Why Did Wendy’s Lower Its 2017 Earnings Guidance?

1 2 3 4 5 6 7 8
Part 5
Why Did Wendy’s Lower Its 2017 Earnings Guidance? PART 5 OF 8

Why Did Wendy’s Margins Expand in 3Q17?

3Q17 performance

In 3Q17, Wendy’s (WEN) posted an adjusted EBIT (earnings before interest and tax) of $65.43 million, which represents EBIT margins of 21.1%. Wendy’s posted EBIT margins of 19.4% in 3Q16.

Why Did Wendy&#8217;s Margins Expand in 3Q17?

Interested in JACK? Don't miss the next report.

Receive e-mail alerts for new research on JACK

Success! You are now receiving e-mail alerts for new research. A temporary password for your new Market Realist account has been sent to your e-mail address.

Success! has been added to your Ticker Alerts.

Success! has been added to your Ticker Alerts. Subscriptions can be managed in your user profile.

The expansion in Wendy’s adjusted EBIT margins was driven by increased revenue from franchised restaurants and lower G&A (general and administrative) expenses. However, some of the expansions in the EBIT margins were offset by company-owned restaurants’ lower restaurant margins, the rise in franchise rental expenses, and the rise in D&A (depreciation and administrative) expenses.

G&A expenses fell from 27.3% of the total revenue in 3Q16 to 17.2%. The decline was primarily due to lower professional services expenses and cost savings from system optimization initiatives.

During the quarter, company-owned restaurants’ restaurant margins fell 1.7% due to the rise in food and paper costs and labor expenses. Compared to 3Q16, food and paper costs rose 2.3% due to higher beef and bacon costs. Labor expenses rose 0.3%. However, some of the increase in the cost of sales was offset by lower occupancy, advertising, and other operating expenses.

The D&A expenses rose from 8.1% of the total revenue to 10.1% due to increased technological investments.

Peer comparisons

McDonald’s (MCD) and Restaurants Brands International (QSR) posted EBIT margins of 40.7% and 42.6%, respectively. Analysts expect Jack in the Box (JACK) to post EBIT margins of 16.0% during the same period.


For the next four quarters, analysts expect Wendy’s to post EBIT margins of 24.6%—compared to 22.2% in the same four quarters the previous year.

In the next part, we’ll discuss Wendy’s 3Q17 earnings per share.


Please select a profession that best describes you: