Wendy's (WEN, Financial) shares are trading slightly lower after announcing its Q2 results. The burger chain missed expectations on both EPS and revenue. Despite reaffirming its FY24 EPS, the updated guidance was disappointing.
- Wendy's reduced its FY24 guidance for global systemwide sales to +3-5% from +5-6%. This is not comparable to consensus revenue, which refers to total revenue. The company also lowered its FY24 outlook for global comps to +1-3% from +3-4% and adjusted its FY24 FCF guidance downward.
- This was the first full quarter under new CEO Kirk Tanner, who took over on February 5. Tanner was previously a long-time executive at PepsiCo (PEP, Financial) and served as CEO of North American Beverages.
- Same-restaurant comps were a key metric, with global comps at +0.8% and US comps at +0.6%, similar to Q1's +0.9%/+0.6%. International comps performed better at +2.5%. However, Wendy's has limited international exposure compared to peers like McDonald's (MCD, Financial). The company has plans to expand in Europe, aiming to develop hundreds of restaurants over the next decade, starting in 2025.
- Wendy's reported competitive performance in the US, maintaining dollar and traffic share within the QSR burger category. This was driven by growth in breakfast and late-night sales, with consumers continuing to seek value. Wendy's Biggie Bag value meal remains popular, though franchisees have concerns.
- Breakfast remains a crucial and highly profitable segment for Wendy's. The company has optimized its investment level in 2024 to extend breakfast advertising beyond 2025. Wendy's expects breakfast sales growth to outpace other day parts.
Overall, Wendy's did not focus on consumer trends as much as McDonald's did in its call. Investors were let down by the Q2 results and the lowered full-year guidance, particularly the reduction in comp guidance. However, the company will face easier comps in the second half of FY24 and expects the category to improve later in the year, with breakfast being a positive factor. Wendy's also reiterated its commitment to a $0.25/sh dividend, yielding nearly 6%. A dividend cut to reallocate capital might be positively received by investors.
