Wendy’s shares hit 10-year high as earnings buck industry slump

Investors were feasting on shares in Wendy’s on Wednesday after the US fast food company bucked tough industry trading conditions to post better-than-expected first-quarter earnings.

The stock jumped as much as 6.8 per cent – the biggest one day move in two years – to a 10 year high of $16.12 in early trading.

The Ohio-based company, specialising in hamburgers, posted a smaller-than-expected drop in net income as it invests in its turnround. Net income in the quarter fell 12 per cent to $22.3m, or 9 cent per share, driven by its efforts to cut expenses and refranchise with higher royalty fees and increased rent. Analysts had expected earnings of 8 cents per share.

North American same-store-sales growth, a key industry metric, slowed to 1.6 per cent in the quarter, compared to the 3.6 per cent pace recorded in the period last year. However the measure was the company’s 17th consecutive quarter of positive same-store growth.

“We are pleased with our solid first quarter results as we were able to deliver high quality of earnings despite tough prior year comparisons,” said Todd Penegor, president and chief executive. “Along with our exceptional and dedicated franchisees, we remain committed to our brand purpose of creating joy and opportunity through our food, family and community.”

International system-wide sales growth was also up 14 per cent in the quarter compared to 1 per cent in the period last year.

Like its peers in the industry, the company said increased labour rates had squeezed operating margins, which was partly offset by lower commodity costs. Margins had decreased slightly to 16.7 per cent in the quarter, but in the company’s 2017 outlook, it expects to see an increase to 18.5 per cent. It also expects adjusted earnings per share of 45 cents to 47 cents, a respective increase of 13 per cent to 18 per cent over the past year.

Revenue in the quarter was 25 per cent lower than in the period last year at $285.8m, primarily due to fewer company-owned stores through the refranchising. However that came in ahead of expectations $282.4m.