16 July 2024
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Wendy’s: Reports Preliminary 2017 Results

Dublin / OH. (twc) The Wendy’s Company reported preliminary unaudited results for the fourth quarter and full year ended December 31, 2017. The Company plans to release its audited financial results on or before February 28, 2018.

«Our strong 2017 results demonstrate the strength of the «Wendy’s» brand and are a testament to our successful transition to a predominantly franchised business model», President and Chief Executive Officer Todd Penegor said. «We are very proud of the fact that we have now recorded 20 consecutive quarters of positive same-restaurant sales in North America, two consecutive years of positive global net new restaurant growth and that North America AUVs have reached an all-time high of USD 1.61 million. Thanks to our significantly increased cash flows and resilient bottom line, we continue to reward shareholders through dividends and share repurchases, with USD 196 million of cash returned to shareholders in 2017. Our relentless focus on executing every element of The Wendy’s Way by providing food our customers love, friendly service, value, and an inviting atmosphere will continue to drive growth in the future».

Preliminary Fourth Quarter and Full Year 2017 Summary

Operational Highlights Fourth Quarter Full Year
2017 2016 2017 2016
(Unaudited) (Unaudited)
North America Same-Restaurant Sales Growth(1) 1.3% 0.8% 2.0% 1.6%
Restaurant Openings (Total/Net)
North America 40/25 34/3 97/32 99/22
International 24/23 33/31 77/65 50/36
Global 64/48 67/34 174/97 149/58
Systemwide Sales (In USD Millions)(2)
North America USD 2’442 USD 2’381 USD 9’806 USD 9’510
International(3) USD 126 USD 111 USD 477 USD 420
Global USD 2’568 USD 2’492 USD 10’283 USD 9’930

.

Operational Highlights (Continued) Fourth Quarter Full Year
2017 2016 2017 2016
(Unaudited) (Unaudited)
Systemwide Sales Growth(1)
North America 2.4% 1.2% 3.0% 2.5%
International(3) 14.6% 11.0% 14.8% 5.8%
Global 2.9% 1.6% 3.5% 2.6%

(1) Same-restaurant sales growth and systemwide sales growth are calculated on a constant currency basis and include sales by both Company-operated and franchise restaurants. 2016 growth rates exclude the impact of the 53rd week in 2015.
(2) Systemwide sales include sales at both Company-operated and franchise restaurants. Sales by franchise restaurants are not recorded as Company revenues. However, the Company’s royalty revenues are computed as percentages of sales made by franchisees and, as a result, sales by franchisees have a direct effect on the Company’s royalty revenues and therefore on the Company’s profitability.
(3) Excludes Venezuela.

Preliminary Fourth Quarter Financial Highlights

  • Total revenues were USD 309.2 million in the fourth quarter of 2017, compared to USD 309.9 million in the fourth quarter of 2016. Total revenues were essentially flat year-over-year despite the ownership of 90 fewer Company-operated restaurants at the end of the fourth quarter 2017 compared to the beginning of the fourth quarter 2016, which resulted in fewer sales at Company-operated restaurants, offset by higher franchise royalty revenue, fees and rental income.
  • Company-operated restaurant margin was 17.5 percent in the fourth quarter of 2017, compared to 18.8 percent in the fourth quarter of 2016. The 130 basis-point decrease was primarily the result of higher commodity and labor costs, partially offset by lower other operating costs.
  • General and administrative expense was USD 51.9 million in the fourth quarter of 2017, compared to USD 61.2 million in the fourth quarter of 2016. The 15.2 percent decrease resulted primarily from lower professional fees and cost savings related to the Company’s system optimization initiative.
  • Operating profit was USD 66.6 million in the fourth quarter of 2017, compared to USD 79.2 million in the fourth quarter of 2016. The 15.9 percent decrease resulted primarily from a year-over-year decrease in gains from the Company’s system optimization initiative, in addition to the items discussed above.
  • Net income was USD 159.3 million in the fourth quarter of 2017, compared to net income of USD 28.9 million in the fourth quarter of 2016. In addition to the items discussed above, the year-over-year increase of 451.3 percent resulted primarily from a decrease in the effective tax rate due to revaluing deferred tax assets and liabilities at the lower U.S. corporate tax rate as a result of the Tax Cuts and Jobs Act of 2017.
  • Adjusted Ebitda was USD 104.0 million in the fourth quarter of 2017, compared to USD 91.1 million in the fourth quarter of 2016. Adjusted Ebitda increased 14.2 percent year-over-year, despite the ownership of 90 fewer Company-operated restaurants at the end of the fourth quarter 2017 compared to the beginning of the fourth quarter 2016. General and administrative expense savings and an increase in franchise net rental income, fees and royalties contributed to the year-over-year improvement.
  • Adjusted Ebitda margin was 33.6 percent in the fourth quarter of 2017, compared to 29.4 percent in the fourth quarter of 2016. The 420 basis-point improvement reflects the positive impact of the Company’s system optimization initiative.
  • Reported diluted earnings per share were USD 0.64 in the fourth quarter of 2017, compared to USD 0.11 in the fourth quarter of 2016.
  • Adjusted earnings per share were USD 0.11 in the fourth quarter of 2017, compared to USD 0.08 in the fourth quarter of 2016. The 37.5 percent increase resulted primarily from the items discussed above and reflects a 2.9 percent year-over-year reduction in the weighted average diluted shares outstanding. The net positive impact from the Tax Cuts and Jobs Act of 2017, primarily the result of revaluing the Company’s deferred tax assets and liabilities, has been excluded from the Company’s adjusted earnings per share results.

Preliminary Full Year 2017 Financial Highlights

  • Total revenues were USD 1’223.4 million in 2017, compared to USD 1’435.4 million in 2016. The 14.8 percent decrease resulted primarily from the ownership of 295 fewer Company-operated restaurants at the end of 2017 compared to the beginning of 2016, which resulted in fewer sales at Company-operated restaurants, partly offset by higher franchise royalty revenue, fees and rental income.
  • Company-operated restaurant margin was 17.6 percent in 2017, compared to 19.1 percent in 2016. The 150 basis-point decrease was primarily the result of higher labor and commodity costs, partially offset by lower other operating costs.
  • General and administrative expense was USD 208.6 million in 2017, compared to USD 245.9 million in 2016. The 15.2 percent decrease resulted primarily from lower professional fees and cost savings related to the Company’s system optimization initiative.
  • Operating profit was USD 214.8 million in 2017, compared to USD 314.8 million in 2016. The 31.8 percent decrease resulted primarily from a year-over-year decrease in gains from the Company’s system optimization initiative and higher reorganization and realignment costs related to the Company’s G+A savings initiative, in addition to the items discussed above.
  • Net income was USD 194.0 million in 2017, compared to net income of USD 129.6 million in 2016. In addition to the items discussed above, the year-over-year increase of 49.7 percent resulted primarily from a decrease in the effective tax rate due to revaluing deferred tax assets and liabilities at the lower U.S. corporate tax rate as a result of the Tax Cuts and Jobs Act of 2017.
  • Adjusted Ebitda was USD 406.2 million in 2017, compared to USD 391.9 million in 2016. Adjusted Ebitda increased 3.7 percent year-over-year, despite the ownership of 295 fewer Company-operated restaurants at the end of 2017 compared to the beginning of 2016. General and administrative expense savings and an increase in franchise net rental income, royalties and fees contributed to the year-over-year improvement.
  • Adjusted Ebitda margin was 33.2 percent in 2017, compared to 27.3 percent in 2016. The 590 basis-point improvement reflects the positive impact of the Company’s system optimization initiative.
  • Reported diluted earnings per share were USD 0.77 in 2017, compared to USD 0.49 in 2016.
  • Adjusted earnings per share were USD 0.43 in 2017, compared to USD 0.40 in 2016. The 7.5 percent increase resulted primarily from the items discussed above and reflects a 5.4 percent year-over-year reduction in the weighted average diluted shares outstanding. The net positive impact from the Tax Cuts and Jobs Act of 2017, primarily the result of revaluing the Company’s deferred tax assets and liabilities, has been excluded from the Company’s adjusted earnings per share results.
  • Cash flows from operations were USD 251.6 million in 2017, compared to USD 188.9 million in 2016. The 33.2 percent increase was the result of an increase in net income adjusted for non-cash expenses and a favorable change in working capital.
  • Capital expenditures were USD 81.7 million in 2017, compared to USD 150.0 million in 2016. The 45.5 percent decrease resulted primarily from the ownership of fewer Company-operated restaurants through the Company’s system optimization initiative.
  • Free cash flow was USD 169.9 million in 2017, compared to USD 38.9 million in 2016. The 336.7 percent increase resulted from a year-over-year decrease in capital expenditures and higher cash flows from operations.

New Restaurant Development

In 2017, the Company achieved 1.5 percent global net new restaurant growth, which represents the Company’s highest growth rate since 2004. North America contributed 0.5 percent net new restaurant growth and International grew by 14.8 percent during 2017. The Company expects 2018 global net new unit growth of approximately 2 percent, with approximately 1 percent growth in North America and approximately 16 percent growth for International.

Image Activation

Image Activation, which includes reimaging existing restaurants and building new restaurants, remains an integral part of our global growth strategy. During 2017, the Company and its franchisees reimaged 551 restaurants in North America, an increase from the 521 reimages that were completed in 2016, and built 174 global restaurants. At the end of 2017, 43 percent of the global system was image activated, slightly ahead of the Company’s prior expectations. Approximately 10 percent of the global system is expected to be image activated on an annual basis through 2020.

Franchisee-to-franchisee restaurant transfers

During the fourth quarter of 2017, the Company facilitated 130 Buy and Flips, bringing the full year total to 540. The Company will continue to facilitate franchisee-to-franchisee restaurant transfers to ensure that restaurants are operated by well-capitalized franchisees that are committed to long-term growth. Franchisee-to-franchisee restaurant transfers that were previously referred to as Buy and Flips, will now be referred to as Franchise Flips, due to the Company being more selectively involved in the related real estate. The Company expects to complete approximately 200 Franchise Flips in 2018.

USD 196 million returned to shareholders through dividends and share repurchases in 2017
In 2017, the Company repurchased 8.6 million shares for USD 127.4 million and distributed USD 68.3 million in dividends. At the end of 2017, the Company had USD 22.6 million remaining on its existing USD 150 million share repurchase authorization, which expires on March 4, 2018.

On February 15, 2018, the Company announced that its Board of Directors authorized a 21 percent increase in its quarterly cash dividend rate and a new share repurchase program for up to USD 175 million of the Company’s common stock through March 3, 2019. The Company’s new quarterly cash dividend rate of 8.5 cents per share will be effective with its next dividend payment, which is payable on March 15, 2018, to shareholders of record as of March 1, 2018.

Arby’s equity stake

At the end of 2017, the estimated fair value of the Company’s 18.5 percent equity stake in Arby’s was approximately USD 325 million. The Company’s equity stake was diluted to 12.3 percent on February 5, 2018, when Arby’s acquired Buffalo Wild Wings, and will encompass both brands under the newly formed combined company, Inspire Brands.

2018 outlook

This release includes forward-looking guidance for certain non-GAAP financial measures, including adjusted Ebitda, adjusted earnings per share and adjusted tax rate. The Company excludes certain expenses and benefits from adjusted Ebitda, adjusted earnings per share and adjusted tax rate, such as impairment of long-lived assets, reorganization and realignment costs, system optimization (gains) losses, net and timing and resolution of certain tax matters. Due to the uncertainty and variability of the nature and amount of those expenses and benefits, the Company is unable without unreasonable effort to provide projections of net income, earnings per share or reported tax rate or a reconciliation of projected adjusted Ebitda, adjusted earnings per share or adjusted tax rate to projected net income, earnings per share or reported tax rate.

The amounts shown below reflect the impact from the new revenue recognition accounting standard, certain other income statement reclassifications and the Tax Cuts and Jobs Act of 2017. The Company expects aspects of the Tax Cuts and Jobs Act of 2017 to be clarified in the future, which could affect elements of the 2018 outlook. In addition, the Company intends to exclude the impact from consolidating the national advertising funds’ revenues and expenses onto the income statement, as a result of the new revenue recognition accounting standard, from all adjusted financial measures going forward. During 2018, the Company expects:

  • North America same-restaurant sales growth of approximately 2.0 to 2.5 percent.
  • Commodity inflation of approximately 1 to 2 percent.
  • Labor inflation of approximately 3 to 4 percent.
  • Company-operated restaurant margin of approximately 17 to 18 percent.
  • General and administrative expense of approximately USD 195 million.
  • Adjusted Ebitda of approximately USD 420 to USD 430 million, an increase of approximately 8 to 10 percent compared to recast 2017 results.
  • Adjusted Ebitda margin of approximately 33 to 34 percent.
  • Interest expense of approximately USD 120 million.
  • Depreciation and amortization expense of approximately USD 128 million.
  • An adjusted tax rate of approximately 23 to 25 percent.
  • Adjusted earnings per share of approximately USD 0.54 to USD 0.56, an increase of approximately 38 to 44 percent compared to recast 2017 results.
  • Cash flows from operations of approximately USD 295 to USD 320 million.
  • Capital expenditures of approximately USD 75 to USD 80 million.
  • Free cash flow of approximately USD 220 to USD 240 million, an increase of approximately 29 to 41 percent compared to 2017.

Company updates 2020 goals

After accounting for 2017 results and updating its long-range plan, the Company has updated certain of its 2020 goals. By the end of 2020, the Company now expects:

  • Global restaurant count of ~7’250.
  • Adjusted Ebitda margin of 37 to 39 percent.
  • Free cash flow of ~USD 300 million (capital expenditures of ~USD 65 million).

In addition, the Company continues to expect to achieve the following goals by the end of 2020:

  • Global systemwide sales (in constant currency and excluding Venezuela) of ~USD 12 billion.
  • Global Image Activation of at least 70 percent.

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