Yahoo Finance Wendy's (WEN) Banks on Unit Expansion, Hurt by High Costs
The Wendy's Company WEN is poised to benefit from unit expansion, digital efforts and Breakfast daypart offerings. Also, the emphasis on menu innovation initiatives bodes well. However, high labor costs are a concern.
Let us discuss the factors that highlight why investors should retain the stock for the time being.
Growth Catalysts
Wendy’s maintains a steadfast commitment to its global expansion. It foresees significant potential for growth in the United States and internationally. The company expects a unit growth distribution of 30% in the U.S. and 70% in international markets. By the end of 2024, the company plans to have 45-50 restaurants in the U.K., a strategic market seen as a gateway to Europe, with a long-term goal of supporting around 400 restaurants in the region. WEN is also exploring expansion into Continental Europe, focusing on markets in Ireland and Spain.
Wendy’s is focused on digitalization to drive growth. During the fiscal first quarter, the company reported growth in digital sales globally, with over 30% increase year over year. International markets, including the U.K., Canada and APMEA, reported strong digital adoption, surpassing 20% digital sales mix. In the United States, digital sales rallied 35% year over year, bolstered by initiatives to enhance mobile ordering and delivery channels. Successful campaigns like the March Madness promotion contributed to a significant increase in monthly active users (to over 6 million), with total rewards members surpassing 40 million.
In pursuit of advancing the next phase of digital growth, the company intends to invest approximately $15 million primarily in 2024 to enhance its mobile app experience and bolster its loyalty capabilities. These improvements aim to provide customers with a seamless experience, enabling access to Wendy’s services anytime and anywhere. The adoption of a new customer data platform and the evolution of the loyalty platform, coupled with strategic partnerships, will enable the company to leverage customer data for segmentation and machine learning, thereby enhancing personalization for loyalty members.
WEN is focusing on its breakfast offerings to drive incremental sales. To advance the breakfast segment, the company plans to invest around $55 million in advertising over the next two years, evenly distributed between the United States and Canada. This investment will reinforce initiatives and ensure a consistent presence across various media platforms, partnerships and activations aimed at promoting breakfast offerings. The objective is to encourage widespread adoption of Wendy’s breakfast, with the belief that once customers try the freshly-cracked eggs and crispy bacon, they will become repeat patrons. Also, it intends to focus on menu innovation, creating awareness for new products and promoting targeted trial-driving offers to drive growth.
Concerns
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The stock has declined 10.8% in the past three months compared with the Industry’s 6.6% fall. A challenging macro environment mainly caused the downside.
Inflationary pressures on labor significantly affected Wendy's consolidated results of operations during the fiscal first quarter and are expected to persist throughout the year. Although the company intends to strategically adjust select menu prices and product offerings to mitigate challenges, potential delays in implementation and competitive pressures may hinder WEN’s ability to offset the same. WEN is cautious about the volatility in commodity markets, including beef, chicken, pork, cheese and grains.
Zacks Rank & Key Picks
Wendy’s currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector include:
Wingstop Inc. WING sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter negative earnings surprise of 21.4%, on average. The stock has surged 107.6% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for WING’s 2024 sales and earnings per share (EPS) suggests a rise of 27.5% and 36.7%, respectively, from year-ago levels.
Brinker International, Inc. EAT carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 213.4%, on average. EAT’s shares have risen 78.2% in the past year.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 5% and 41.3% growth, respectively, from year-earlier actuals.
El Pollo Loco Holdings, Inc. LOCO carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 19.4%, on average. LOCO’s shares have risen 8.1% in the past year.
The Zacks Consensus Estimate for LOCO’s 2025 sales and EPS indicates 3.8% and 9.9% growth, respectively, from prior-year figures.
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Brinker International, Inc. (EAT) : Free Stock Analysis Report
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