What To Expect From Wendy's Company (WEN) In Q4 Earnings?

The Wendy’s Company (NASDAQ:WEN) is slated to release fourth-quarter 2017 results on Feb 21, after the closing bell.

The company’s top line is expected to be benefit from continued sales boosting efforts while 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 stock has rallied 16% significantly outperforming the industry’s 9.4% gain.

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

Sales Boosting Efforts to Pay Off

In recent quarters, Wendy’s has witnessed a year-over-year decline in revenues. However, we expect reversal of this trend in the to-be-reported quarter. The Zacks Consensus Estimate for revenues is pegged at $315 million, reflecting a 1.6% increase when compared with the year-ago quarter’s actual figure.

Increased investments in technology like mobile payment, mobile 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.

Last quarter, total revenues of $308 million decreased 15.4% year over year.

The Wendy's Company Revenue (TTM)

Same-Store Sales to Grow

Notably, third-quarter 2017 marked the 19th 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 fourth quarter, the Zacks Consensus Estimate for system-wide same-store sales growth is pegged at 2.45%.

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 fourth quarter, the consensus estimate for earnings stands at 12 cents, reflecting 50% growth year over year.

In the preceding quarter, adjusted earnings declined 18.2% year over year due to lower revenues.

Our Model Suggests 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.

Wendy’s has an Earnings ESP of +3.71% and a Zacks Rank #3, a combination that increases the odds of an earnings beat.

Stocks to Consider

Here are a few stocks from the restaurant space that investors may consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Domino’s (NYSE:DPZ) has an Earnings ESP of +0.37% and a Zacks Rank #2. The company is slated to report quarterly numbers on Feb 20. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cheesecake Factory (NASDAQ:CAKE) has an Earnings ESP of +0.82% and a Zacks Rank of 3. The company is slated to report quarterly results on Feb 21.

Zoe's Kitchen (NYSE:ZOES) has an Earnings ESP of +13.16% and a Zacks Rank #3. The company is slated to report quarterly numbers on Feb 22.

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