Wendy's: Burgers and Buybacks

11/30/2017 5:00 am EST


David Fried

Editor, The Buyback Letter

We have bought The Wendy’s Co. (WEN) three times in the last 3 years, notes David Fried, a specialist in stocks undergoing buyback and repurchase programs. Here's the latest from his specialized newsletter, The Buyback Letter.

Wendy's is the world's third-largest quick-service hamburger company, including more than 6,500 restaurants in the U.S and 28 countries and U.S. territories worldwide. We last bought it in Dec. 2015 and sold a couple of months later, and it is at the top of our filters again.

The company has been in the news lately because arguably no fast-food chain has won over millennials more than Wendy's. It's Twitter account has become famous for snarky comments and roasts of rival fast-food chains.

Millennials count for a quarter of Wendy's customers, and in addition to the social media approach, the company has rolled out kiosks for ordering and menu items like pretzel buns, sending shares and same-store sales higher, despite an industry trend to the contrary.

Wendy’s expects same store sales growth to be driven by the expansion of delivery services, implementation of technological advancements, image activation, and menu innovations. Wendy’s will expand delivery services to 48 markets, which would account for some 2,500 restaurants by the end of 2017.

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The company has partnered with DoorDash for delivery. They expect to increase the percentage of image activation restaurants to 42% by the end of 2017.

Wendy’s plans to implement the mobile ordering facility in 75% of its restaurants and 300 kiosks by the end of 2017. Since the beginning of 4Q17, the company has launched chicken tenders with S’Awesome sauce and fresh baked cookies.

For the next four quarters, analysts expect Wendy’s to post revenues of $1.26 billion — 3.1% growth from $1.22 billion in the same four quarters the previous year. Its revenue growth is expected to be driven by adding new restaurants and positive same-store sales growth.

Over the past few years, Wendy's has been in transition to a franchise model, with management selling hundreds of locations, thus reducing costs, boosting company margins and releasing capital to be returned to shareholders as dividends and buybacks. Management has reduced shares outstanding by 6.81% in the last 12 months.

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