stock has been trading in a range of $7.61 to $11.50.