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What Drove Wendy’s Revenue in 2Q16?

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Aug. 12 2016, Published 10:45 a.m. ET

Revenue sources

Wendy’s (WEN) generates its revenue through company-owned restaurant sales, franchisee fees, rental income, and royalty collected from franchisees. In 2Q16, company-owned restaurants generated 67.7% of the revenue, while franchisees generated 32.3% of the revenue.

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2Q16 performance

In 2Q16, Wendy’s posted revenue of $382.7 million—a decline of 21.8% from $489.5 million in 2Q15. However, it was better than analysts’ estimate of $367 million.

Compared to 2Q15, the revenue earned from company-owned restaurants in 2Q16 fell by 32.7% from $385 million to $259.2 million due to a decline in the number of restaurants operated by the company in the current quarter. As part of its optimization initiative, Wendy’s planned to decrease its company-owned restaurants to 5% of the total unit count by the end of 2016. So, the company has been refranchising its company-owned restaurants. However, positive same-store sales growth of 1.2% offset some of the revenue decline.

The revenue from franchised restaurants rose by 18.2% from $104.5 million to $123.5 million in 2Q16. The addition of 291 restaurants in the last 12-months was the main driver of revenue growth. It was supported by same-store sales growth of 0.2%.

Peer comparisons

In 2Q16, Wendy’s peers had mixed revenue results. Jack in the Box’s (JACK) revenue rose by 0.4%, while Restaurant Brands International’s (QSR) revenue fell by 0.2%.

Outlook

With 260 more restaurants to be sold in the last two quarters of fiscal 2016, analysts expect Wendy’s revenue to fall by 24.8% and 34.2% in 3Q16 and 4Q16, respectively. For fiscal 2016, Wendy’s is expected to post revenue of $1.4 billion—a decline of 24.3% from $1.8 billion in fiscal 2015. In 1Q17 and 2Q17, analysts are expecting the company’s revenue to fall 25.6% and 22.3%, respectively.

Next, we’ll look at Wendy’s same-store sales growth in 2Q16.

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