Is Wendy’s (WEN) Poised for a Beat This Earnings Season?

The Wendy’s Company WEN is slated to release third-quarter 2017 results on Nov 8, before the market opens.

Last quarter, this well-known fast food chain delivered a positive earnings surprise of 15.38%. In fact, Wendy’s has surpassed estimates in three of the trailing four quarters, with an average beat of 6.69%.

Notably, the second quarter of 2017 marked the 18th consecutive quarter of same-store sales growth for Wendy’s, indicating long-term strength and relevance of the brand. We expect the company to maintain the trend in the third quarter through its solid menu pipeline, limited time offers (LTO), marketing initiatives and increased emphasis on core and price value offerings. In fact, for the third quarter, the Zacks Consensus Estimate for system-wide same-store sales growth is pegged at 3%.

Additionally, increased investments in technology like mobile payment, mobile ordering and customer self-order kiosks are expected to quicken service, resulting in increased customer count. Meanwhile, re-imaging of restaurants and new menu offering are anticipated to drive traffic and in turn sales.

The company is also increasing restaurant count to boost sales. In the second quarter, the company reported 6,564 company-owned restaurants, with the count expected to increase in the third quarter. The consensus estimate for the number of operating restaurants in the third quarter is 6,587.

However, Wendy’s has been witnessing year-over-year decline in revenues over the last few quarters due to reduced number of company-operated restaurants, resulting from the company’s system optimization initiative.

Although the initiative was completed in fourth-quarter 2016, the company experienced a slump in revenues in the first two quarters of 2017 as well. It is to be seen if the company could realize the benefits of this system optimization in the to-be-reported quarter or if the trend of declining revenues will continue. Notably, for the quarter, the consensus estimate for revenues is pegged at $308.27 million, reflecting a 15.3% year-over-year decline.

Meanwhile, though increased costs related to other sales-boosting initiatives and higher wages could weigh on margins, the system optimization initiatives is likely to boost the to-be-reported quarter’s earnings given reduced expenses.

Notably, for the third quarter, the consensus estimate for earnings is pegged at 12 cents, reflecting 5.2% year-over-year growth.

As per our proven model, Wendy’s is poised to beat estimates in the third quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Zacks ESP: Wendy’s has an Earnings ESP of +3.71%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Wendy's carries a Zacks Rank #3.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revision.

Other Stocks to Consider

Here are a few other companies in the Retail-Wholesale sector, which, as per our model shows that they have the right combination of elements to post earnings beat this quarter:

Noodles & Company NDLS has an Earnings ESP of +66.67% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DineEquity, Inc DIN has an Earnings ESP of +5.14% and a Zacks Rank #3.

Chico's FAS, Inc. CHS has an Earnings ESP of +4.25% and a Zacks Rank #3.

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