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Why Did Wendy’s Lower Its 2017 Earnings Guidance?

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Part 2
Why Did Wendy’s Lower Its 2017 Earnings Guidance? PART 2 OF 8

Wendy’s 3Q17 Revenue Was Lower than Analysts’ Estimates

3Q17 performance

In 3Q17, Wendy’s (WEN) posted revenue of $308.0 million, which was 0.7% lower than analysts’ estimate of $310.3 million. The lower-than-expected SSSG (same-store sales growth) due to the disruption from Hurricane Harvey and Hurricane Irma lowered the company’s revenue. Compared to 3Q16, Wendy’s revenue fell 15.4% due to refranchising and negative SSSG in company-owned restaurants.

Wendy&#8217;s 3Q17 Revenue Was Lower than Analysts’ Estimates

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In 3Q17, company-owned restaurants posted revenues of $158.8 million, which represents a fall of 30.5% from $228.6 million in 3Q16. The revenue fell due to decreased company-owned restaurants. Under the optimization initiative, Wendy’s sold its company-owned restaurants to franchisees. As a result, the company operated 249 fewer company-owned restaurants by the end of 3Q17—compared to the beginning of 3Q16. The company’s revenue was lower due to negative SSSG of 0.5% in company-owned restaurants.

Some of the lower revenue was offset by increased revenue from franchised restaurants. Compared to 3Q16, the revenue from franchised restaurants rose to $149.2 million, which represents 10.2% growth from $135.4 million in 3Q16. The revenue growth was due to an increased unit count and positive SSSG. The company operated 345 more franchised restaurants by the end of 3Q17—compared to the beginning of 3Q16. Also, SSSG of 2.1% drove the company’s revenue in 3Q17.

In international markets, Japan, Chile, and Indonesia posted strong sales growth. However, the sales from restaurants in the Caribbean fell due to the hurricanes.

Peer comparisons

During the same period, Restaurant Brands International (QSR) posted revenue growth of 12.4%, while McDonald’s (MCD) revenue fell 10.4%. Analysts expect Jack in the Box’s (JACK) revenue to fall 14.2% during the same period.

In the next part, we’ll look at Wendy’s 3Q17 SSSG.

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