Wendy’s Stock Falls After Earnings 2024 Outlook Disappoint Wall Street

Wendy's Co. witnessed a decline in its stock on Thursday as the fast-food burger chain reported fourth-quarter profit that fell short of Wall Street expectations. The disappointing results were attributed to increased costs related to cloud computing, and the company's 2024 outlook didn't align with forecasts. In response, Wendy's outlined strategic investments aimed at boosting growth, including $55 million earmarked for breakfast advertising, $15 million to support digital growth through mobile-app enhancements, and an additional $30 million designated for the rollout of digital menu boards.

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The company emphasized its "always-on approach" for breakfast ads across various media channels, expressing a mission to encourage widespread trial of Wendy's breakfast offerings. According to Kirk Tanner, speaking on an analyst call, breakfast is considered "one of the most compelling levers" for increasing sales and improving margins, as expansion can be achieved without a significant increase in staffing. Tanner expressed confidence that the planned investments and growth initiatives would lead to a 50% increase in breakfast sales per restaurant over the next two years.

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Despite these efforts, Wendy's stock (WEN) experienced a 3.5% drop in morning trading, positioning it for a three-month low following the release of the disappointing earnings report. The company reported a net income of $46.9 million, or 23 cents per share, compared to $41.3 million, or 19 cents per share, in the same period a year ago. Adjusted earnings per share slipped to 21 cents from 22 cents, missing the FactSet consensus of 23 cents. Revenue grew by 0.8% to $540.65 million, driven by higher advertising funds revenue and an increase in royalty revenue, although it fell short of the FactSet consensus of $546.8 million.

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Wendy's exceeded expectations in terms of same-restaurant sales, recording a 3.2% increase for restaurants open at least a year. U.S. growth of 2.3% outpaced forecasts for a 1.8% rise. During the quarter, the company spent $45.7 million on share buybacks, repurchasing 2.4 million shares. However, Wendy's noted that it had not repurchased any shares in the current year as of February 15, despite authorization to repurchase up to $310 million worth of its shares.

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Looking ahead to 2024, Wendy's provided a conservative outlook, expecting adjusted earnings per share in the range of 98 cents to $1.02, below the FactSet consensus of $1.11. However, the company anticipates an increase in free cash flow to $280 million to $290 million, up from $274.3 million in 2023 and surpassing expectations of $275.2 million.

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Over the past three months, Wendy's stock has declined by 2.1%, while the S&P 500 has gained 11.2%.

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