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Wendy's Stock Rises on Earnings Beat, Delivery Kitchen Launch

Wendy's beats expectations, boosts its sales expectation, and unveils plans to open 700 delivery kitchens.
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Wendy's  (WEN) - Get Free Report shares rose Wednesday after the fast-food chain beat Wall Street's second-quarter earnings expectations, raised it sales forecast, and unveiled plans to open 700 delivery kitchens in the U.S., Canada, and the United Kingdom over the next five years.

Shares of the Dublin, Ohio, company climbed 2.8% to $22.65 at last check.

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Wendy's reported net income of $65.7 million, or 29 cents a share, up from $24.9 million, or 11 cents a share a year ago. Adjusted earnings came to 27 cents a share, beating the FactSet consensus for 18 cents. 

Revenue totaled $493.3 million, up from the year-ago tally of $402.3 million, surpassing FactSet's call for $462.6 million. Global same-restaurant sales rose 17.4%. 

The revenue increase was primarily driven by higher sales at company-operated restaurants, an increase in franchise royalty revenue, and an increase in advertising funds.

In addition, Wendy's raised its quarterly cash dividend 20% to 12 cents a share.

The company forecast global system-wide sales growth between 11% and 13% in 2021, compared with an earlier range of 8% to 10%.

Wendy's also announced a $10 million incremental investment in breakfast advertising in 2021, taking the total expected investment to $25 million for the year. The company said it is committed to growing its breakfast business to 10% of sales by the end of 2022.

Breakfast contributed 7.2% to the company's U.S. same-store sales growth during the first half.

Wendy's also said restaurant services provider Reef Kitchens would open and run 700 delivery kitchens, over the next five years. Wendy's said it expects to open about 50 delivery kitchens in 2021, with the remainder launched by 2025.

Reef's network of delivery kitchens, in over 30 cities around the world, helps reduce traffic congestion and pollution by bringing food closer to the customer, Wendy's said.

MKM Partners analyst Brett Levy said in note that one “encouraging item” in the earnings release was a “significant step up” in Wendy’s 2025 development plans, which now call for about 8,500 to 9,000 units across multiple platforms, according to Bloomberg.

"Wendy's is choosing to reinvest $10M of the upside towards incremental breakfast advertising while a recent refinancing will be used to deploy $100M towards supporting franchisee development," said Cowen analyst Andrew Charles, who rates the company market perform

Charles said that he did not expect "this to get in the way of a compelling cash return to the shareholder story."

In June, Wendy's surged to an all-time high as the restaurant chain entered the world of meme stocks. Wendy's beat first-quarter expectations in May.