Wendy's stock jumps as burger chain points to successes in advertising

By James Rogers

Wendy's reported first-quarter results before market open Thursday

Wendy's Co. shares rose 3.5% Thursday after the burger chain's first-quarter adjusted earnings beat analysts' estimates, despite the spending pressure that some consumers are experiencing.

The company highlighted the impact of same-restaurant sales growth, advertising, franchise-royalty revenue and its share-buyback program on its results. Earlier this year, Wendy's announced investments in advertising to boost growth. The company derives its revenues from sales at company-operated restaurants, as well as royalties, franchise fees and payments from franchisees to the company's national advertising funds.

Net income rose to $42 million, or 20 cents a share, from $39.8 million, or 19 cents a share, in the same period a year ago. Adjusted per-share earnings were 23 cents a share, above the 21-cent estimate from analysts surveyed by FactSet. Wendy's said the increase in adjusted earnings per share was driven by fewer shares outstanding as a result of the company's share-repurchase program and an increase in adjusted earnings before interest, taxes, depreciation and amortization. These were partially offset by higher depreciation and higher amortization of cloud-computing costs, the company said.

Read more: Wendy's is going all-in on breakfast ads, believing that, if you try it, you'll be back

Wendy's (WEN) revenue rose to $534.8 million, from $528.8 million in the same period last year. Analysts surveyed by FactSet were looking for revenue of $541 million. The fast-food chain said that the revenue growth was driven by increases in advertising-funds revenue and franchise-royalty revenue, both driven by net new-restaurant development and higher same-restaurant sales.

But Wendy's also identified a degree of consumer-spending pressure during the conference call to discuss its results. "I would say, definitely, the consumer is still under pressure," Chief Financial Officer Gunther Plosch said in response to an analyst's question, highlighting, in particular, households with incomes under $75,000. "They're reducing frequency, and so visitation is down," he said, but added that Wendy's is maintaining share with that group.

Plosch said there's more traffic and more frequency among higher-income consumers. "We are again maintaining share with that income cohort," he said. "So it's not a new trend. It's a trend we have seen in quarter four that we have seen continuing in quarter one."

Related: Wendy's stock bounces back, in wake of downgrade by long-time bull

Consumer spending has been cited by other fast-food chains this earnings season. On Wednesday, Yum Brands Inc. (YUM) Chief Executive Officer David Gibbs said that the company "navigated discrete consumer-demand pressures" during the first quarter and highlighted the impact on its KFC and Pizza Hut customers.

Coca-Cola Co. (KO), which reported better-than-expected first-quarter results Tuesday, also highlighted a degree of consumer-spending pressure this week. "The U.S. consumer remains in good shape," Coca-Cola CEO James Quincey said during a conference call to discuss the results. "There is some purchasing-power compression in the lower-income echelons."

While the sector is dealing with consumer-spending pressure, advertising was a positive for Wendy's during the first quarter. The company's advertising-funds revenue was $104.9 million, up from $101.4 million in the prior year's quarter. Franchise-royalty revenue was $125.7 million, up from $122.2 million.

Also read: People are spending less on fast food. That makes sense for consumers, even if it's a red flag for companies - and the economy.

Global same-restaurant sales growth was 0.9%, below analysts' forecast of 1.4%. "We delivered global same-restaurant sales growth, which accelerated by 120 basis points on a two-year basis versus the previous quarter," Wendy's CEO Kirk Tanner said in a press release. "This was driven in part by high-single-digit year-over-year U.S. breakfast sales growth and global digital sales mix of nearly 17%."

Wendy's also reiterated its 2024 outlook for global systemwide sales growth of 5% to 6% and adjusted earnings of 98 cents to $1.02.

Wendy's shares are up 4.3% in 2024, compared with the S&P 500 index's gain of 5.8%.

-James Rogers

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

05-02-24 1222ET

Copyright (c) 2024 Dow Jones & Company, Inc.