Yahoo Finance Here's Why Investors Should Retain Wendy's (WEN) Stock Now
The Wendy's Company WEN is likely to benefit from solid comps growth, digital initiatives and Breakfast daypart offerings. This and the focus delivery system enhancements bode well. However, inflationary pressures are a concern.
Let us discuss the factors that highlight why investors should retain the stock for the time being.
Growth Catalysts
The company continues to impress investors with robust global same-restaurant sales growth. In first-quarter fiscal 2023, the company reported global comps growth of 8% (year over year) and 10.4% (on a two-year basis). The upside was driven by continued strength across its U.S. and international businesses. During the quarter, same-restaurant sales at international restaurants (excluding Argentina) rose 13.9% year over year compared with growth of 14.1% in the year-ago quarter. Comps at Global restaurants rose 8% year over year compared with a 2.4% increase reported in the prior-year quarter. Comps in the United States witnessed an improvement of 7.2% year over year compared with an increase of 1.1% in the prior-year quarter. The uptick was primarily backed by strategic pricing actions and growth in customer count. The company expects 6-8% growth in global system-wide sales in fiscal 2023.
Wendy’s is focused on digitalization to drive growth. During first-quarter fiscal 2023, the company had nearly 11% of its sales generated through digital channels in the United States and approximately 19% in international markets. This was driven by gains in delivery and mobile ordering sales and several successful promotions. The company has been witnessing higher average checks. WEN emphasized on expanding its delivery and mobile order access and efficiency, fine-tuning user experience and developing a one-to-one marketing program to boost digital business and drive growth.
Recently, the company announced partnership with Pipedream, a hyperlogistics company, to initiate the testing of underground delivery system. The concept is based on the idea of using autonomous robots to transport meals underground and deliver at the car-side Instant Pickup portal. The initiative enhances digital customer offerings with a fast and convenient pick-up option and paves the path for increased efficiencies at restaurants by streamlining digital order pick-up points. The company stated the integration of the Pipedream's Instant Pickup system at its restaurant in the upcoming period.
Wendy’s focuses on Breakfast daypart Offerings to drive incremental sales. During first-quarter fiscal 2023, the company reported strong breakfast performance in Canada. The company has been benefiting from its marketing, high-quality offerings, repeat ordering and high customer satisfaction levels. It stated benefits from French Toast Sticks and traffic-driving Croissant promotion. The company emphasized on menu innovation, creating awareness for new products and promoting targeted trial-driving offers to drive growth. For 2023, the company has set aside $2 million with respect to its investment in breakfast advertising.
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In the past year, shares of the company have gained 41.4% compared with the industry’s 33.5% growth.
Concerns
Wendy’s has been continuously shouldering increased expenses, for quite some time. During the first quarter of fiscal 2023, the company’s total cost of sales came in at $196.5 million compared with $185.1 million reported in the prior-year quarter. The downside was primarily due to higher commodity and labor costs, a decline in customer counts and increased investments (to support the entry into the U.K. market). In 2023, the company anticipates commodity and labor inflation to be in mid-single digits.
Zacks Rank & Key Picks
Wendy's currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector are Chipotle Mexican Grill, Inc. CMG, Arcos Dorados Holdings Inc. ARCO and Chuy's Holdings, Inc. CHUY.
Chipotle carries a Zacks Rank #1 (Strong Buy). CMG has a long-term earnings growth rate of 31.8%. The stock has improved 61.9% in the past year. You can see the complete list of today’s Zacks Rank #1 stocks here.
The Zacks Consensus Estimate for Chipotle’s 2024 sales and EPS suggests growth of 12.4% and 19.7%, respectively, from the year-ago period’s levels.
Arcos Dorados carries a Zacks Rank #2 (Buy). ARCO has a long-term earnings growth rate of 9.5%. The stock has gained 20.9% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales suggests growth of 13.4% from the year-ago period’s levels.
Chuy’s Holdings carries a Zacks Rank #2. CHUY has a trailing four-quarter earnings surprise of 23.4%, on average. Shares of CHUY have increased 89.4% in the past year.
The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 10.1% and 23.4%, respectively, from the year-ago period’s levels.
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Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report
The Wendy's Company (WEN) : Free Stock Analysis Report
Chuy's Holdings, Inc. (CHUY) : Free Stock Analysis Report
Arcos Dorados Holdings Inc. (ARCO) : Free Stock Analysis Report
