The Wendy's Company Reports Second Quarter 2021 Results

Company Increases Quarterly Dividend to 12 Cents

The Wendy’s Company (Nasdaq: WEN) today reported unaudited results for the second quarter ended July 4, 2021.

“We are thrilled to once again increase our 2021 financial outlook across all key financial metrics, driven by a transformative quarter that showcased our continued momentum and the overall strength of our business,” President and Chief Executive Officer Todd Penegor said. “Our robust growth continued in the second quarter, as sales significantly exceeded our expectations, leading to restaurant level margins of more than 20 percent and record profits, fueling our restaurant economic model.  We are also excited to meaningfully increase our 2025 Global restaurant target to 8,500 to 9,000, driven by a development commitment with REEF Kitchens, a new build to suit development fund, and incremental commitments through our latest new restaurant incentive program.  Our business momentum, strong partnership and health of our franchisees, and the dedication of our restaurant crew and support center teams reaffirms our confidence that we will achieve our vision of becoming the world’s most thriving and beloved restaurant brand.”

Second Quarter 2021 Summary

Operational Highlights

Second Quarter

Year-to-Date

2021

2020

2021

2020

Systemwide Sales Growth(1)

U.S.

20.6%

(4.0)%

16.9%

(1.6)%

International(2)

48.2%

(24.5)%

25.6%

(12.4)%

Global

22.9%

(6.2)%

17.7%

(2.7)%

Same-Restaurant Sales Growth(1)

U.S.

16.1%

(4.4)%

14.9%

(2.3)%

International(2)

31.4%

(18.4)%

19.0%

(10.1)%

Global

17.4%

(5.8)%

15.2%

(3.1)%

Systemwide Sales (In US$ Millions)(3)

U.S.

$2,897

$2,403

$5,545

$4,744

International(2)

$354

$220

$657

$493

Global

$3,251

$2,624

$6,202

$5,237

Restaurant Openings

U.S. – Total / Net

22 / 10

19 / 1

42 / 14

46 / 10

International – Total / Net

21 / 18

3 / 0

39 / 24

17 / 8

Global – Total / Net

43 / 28

22 / 1

81 / 38

63 / 18

Global Reimaging Completion Percentage

68%

61%

(1) Systemwide sales growth and same-restaurant sales growth are calculated on a constant currency basis and include sales by both Company-operated and franchise restaurants.

(2) Excludes Venezuela and Argentina.

(3) Systemwide sales include sales at both Company-operated and franchise restaurants.

Financial Highlights

Second Quarter

Year-to-Date

2021

2020

B / (W)

2021

2020

B / (W)

(In Millions Except Per Share Amounts)

(Unaudited)

(Unaudited)

Total Revenues

$

493.3

$

402.3

22.6

%

$

953.5

$

807.3

18.1

%

Adjusted Revenues(1)

$

391.1

$

324.2

20.6

%

$

761.8

$

650.6

17.1

%

Company-Operated Restaurant Margin

20.3%

14.4%

5.9

%

18.7%

12.2%

6.5

%

General and Administrative Expense

$

63.1

$

48.6

(29.9)

%

$

115.7

$

100.2

(15.5)

%

Operating Profit

$

126.7

$

60.7

108.9

%

$

209.9

$

109.4

91.9

%

Net Income

$

65.7

$

24.9

163.9

%

$

107.1

$

39.3

172.5

%

Adjusted EBITDA

$

131.1

$

97.4

34.5

%

$

252.1

$

186.8

35.0

%

Reported Diluted Earnings Per Share

$

0.29

$

0.11

163.6

%

$

0.47

$

0.17

176.5

%

Adjusted Earnings Per Share

$

0.27

$

0.12

125.0

%

$

0.47

$

0.21

123.8

%

Cash Flows from Operations

$

158.8

$

30.6

nm

Capital Expenditures

$

(24.1)

$

(29.4)

18.0

%

Free Cash Flow(2)

$

185.8

$

12.7

nm

(1) Total revenues less advertising funds revenue.

(2) Cash flows from operations minus capital expenditures, the impact of our advertising funds and cash paid for taxes related to the disposition of the New York market in Q2 2021.

Second Quarter Financial Highlights

Total Revenues
The increase in revenues was primarily driven by higher sales at Company-operated restaurants, an increase in franchise royalty revenue, and an increase in advertising funds.  These increases were primarily driven by positive same-restaurant sales.  Revenues also increased due to higher franchise fees primarily as the result of the Company’s new technology fee that was implemented in 2021.

Adjusted Revenues
The increase in adjusted revenues was primarily driven by higher sales at Company-operated restaurants and an increase in franchise royalty revenue.  These increases were primarily driven by positive same-restaurant sales.  Revenues also increased due to higher franchise fees primarily as the result of the Company’s new technology fee that was implemented in 2021.

Company-Operated Restaurant Margin
The increase in Company-operated restaurant margin was primarily the result of increased customer counts, a higher average check, and lapping recognition pay where the Company increased pay for all restaurant level employees by 10% for April and May in the prior year. The increase was partially offset by labor rate increases and higher commodity costs.

General and Administrative Expense
The increase in general and administrative expense was primarily driven by higher incentive and stock compensation accruals and technology costs primarily related to the Company’s ERP implementation.

Operating Profit
The increase in operating profit resulted primarily from higher franchise royalty revenue and fees, system optimization gains primarily related to the sale of the New York market, and an increase in Company-operated restaurant margin. These increases were partially offset by higher general and administrative expense.

Net Income
The increase in net income resulted primarily from higher operating profit. This was partially offset by a loss on early extinguishment of debt that the Company incurred as part of its debt refinancing completed in the second quarter of 2021.

Adjusted EBITDA
The increase in adjusted EBITDA resulted primarily from higher franchise royalty revenue and fees and an increase in Company-operated restaurant margin. These increases were partially offset by higher general and administrative expense.

Adjusted Earnings Per Share
The increase in adjusted earnings per share was primarily driven by an increase in adjusted EBITDA.

Year to Date Free Cash Flow
The increase in free cash flow resulted primarily from higher net income, higher royalties collected as the result of lapping the three month extension of royalty payment terms that was provided to franchisees in 2020 as part of the Company’s COVID relief package, the impact from the cash payment related to the settlement of the financial institutions case in January 2020, the timing of receipts of franchisee rental payments, and the timing of accrued compensation payments.

Company Adds $10 Million of Incremental Breakfast Advertising Spending to Its 2021 Plan

The Company announced today a $10 million incremental investment in breakfast advertising in 2021, taking the Company’s total expected incremental investment to $25 million for the year. The Company expects that this incremental investment will continue to drive trial and acceleration of the Company’s breakfast offering. The Company remains committed to growing its breakfast business to 10% of sales by the end of 2022.

Company Adds Significant Fuel to New Restaurant Development; Raises 2025 Target Meaningfully to 8,500 to 9,000 Global Restaurants

REEF Kitchens Development Commitment
The Company announced today a development commitment by REEF to open and operate 700 delivery kitchens over the next five years across the U.S., Canada, and the United Kingdom. This commitment is building on the successful test of eight delivery kitchens that opened in Canada. The Company expects REEF to open approximately 50 delivery kitchens in 2021 with the remainder being opened in 2022-2025.

Strategic Build to Suit Development Fund
The Company announced today the creation of a $100 million strategic build to suit development fund to drive additional new restaurant growth that is being funded by the additional cash that was obtained as part of the Company’s debt refinancing completed in the second quarter. We are expecting that this program, along with newly implemented lower and more competitive liquidity and net worth requirements for new franchisees, will transform how we recruit and engage diverse franchisees into the brand. The Company expects the development fund to drive approximately 80-90 new franchise restaurants in 2022-2025.

Groundbreaker Incentive Program Update
The Company also provided an update on the successful completion of its 2021 “Groundbreaker” new restaurant incentive program. As part of this program, the Company received incremental commitments for approximately 240 new restaurants in the U.S. and Canada that will help to solidify its significant growth plans over the next several years.

Company Increases Quarterly Dividend to 12 Cents

The Company announced today a 20% increase in its regular quarterly cash dividend to 12 cents per share, payable on September 15, 2021, to stockholders of record as of September 1, 2021.  The Company believes that its strengthening liquidity position, along with the momentum it is seeing in its business, supports this increase, while still leaving flexibility to invest in growth. The number of common shares outstanding as of August 4, 2021 was approximately 223 million.

Company Increases Share Repurchase Authorization by $70 million

The Company announced today that its Board of Directors has approved an increase to the Company’s existing share repurchase authorization by $70 million to a total of $220 million.

The Company repurchased 1.2 million shares for $27.3 million in the second quarter of 2021 and has repurchased 0.2 million shares for approximately $4.4 million thus far in the third quarter of 2021. As of the date of this release, approximately $100 million remains available under the Company’s newly increased $220 million share repurchase authorization that expires in February 2022.

2021 Outlook

During 2021, the Company Now Expects:

  • Global systemwide sales growth: 11 to 13 percent (excluding the impact of the 53rd week)
  • Adjusted EBITDA: $465 to $475 million (including $25 million of incremental Company breakfast advertising spending)
  • Adjusted earnings per share: $0.79 to $0.81
  • Cash flows from operations: $350 to $370 million
  • Capital expenditures: $80 to $90 million
  • Free cash flow: $270 to $280 million

The Wendy’s Company and Subsidiaries
Condensed Consolidated Statements of Operations
Three and Six Month Periods Ended July 4, 2021 and June 28, 2020
(In Thousands Except Per Share Amounts)
(Unaudited)

Three Months Ended

Six Months Ended

2021

2020

2021

2020

Revenues:

Sales

$

193,525

$

164,217

$

382,582

$

331,015

Franchise royalty revenue

119,566

97,191

227,900

192,547

Franchise fees

17,095

5,929

31,591

12,278

Franchise rental income

60,868

56,857

119,744

114,713

Advertising funds revenue

102,283

78,112

191,723

156,713

493,337

402,306

953,540

807,266

Costs and expenses:

Cost of sales

154,154

140,626

311,004

290,625

Franchise support and other costs

8,885

5,454

16,571

13,467

Franchise rental expense

34,068

31,297

66,634

60,598

Advertising funds expense

107,875

81,317

202,113

161,305

General and administrative

63,114

48,592

115,736

100,231

Depreciation and amortization

30,761

34,714

62,303

65,760

System optimization gains, net

(30,766)

(1,987)

(31,282)

(2,310)

Reorganization and realignment costs

2,102

2,911

7,036

6,821

Impairment of long-lived assets

630

117

1,265

4,704

Other operating income, net

(4,232)

(1,396)

(7,708)

(3,328)

366,591

341,645

743,672

697,873

Operating profit

126,746

60,661

209,868

109,393

Interest expense, net

(28,204)

(29,085)

(56,990)

(57,610)

Loss on early extinguishment of debt

(17,917)

(17,917)

Other income (expense), net

161

(144)

290

932

Income before income taxes

80,786

31,432

135,251

52,715

Provision for income taxes

(15,062)

(6,528)

(28,161)

(13,370)

Net income

$

65,724

$

24,904

$

107,090

$

39,345

Net income per share:

Basic

$

.30

$

.11

$

.48

$

.18

Diluted

.29

.11

.47

.17

Number of shares used to calculate basic income per share

221,874

223,123

222,604

223,329

Number of shares used to calculate diluted income per share

225,400

227,174

226,063

227,591

The Wendys Company and Subsidiaries

Condensed Consolidated Balance Sheets

As of July 4, 2021 and January 3, 2021

(In Thousands Except Par Value)

(Unaudited)

July 4,
2021

January 3,
2021

ASSETS

Current assets:

Cash and cash equivalents

$

568,139

$

306,989

Restricted cash

37,792

33,973

Accounts and notes receivable, net

103,257

109,891

Inventories

4,261

4,732

Prepaid expenses and other current assets

24,219

89,732

Advertising funds restricted assets

101,858

142,306

Total current assets

839,526

687,623

Properties

881,798

915,889

Finance lease assets

206,586

206,153

Operating lease assets

791,924

821,480

Goodwill

752,552

751,049

Other intangible assets

1,217,275

1,224,960

Investments

43,676

44,574

Net investment in sales-type and direct financing leases

302,694

268,221

Other assets

130,843

120,057

Total assets

$

5,166,874

$

5,040,006

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current portion of long-term debt

$

32,750

$

28,962

Current portion of finance lease liabilities

14,547

12,105

Current portion of operating lease liabilities

45,269

45,346

Accounts payable

32,430

31,063

Accrued expenses and other current liabilities

137,991

155,321

Advertising funds restricted liabilities

109,799

140,511

Total current liabilities

372,786

413,308

Long-term debt

2,373,610

2,218,163

Long-term finance lease liabilities

521,608

506,076

Long-term operating lease liabilities

838,585

865,325

Deferred income taxes

279,837

280,755

Deferred franchise fees

89,286

89,094

Other liabilities

120,806

117,689

Total liabilities

4,596,518

4,490,410

Commitments and contingencies

Stockholders’ equity:

Common stock, $0.10 par value; 1,500,000 shares authorized; 470,424 shares issued; 222,960 and 224,268 shares outstanding, respectively

47,042

47,042

Additional paid-in capital

2,907,274

2,899,276

Retained earnings

303,475

238,674

Common stock held in treasury, at cost; 247,464 and 246,156 shares, respectively

(2,643,361)

(2,585,755)

Accumulated other comprehensive loss

(44,074)

(49,641)

Total stockholders’ equity

570,356

549,596

Total liabilities and stockholders’ equity

$

5,166,874

$

5,040,006

The Wendy’s Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Six Month Periods Ended July 4, 2021 and June 28, 2020
(In Thousands)
(Unaudited)

Six Months Ended

2021

2020

Cash flows from operating activities:

Net income

$

107,090

$

39,345

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

62,303

65,760

Share-based compensation

11,033

9,326

Impairment of long-lived assets

1,265

4,704

Deferred income tax

(2,137)

1,920

Non-cash rental expense, net

20,075

12,251

Change in operating lease liabilities

(23,074)

(19,233)

Net receipt of deferred vendor incentives

3,332

7,728

System optimization gains, net

(31,282)

(2,310)

Distributions received from joint ventures, net of equity in earnings

2,354

1,262

Long-term debt-related activities, net

21,328

3,141

Changes in operating assets and liabilities and other, net

(13,536)

(93,332)

Net cash provided by operating activities

158,751

30,562

Cash flows from investing activities:

Capital expenditures

(24,069)

(29,402)

Acquisitions

4,879

Dispositions

50,531

4,320

Notes receivable, net

611

138

Net cash provided by (used in) investing activities

31,952

(24,944)

Cash flows from financing activities:

Proceeds from long-term debt

1,100,000

153,315

Repayments of long-term debt

(941,220)

(24,271)

Repayments of finance lease liabilities

(5,777)

(3,707)

Deferred financing costs

(20,873)

(2,122)

Repurchases of common stock

(83,658)

(45,137)

Dividends

(42,279)

(37,974)

Proceeds from stock option exercises

25,933

11,865

Payments related to tax withholding for share-based compensation

(3,197)

(3,704)

Net cash provided by financing activities

28,929

48,265

Net cash provided by operations before effect of exchange rate changes on cash

219,632

53,883

Effect of exchange rate changes on cash

2,283

(3,132)

Net increase in cash, cash equivalents and restricted cash

221,915

50,751

Cash, cash equivalents and restricted cash at beginning of period

418,241

358,707

Cash, cash equivalents and restricted cash at end of period

$

640,156

$

409,458

The Wendy’s Company and Subsidiaries
Reconciliations of Net Income to Adjusted EBITDA and Revenues to Adjusted Revenues
Three and Six Month Periods Ended July 4, 2021 and June 28, 2020
(In Thousands)
(Unaudited)

Three Months Ended

Six Months Ended

2021

2020

2021

2020

Net income

$

65,724

$

24,904

$

107,090

$

39,345

Provision for income taxes

15,062

6,528

28,161

13,370

Income before income taxes

80,786

31,432

135,251

52,715

Other (income) expense, net

(161)

144

(290)

(932)

Loss on early extinguishment of debt

17,917

17,917

Interest expense, net

28,204

29,085

56,990

57,610

Operating profit

126,746

60,661

209,868

109,393

Plus (less):

Advertising funds revenue

(102,283)

(78,112)

(191,723)

(156,713)

Advertising funds expense (a)

103,885

79,132

194,589

159,120

Depreciation and amortization

30,761

34,714

62,303

65,760

System optimization gains, net

(30,766)

(1,987)

(31,282)

(2,310)

Reorganization and realignment costs

2,102

2,911

7,036

6,821

Impairment of long-lived assets

630

117

1,265

4,704

Adjusted EBITDA

$

131,075

$

97,436

$

252,056

$

186,775

Revenues

$

493,337

$

402,306

$

953,540

$

807,266

Less:

Advertising funds revenue

(102,283)

(78,112)

(191,723)

(156,713)

Adjusted revenues

$

391,054

$

324,194

$

761,817

$

650,553

(a) Excludes advertising funds expense of $3,990 and $7,524 for the three and six months ended July 4, 2021, respectively, and $2,185 for the three and six months ended June 28, 2020 related to the Company funding of incremental advertising.

The Wendy’s Company and Subsidiaries
Reconciliation of Net Income and Diluted Earnings Per Share to
Adjusted Income and Adjusted Earnings Per Share
Three and Six Month Periods Ended July 4, 2021 and June 28, 2020
(In Thousands Except Per Share Amounts)
(Unaudited)

Three Months Ended

Six Months Ended

2021

2020

2021

2020

Net income

$

65,724

$

24,904

$

107,090

$

39,345

Plus (less):

Advertising funds revenue

(102,283)

(78,112)

(191,723)

(156,713)

Advertising funds expense (a)

103,885

79,132

194,589

159,120

System optimization gains, net

(30,766)

(1,987)

(31,282)

(2,310)

Reorganization and realignment costs

2,102

2,911

7,036

6,821

Impairment of long-lived assets

630

117

1,265

4,704

Loss on early extinguishment of debt

17,917

17,917

Total adjustments

(8,515)

2,061

(2,198)

11,622

Income tax impact on adjustments (b)

3,429

(268)

1,520

(3,698)

Total adjustments, net of income taxes

(5,086)

1,793

(678)

7,924

Adjusted income

$

60,638

$

26,697

$

106,412

$

47,269

Diluted earnings per share

$

.29

$

.11

$

.47

$

.17

Total adjustments per share, net of income taxes

(.02)

.01

.04

Adjusted earnings per share

$

.27

$

.12

$

.47

$

.21

(a) Excludes advertising funds expense of $3,990 and $7,524 for the three and six months ended July 4, 2021, respectively, and $2,185 for the three and six months ended June 28, 2020 related to the Company funding of incremental advertising.

(b) The provision for (benefit from) income taxes on “System optimization gains, net” was $8,742 and $512 for the three months ended July 4, 2021 and June 28, 2020, respectively, and $8,266 and $(734) for the six months ended July 4, 2021 and June 28, 2020, respectively.  The benefit from income taxes on all other adjustments (excluding the advertising funds adjustments) was calculated using an effective tax rate of 25.73% and 25.76% for the three months ended July 4, 2021 and June 28, 2020, respectively, and 25.73% and 25.72% for the six months ended July 4, 2021 and June 28, 2020, respectively.

The Wendy’s Company and Subsidiaries
Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow
Six Month Periods Ended July 4, 2021 and June 28, 2020
(In Thousands)
(Unaudited)

Six Months Ended

2021

2020

Net cash provided by operating activities

$

158,751

$

30,562

Less:

Capital expenditures

(24,069)

(29,402)

Cash paid for taxes related to New York disposition

9,512

Advertising funds impact (a)

41,621

11,526

Free cash flow

$

185,815

$

12,686

(a) Represents the net change in the restricted operating assets and liabilities of our advertising funds, which is included in “Changes in operating assets and liabilities and other, net,” and the excess of advertising funds expense over advertising funds revenue, which is included in “Net income.”

SOURCE The Wendy’s Company