The Wendy's Company Reports Third Quarter 2021 Results
The Wendy’s Company (Nasdaq: WEN) today reported unaudited results for the third quarter ended October 3, 2021.
“We are extremely proud of the progress we are making against our three strategic growth pillars,” President and Chief Executive Officer Todd Penegor said. “We continued to grow our breakfast business, digital sales accelerated, and we meaningfully expanded our global footprint in the third quarter. Global Same-Restaurant sales grew in the high-single digits on a 2-year basis, reinforcing the strength of our brand in a challenging environment. Our focus on executing against our key priorities and our continued partnership with the best franchisees in the business give me confidence that we will achieve our vision of becoming the world’s most thriving and beloved restaurant brand.”
Third Quarter 2021 Summary
Operational Highlights |
Third Quarter |
Year-to-Date |
|||||
2021 |
2020 |
2021 |
2020 |
||||
Systemwide Sales Growth(1) |
|||||||
U.S. |
3.7% |
7.9% |
12.1% |
1.6% |
|||
International(2) |
20.2% |
(3.5)% |
23.6% |
(9.3)% |
|||
Global |
5.3% |
6.7% |
13.2% |
0.5% |
|||
Same-Restaurant Sales Growth(1) |
|||||||
U.S. |
2.1% |
7.0% |
10.2% |
0.9% |
|||
International(2) |
14.7% |
(2.1)% |
17.4% |
(7.3)% |
|||
Global |
3.3% |
6.1% |
10.9% |
—% |
|||
Systemwide Sales (In US$ Millions)(3) |
|||||||
U.S. |
$2,791 |
$2,692 |
$8,336 |
$7,436 |
|||
International(2) |
$362 |
$291 |
$1,020 |
$784 |
|||
Global |
$3,154 |
$2,983 |
$9,356 |
$8,220 |
|||
Restaurant Openings |
|||||||
U.S. – Total / Net |
27 / 6 |
27 / 12 |
69 / 20 |
73 / 22 |
|||
International – Total / Net |
21 / 19 |
6 / (4) |
60 / 43 |
23 / 4 |
|||
Global – Total / Net |
48 / 25 |
33 / 8 |
129 / 63 |
96 / 26 |
|||
Global Reimaging Completion Percentage |
70% |
62% |
|||||
(1) Systemwide sales growth and same-restaurant sales growth are calculated on a constant currency basis and include sales |
|||||||
(2) Excludes Venezuela and Argentina. |
|||||||
(3) Systemwide sales include sales at both Company-operated and franchise restaurants. |
Financial Highlights |
Third Quarter |
Year-to-Date |
|||||||||||||||||||
2021 |
2020 |
B / (W) |
2021 |
2020 |
B / (W) |
||||||||||||||||
(In Millions Except Per Share Amounts) |
(Unaudited) |
(Unaudited) |
|||||||||||||||||||
Total Revenues |
$ |
470.3 |
$ |
452.2 |
4.0 |
% |
$ |
1,423.8 |
$ |
1,259.5 |
13.0 |
% |
|||||||||
Adjusted Revenues(1) |
$ |
372.3 |
$ |
367.5 |
1.3 |
% |
$ |
1,134.1 |
$ |
1,018.0 |
11.4 |
% |
|||||||||
Company-Operated Restaurant Margin |
14.4% |
16.9% |
(2.5) |
% |
17.4% |
13.9% |
3.5% |
||||||||||||||
General and Administrative Expense |
$ |
62.8 |
$ |
47.3 |
(32.8) |
% |
$ |
178.6 |
$ |
147.6 |
(21.0) |
% |
|||||||||
Operating Profit |
$ |
80.2 |
$ |
81.3 |
(1.4) |
% |
$ |
290.1 |
$ |
190.7 |
52.1 |
% |
|||||||||
Net Income |
$ |
41.2 |
$ |
39.8 |
3.6 |
% |
$ |
148.3 |
$ |
79.1 |
87.5 |
% |
|||||||||
Adjusted EBITDA |
$ |
112.2 |
$ |
118.8 |
(5.6) |
% |
$ |
364.2 |
$ |
305.6 |
19.2 |
% |
|||||||||
Reported Diluted Earnings Per Share |
$ |
0.18 |
$ |
0.17 |
5.9 |
% |
$ |
0.66 |
$ |
0.35 |
88.6 |
% |
|||||||||
Adjusted Earnings Per Share |
$ |
0.19 |
$ |
0.19 |
— |
% |
$ |
0.66 |
$ |
0.40 |
65.0 |
% |
|||||||||
Cash Flows from Operations |
$ |
276.7 |
$ |
205.8 |
34.5 |
% |
|||||||||||||||
Capital Expenditures |
$ |
(43.4) |
$ |
(44.9) |
3.3 |
% |
|||||||||||||||
Free Cash Flow(2) |
$ |
273.7 |
$ |
133.6 |
104.9 |
% |
|||||||||||||||
(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 |
Third Quarter Financial Highlights
Total Revenues
The increase in revenues was primarily driven by higher franchise fees, as well as an increase in advertising funds and franchise royalty revenue, both of which were largely due to higher same-restaurant sales. The increase was partially offset by lower sales at Company-operated restaurants due to the sale of the Company’s New York market during the second quarter of 2021.
Company-Operated Restaurant Margin
The decrease in Company-operated restaurant margin was primarily the result of labor rate increases, higher commodity costs, lower local advertising spend in the prior year, and customer count declines. These decreases were partially offset by a higher average check.
General and Administrative Expense
The increase in general and administrative expense was primarily driven by higher incentive and stock compensation accruals, technology costs primarily related to the Company’s ERP implementation, and increased travel expenses.
Operating Profit
The decrease in operating profit resulted primarily from higher general and administrative expense, a decrease in Company-operated restaurant margin, and higher franchise support and other costs. These decreases were partially offset by higher franchise royalty revenue and fees.
Net Income
The increase in net income resulted primarily from lower interest expense as a result of the Company’s debt refinancing completed in the second quarter of 2021. This was partially offset by a decrease in operating profit.
Adjusted EBITDA
The decrease in adjusted EBITDA resulted primarily from higher general and administrative expense, a decrease in Company-operated restaurant margin, and higher franchise support and other costs. These decreases were partially offset by higher franchise royalty revenue and fees.
Adjusted Earnings Per Share
Adjusted earnings per share was flat to the prior year driven by lower adjusted EBITDA offset by a decrease in interest expense and lower depreciation and amortization expense.
Year to Date Free Cash Flow
The increase in free cash flow resulted primarily from higher net income, 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 Declares Quarterly Dividend
The Company announced today the declaration of its regular quarterly cash dividend of 12 cents per share, payable on December 15, 2021, to shareholders of record as of December 1, 2021. The number of common shares outstanding as of November 3, 2021 was approximately 221 million.
Company Increases Share Repurchase Authorization by $80 Million; Announces $125 Million Accelerated Share Repurchase Program
The Company announced today that its Board of Directors has approved an increase to the Company’s existing share repurchase authorization of $80 million to a total of $300 million. As part of this increased authorization, the Company intends to launch a $125 million accelerated share repurchase program in the fourth quarter of 2021.
The Company repurchased 1.9 million shares for $43.8 million in the third quarter of 2021 and has repurchased 0.7 million shares for $15.5 million thus far in the fourth quarter of 2021. As of the date of this release, approximately $125.1 million remains available under the Company’s increased $300 million share repurchase authorization that expires in February 2022.
2021 Outlook
During 2021, the Company Now Expects:
- Global systemwide sales growth: 11 to 12 percent (excluding the impact of the 53rd week)
- Adjusted EBITDA: $465 to $470 million
- Adjusted earnings per share: $0.79 to $0.80
- Cash flows from operations: $345 to $365 million
- Capital expenditures: $75 to $85 million
- Free cash flow: $270 to $280 million
Company to Host Virtual Investor Day on March 10, 2022 and Release Preliminary Fourth Quarter and Full-Year 2021 Results on February 10, 2022
The Company will host a virtual investor day on Thursday, March 10, 2022 where it plans to provide an update on its long-term strategic vision, re-introduce its long-term outlook, and issue its outlook for 2022. The event will be available to all interested parties via webcast from the Company’s Investor Relations website at www.irwendys.com.
In advance of its Investor Day, the Company plans to release its preliminary fourth quarter and full-year 2021 results on Thursday, February 10, 2022. The Company will host a conference call that same morning at 8:30 a.m. ET, with a simultaneous webcast from the Company’s Investor Relations website at www.irwendys.com.
The Wendy‘s Company and Subsidiaries Condensed Consolidated Statements of Operations Three and Nine Month Periods Ended October 3, 2021 and September 27, 2020 (In Thousands Except Per Share Amounts) (Unaudited) |
|||||||||||||||
Three Months Ended |
Nine Months Ended |
||||||||||||||
2021 |
2020 |
2021 |
2020 |
||||||||||||
Revenues: |
|||||||||||||||
Sales |
$ |
171,078 |
$ |
191,946 |
$ |
553,660 |
$ |
522,961 |
|||||||
Franchise royalty revenue |
116,521 |
109,344 |
344,421 |
301,891 |
|||||||||||
Franchise fees |
22,234 |
7,476 |
53,825 |
19,754 |
|||||||||||
Franchise rental income |
62,446 |
58,721 |
182,190 |
173,434 |
|||||||||||
Advertising funds revenue |
97,976 |
84,755 |
289,699 |
241,468 |
|||||||||||
470,255 |
452,242 |
1,423,795 |
1,259,508 |
||||||||||||
Costs and expenses: |
|||||||||||||||
Cost of sales |
146,436 |
159,545 |
457,440 |
450,170 |
|||||||||||
Franchise support and other costs |
10,509 |
5,960 |
27,080 |
19,427 |
|||||||||||
Franchise rental expense |
34,424 |
32,426 |
101,058 |
93,024 |
|||||||||||
Advertising funds expense |
108,529 |
92,048 |
310,642 |
253,353 |
|||||||||||
General and administrative |
62,840 |
47,322 |
178,576 |
147,553 |
|||||||||||
Depreciation and amortization |
30,940 |
32,966 |
93,243 |
98,726 |
|||||||||||
System optimization gains, net |
(1,437) |
(23) |
(32,719) |
(2,333) |
|||||||||||
Reorganization and realignment costs |
345 |
3,375 |
7,381 |
10,196 |
|||||||||||
Impairment of long-lived assets |
566 |
23 |
1,831 |
4,727 |
|||||||||||
Other operating income, net |
(3,092) |
(2,748) |
(10,800) |
(6,076) |
|||||||||||
390,060 |
370,894 |
1,133,732 |
1,068,767 |
||||||||||||
Operating profit |
80,195 |
81,348 |
290,063 |
190,741 |
|||||||||||
Interest expense, net |
(26,000) |
(29,086) |
(82,990) |
(86,696) |
|||||||||||
Loss on early extinguishment of debt |
— |
— |
(17,917) |
— |
|||||||||||
Other income, net |
171 |
181 |
461 |
1,113 |
|||||||||||
Income before income taxes |
54,366 |
52,443 |
189,617 |
105,158 |
|||||||||||
Provision for income taxes |
(13,195) |
(12,690) |
(41,356) |
(26,060) |
|||||||||||
Net income |
$ |
41,171 |
$ |
39,753 |
$ |
148,261 |
$ |
79,098 |
|||||||
Net income per share: |
|||||||||||||||
Basic |
$ |
.19 |
$ |
.18 |
$ |
.67 |
$ |
.35 |
|||||||
Diluted |
.18 |
.17 |
.66 |
.35 |
|||||||||||
Number of shares used to calculate basic income |
222,373 |
223,907 |
222,527 |
223,521 |
|||||||||||
Number of shares used to calculate diluted income |
225,058 |
228,317 |
225,728 |
227,833 |
The Wendy‘s Company and Subsidiaries Condensed Consolidated Balance Sheets As of October 3, 2021 and January 3, 2021 (In Thousands Except Par Value) (Unaudited) |
|||||||
October 3, 2021 |
January 3, 2021 |
||||||
ASSETS |
|||||||
Current assets: |
|||||||
Cash and cash equivalents |
$ |
571,502 |
$ |
306,989 |
|||
Restricted cash |
36,321 |
33,973 |
|||||
Accounts and notes receivable, net |
100,265 |
109,891 |
|||||
Inventories |
4,257 |
4,732 |
|||||
Prepaid expenses and other current assets |
23,820 |
89,732 |
|||||
Advertising funds restricted assets |
107,320 |
142,306 |
|||||
Total current assets |
843,485 |
687,623 |
|||||
Properties |
873,250 |
915,889 |
|||||
Finance lease assets |
210,660 |
206,153 |
|||||
Operating lease assets |
783,986 |
821,480 |
|||||
Goodwill |
751,805 |
751,049 |
|||||
Other intangible assets |
1,209,695 |
1,224,960 |
|||||
Investments |
41,356 |
44,574 |
|||||
Net investment in sales-type and direct financing leases |
305,242 |
268,221 |
|||||
Other assets |
137,468 |
120,057 |
|||||
Total assets |
$ |
5,156,947 |
$ |
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 |
15,915 |
12,105 |
|||||
Current portion of operating lease liabilities |
45,541 |
45,346 |
|||||
Accounts payable |
26,506 |
31,063 |
|||||
Accrued expenses and other current liabilities |
158,800 |
155,321 |
|||||
Advertising funds restricted liabilities |
127,673 |
140,511 |
|||||
Total current liabilities |
407,185 |
413,308 |
|||||
Long-term debt |
2,360,763 |
2,218,163 |
|||||
Long-term finance lease liabilities |
528,775 |
506,076 |
|||||
Long-term operating lease liabilities |
830,488 |
865,325 |
|||||
Deferred income taxes |
279,813 |
280,755 |
|||||
Deferred franchise fees |
90,086 |
89,094 |
|||||
Other liabilities |
117,083 |
117,689 |
|||||
Total liabilities |
4,614,193 |
4,490,410 |
|||||
Commitments and contingencies |
|||||||
Stockholders’ equity: |
|||||||
Common stock, $0.10 par value; 1,500,000 shares authorized; 470,424 shares |
47,042 |
47,042 |
|||||
Additional paid-in capital |
2,911,552 |
2,899,276 |
|||||
Retained earnings |
317,956 |
238,674 |
|||||
Common stock held in treasury, at cost; 249,123 and 246,156 shares, respectively |
(2,685,063) |
(2,585,755) |
|||||
Accumulated other comprehensive loss |
(48,733) |
(49,641) |
|||||
Total stockholders’ equity |
542,754 |
549,596 |
|||||
Total liabilities and stockholders’ equity |
$ |
5,156,947 |
$ |
5,040,006 |
The Wendy’s Company and Subsidiaries Condensed Consolidated Statements of Cash Flows Nine Month Periods Ended October 3, 2021 and September 27, 2020 (In Thousands) (Unaudited) |
|||||||
Nine Months Ended |
|||||||
2021 |
2020 |
||||||
Cash flows from operating activities: |
|||||||
Net income |
$ |
148,261 |
$ |
79,098 |
|||
Adjustments to reconcile net income to net cash provided by operating activities: |
|||||||
Depreciation and amortization |
93,243 |
98,726 |
|||||
Share-based compensation |
16,735 |
15,112 |
|||||
Impairment of long-lived assets |
1,831 |
4,727 |
|||||
Deferred income tax |
(25) |
5,878 |
|||||
Non-cash rental expense, net |
28,421 |
19,967 |
|||||
Change in operating lease liabilities |
(34,220) |
(29,539) |
|||||
Net receipt of deferred vendor incentives |
1,906 |
5,061 |
|||||
System optimization gains, net |
(32,719) |
(2,333) |
|||||
Distributions received from joint ventures, net of equity in earnings |
3,561 |
1,187 |
|||||
Long-term debt-related activities, net |
23,043 |
4,866 |
|||||
Changes in operating assets and liabilities and other, net |
26,636 |
3,009 |
|||||
Net cash provided by operating activities |
276,673 |
205,759 |
|||||
Cash flows from investing activities: |
|||||||
Capital expenditures |
(43,401) |
(44,876) |
|||||
Acquisitions |
4,879 |
— |
|||||
Dispositions |
52,657 |
3,570 |
|||||
Proceeds from sale of investments |
— |
169 |
|||||
Notes receivable, net |
907 |
138 |
|||||
Net cash provided by (used in) investing activities |
15,042 |
(40,999) |
|||||
Cash flows from financing activities: |
|||||||
Proceeds from long-term debt |
1,100,000 |
153,315 |
|||||
Repayments of long-term debt |
(955,782) |
(174,959) |
|||||
Repayments of finance lease liabilities |
(9,021) |
(5,850) |
|||||
Deferred financing costs |
(20,873) |
(2,122) |
|||||
Repurchases of common stock |
(125,656) |
(46,667) |
|||||
Dividends |
(68,963) |
(49,176) |
|||||
Proceeds from stock option exercises |
27,204 |
15,540 |
|||||
Payments related to tax withholding for share-based compensation |
(4,390) |
(5,409) |
|||||
Net cash used in financing activities |
(57,481) |
(115,328) |
|||||
Net cash provided by operations before effect of exchange rate changes on cash |
234,234 |
49,432 |
|||||
Effect of exchange rate changes on cash |
177 |
(1,715) |
|||||
Net increase in cash, cash equivalents and restricted cash |
234,411 |
47,717 |
|||||
Cash, cash equivalents and restricted cash at beginning of period |
418,241 |
358,707 |
|||||
Cash, cash equivalents and restricted cash at end of period |
$ |
652,652 |
$ |
406,424 |
The Wendy‘s Company and Subsidiaries Reconciliations of Net Income to Adjusted EBITDA and Revenues to Adjusted Revenues Three and Nine Month Periods Ended October 3, 2021 and September 27, 2020 (In Thousands) (Unaudited) |
|||||||||||||||
Three Months Ended |
Nine Months Ended |
||||||||||||||
2021 |
2020 |
2021 |
2020 |
||||||||||||
Net income |
$ |
41,171 |
$ |
39,753 |
$ |
148,261 |
$ |
79,098 |
|||||||
Provision for income taxes |
13,195 |
12,690 |
41,356 |
26,060 |
|||||||||||
Income before income taxes |
54,366 |
52,443 |
189,617 |
105,158 |
|||||||||||
Other income, net |
(171) |
(181) |
(461) |
(1,113) |
|||||||||||
Loss on early extinguishment of debt |
— |
— |
17,917 |
— |
|||||||||||
Interest expense, net |
26,000 |
29,086 |
82,990 |
86,696 |
|||||||||||
Operating profit |
80,195 |
81,348 |
290,063 |
190,741 |
|||||||||||
Plus (less): |
|||||||||||||||
Advertising funds revenue |
(97,976) |
(84,755) |
(289,699) |
(241,468) |
|||||||||||
Advertising funds expense (a) |
99,550 |
85,895 |
294,139 |
245,015 |
|||||||||||
Depreciation and amortization |
30,940 |
32,966 |
93,243 |
98,726 |
|||||||||||
System optimization gains, net |
(1,437) |
(23) |
(32,719) |
(2,333) |
|||||||||||
Reorganization and realignment costs |
345 |
3,375 |
7,381 |
10,196 |
|||||||||||
Impairment of long-lived assets |
566 |
23 |
1,831 |
4,727 |
|||||||||||
Adjusted EBITDA |
$ |
112,183 |
$ |
118,829 |
$ |
364,239 |
$ |
305,604 |
|||||||
Revenues |
$ |
470,255 |
$ |
452,242 |
$ |
1,423,795 |
$ |
1,259,508 |
|||||||
Less: |
|||||||||||||||
Advertising funds revenue |
(97,976) |
(84,755) |
(289,699) |
(241,468) |
|||||||||||
Adjusted revenues |
$ |
372,279 |
$ |
367,487 |
$ |
1,134,096 |
$ |
1,018,040 |
(a) |
Excludes advertising funds expense of $8,979 and $16,503 for the three and nine months ended October 3, 2021, respectively, and $6,153 and $8,338 for the three and nine months ended September 27, 2020, respectively, related to the Company’s 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 Nine Month Periods Ended October 3, 2021 and September 27, 2020 (In Thousands Except Per Share Amounts) (Unaudited) |
|||||||||||||||
Three Months Ended |
Nine Months Ended |
||||||||||||||
2021 |
2020 |
2021 |
2020 |
||||||||||||
Net income |
$ |
41,171 |
$ |
39,753 |
$ |
148,261 |
$ |
79,098 |
|||||||
Plus (less): |
|||||||||||||||
Advertising funds revenue |
(97,976) |
(84,755) |
(289,699) |
(241,468) |
|||||||||||
Advertising funds expense (a) |
99,550 |
85,895 |
294,139 |
245,015 |
|||||||||||
System optimization gains, net |
(1,437) |
(23) |
(32,719) |
(2,333) |
|||||||||||
Reorganization and realignment costs |
345 |
3,375 |
7,381 |
10,196 |
|||||||||||
Impairment of long-lived assets |
566 |
23 |
1,831 |
4,727 |
|||||||||||
Loss on early extinguishment of debt |
— |
— |
17,917 |
— |
|||||||||||
Total adjustments |
1,048 |
4,515 |
(1,150) |
16,137 |
|||||||||||
Income tax impact on adjustments (b) |
291 |
(868) |
1,811 |
(4,566) |
|||||||||||
Total adjustments, net of income taxes |
1,339 |
3,647 |
661 |
11,571 |
|||||||||||
Adjusted income |
$ |
42,510 |
$ |
43,400 |
$ |
148,922 |
$ |
90,669 |
|||||||
Diluted earnings per share |
$ |
.18 |
$ |
.17 |
$ |
.66 |
$ |
.35 |
|||||||
Total adjustments per share, net of income taxes |
.01 |
.02 |
— |
.05 |
|||||||||||
Adjusted earnings per share |
$ |
.19 |
$ |
.19 |
$ |
.66 |
$ |
.40 |
(a) |
Excludes advertising funds expense of $8,979 and $16,503 for the three and nine months ended October 3, 2021, respectively, and $6,153 and $8,338 for the three and nine months ended September 27, 2020, respectively, related to the Company’s funding of incremental advertising. |
(b) |
The provision for (benefit from) income taxes on “System optimization gains, net” was $536 and $6 for the three months ended October 3, 2021 and September 27, 2020, respectively, and $8,802 and $(728) for the nine months ended October 3, 2021 and September 27, 2020, respectively. The benefit from income taxes on all other adjustments (excluding the advertising funds adjustments) was calculated using an effective tax rate of 26.89% and 25.72% for the three months ended October 3, 2021 and September 27, 2020, respectively, and 25.77% and 25.72% for the nine months ended October 3, 2021 and September 27, 2020, respectively. |
The Wendy‘s Company and Subsidiaries Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow Nine Month Periods Ended October 3, 2021 and September 27, 2020 (In Thousands) (Unaudited) |
|||||||
Nine Months Ended |
|||||||
2021 |
2020 |
||||||
Net cash provided by operating activities |
$ |
276,673 |
$ |
205,759 |
|||
Plus (less): |
|||||||
Capital expenditures |
(43,401) |
(44,876) |
|||||
Cash paid for taxes related to New York disposition |
9,512 |
— |
|||||
Advertising funds impact (a) |
30,876 |
(27,297) |
|||||
Free cash flow |
$ |
273,660 |
$ |
133,586 |
(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
Categories: Financial