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🍔 Wendy’s: Burgers Galore?
Listen to this on Winvesta Podcast
Fast food major Wendy’s (WEN) beat consensus expectations in Q2. The company is also planning a UK market re-entry after a two-decade hiatus. Will Wendy’s remain confined to being just another “meme” stock? Or will its business fundamentals coerce investors to take it more seriously? (Tweet This)
A Way Out Of Dropping Sales
Wendy’s began in 1969 by selling square patties and thick malt milkshakes. The square hamburger patties, which hang over the edge of a circular bun, became the company’s signature item. Today, Wendy’s is the third biggest hamburger chain globally, with over 6.8K outlets worldwide.
Until 2010, the company demonstrated a healthy revenue growth, but sales started sliding by the middle part of the last decade. In fact, between 2009 and 2017, its sales dropped almost 50%. As part of a three-step plan to shore up its brand value, the company sold more than 500 underperforming stores in 2017.
As part of its overseas growth plans, the company had attempted to establish its UK footprint in the 80s and then in the 90s. It even had 10 outlets at one point, but costs and overheads made the business model unviable. It eventually retreated and wholly exited the UK in 2001.
Two decades later, Wendy’s returned to the UK by opening its first store in Reading in June. The menu is better tailored to the British palette and includes more vegetarian options as well.
More recently, Wendy’s has become part of the so-called “meme” stock bandwagon. In June, its shares had jumped over 25% after Reddit communities began circulating bullish commentary surrounding Wendy’s.
And yet, there wasn’t a hedge fund that was desperately shorting Wendy’s. If anything, Wendy’s top shareholder is the activist hedge fund Trian, run by Nelson Peltz. Fund managers such as Vanguard and BlackRock hold ~7% stake each in the company.
Cloud Kitchens And More
Wendy’s surpassed analyst expectations for the second straight quarter in Q2. The company’s revenue was the highest reported since Q3 of 2014.
Key Stats from Q2:
- Revenue: $493.3M Vs $460.3M expected
- Earnings Per Share: $0.27 Vs. $0.18 expected
- Announced 20% increase in quarterly cash dividend to $0.12
- 2025 Global Target: 8.5K-9K restaurants
In addition, the company has issued bullish guidance for the rest of the year, with sales growth expected around 12% Vs. the earlier forecast of 9%. It has also bumped up the anticipated EPS for the year to $0.80 compared to $0.73 earlier.
Its growth plans in the UK also include the “cloud kitchen” format to cater to the growing demand from the home delivery market. Wendy’s targets to have over 400 outlets in the UK.
And it’s not just the UK; Wendy’s has signed an agreement with Miami-based REEF Technologies to open ~700 cloud kitchens over the next five years across the US, the UK, and Canada.
The company has also updated its breakfast menu that was introduced in March 2020. By the end of 2022, Wendy’s expects breakfast to account for 10% of overall sales. In anticipation, the breakfast ad budget has been increased to $25M in 2021 (from $15M last year).
So all said and done, does Wendy’s have what it takes to graduate from the “meme” mania? The answer is “it depends.” A lot rides on how the cloud kitchen business takes off on both sides of the pond. For now, both the hedge fund investor and retail investors are aligned and rooting for the business to do better!
WEN ended at $22.85, up 3.72%.
Company Snapshot 📈
WEN $22.85 +0.82 (3.72%)
Analyst Ratings (29 Analysts) BUY 62% HOLD 38% SELL 7%
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Fun Fact of The Day 🌞
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