Wendy’s Earnings: Solid Sales, Maintained Guidance Suggest Shares Fairly Priced

After a solid but unspectacular quarter that saw no-moat Wendy’s WEN maintain its full-year guidance and the medium-term targets it laid out on its fourth-quarter earnings call, we don’t expect any material changes to our $23.50 fair value estimate, leaving shares fairly priced.

More concretely, the burger stalwart posted 7.2% U.S. comparable store sales growth during the quarter, representing consistent momentum relative to its pre-COVID-19 baseline (23.8% growth, or 5.5% annualized, by our estimates). That figure clocked in a shade behind our 8% estimate but was offset by better-than-expected international results—up 13.9%, ahead of our 8.5% forecast—resulting in net sales of $528 million, in line with our $529 million expectation. Diluted earnings per share came in at $0.21, eclipsing our $0.16 forecast, predominately due to lower reorganization costs. On balance, we view management’s targets for mid-single-digit consolidated same-store sales growth in 2023 and high-single-digit (6%-8%) systemwide sales growth as attainable, suggesting few changes to our outstanding forecasts.

Interestingly, the firm suggested that it maintained domestic quick service restaurant burger market share, although its 7.2% same-store sales print fell shy of both Burger King U.S. (8.7%) and McDonald’s (12.6%) during the period. On a systemwide sales basis, that sentiment likely holds, given closures at the former due to a couple of high-profile bankruptcy filings and concomitant store closures. Perhaps more importantly, as we look to the future, Wendy’s resilient model appears to be attracting franchisee interest, with management maintaining its guidance for 2%-3% growth in 2023 and 2024 and 3%-4% in 2025. In conjunction with the firm’s Pacesetter development incentive program, we view those figures as achievable, though we note that Wendy’s unleveraged cash payback periods are middle-of-the-road at best.