Wendy's (WEN) Q1 Earnings: Will Comps Continue To Grow?

The Wendy’s Company (NASDAQ:WEN) is slated to release first-quarter 2018 results on May 8, after the closing bell.

The company’s top line is expected to be benefited from continued sales boosting efforts and system optimization initiatives are likely to give a boost to the bottom line in the quarter to be reported.

In a year’s time, the company’s shares have rallied 11.1%, outperforming the industry’s 3.2% gain.

Given this backdrop, let’s delve deeper to find out the factors likely to have a bearing on the company’s first-quarter results.

Sales Boosting Efforts to Pay Off

In the recent quarters, Wendy’s has witnessed a year-over-year decline in revenues. Even in the fourth quarter of 2017, the company’s top line marginally declined year over year, driven by lower sales at its company-operated restaurants, partially offset by higher franchise royalty revenues, fees and rental income.

However, we expect reversal of this trend in the to-be-reported quarter. The Zacks Consensus Estimate for revenues is pegged at $380 million, reflecting a 32.9% increase compared with the year-ago quarter’s actual figure. Increased investments in technology like mobile payment and ordering, and customer self-order kiosks as well as efforts like re-imaging of restaurants and new menu offering are anticipated to drive traffic, and in turn sales.

Same-Store Sales to Grow

Notably, fourth-quarter 2017 marked the 20th consecutive quarter of same-store sales growth for Wendy’s. This indicates long-term strength and relevance of the brand. We expect the company to maintain the trend in the soon-to-be-reported quarter through its solid menu pipeline, limited time offers (LTO), marketing initiatives, and increased emphasis on core and price value offerings. In fact, for the first quarter of 2018, the consensus estimate for system-wide comps calls for growth of 1.8%, comparing favorably with 1.3% growth in the last-reported quarter.

System Optimization Initiatives to Boost Earnings

Although increased costs related to other sales-boosting initiatives and higher wages might weigh on margins, the system optimization initiatives are likely to boost the quarter’s earnings on reduced expenses. For the first quarter, the consensus estimate for earnings stands at 10 cents, reflecting 11.1% growth year over year.

Also, in the last reported quarter, system optimization favored the company’s adjusted EBITDA, which grew 14.2% from the year-ago level.

Our Model Doesn’t Suggest a Beat

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Wendy’s has an Earnings ESP of +7.61%, it carries a Zacks Rank #4 (Sell), a combination that does not suggest an earnings beat.

The Wendy's Company Price and EPS Surprise

Stocks to Consider

Here are some companies in the restaurant space, which per our model have the right combination of elements to post an earnings beat in the to-be-reported quarter.

Bojangles' (NASDAQ:BOJA) has an Earnings ESP of +9.18% and carries a Zacks Rank #3. The company is scheduled to report quarterly results on May 8.

Carrols Restaurant (NASDAQ:TAST) has an Earnings ESP of +8.57% and holds a Zacks Rank #3. The company is slated to report quarterly results on May 8.

Jack in the Box (NASDAQ:JACK) has an Earnings ESP of +2.33% and carries a Zacks Rank #3. The company is expected to report quarterly results on May 15.

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