Wendy's Fourth Quarter Will Look Good -- Worry About 2014

Wendy's (NASDAQ: WEN  ) will report fourth-quarter results on Thursday but most of the company's (unaudited) data was already spilled in a preliminary release last month. The company beat McDonald's (NYSE: MCD  ) and Burger King Worldwide (NYSE: BKW  )  on comparable-store sales after striking gold with the popular pretzel bun sandwiches. Can Wendy's continued commitment to limited-time items carry the good times on through 2014?

The company's sandwich launches in the past year have included the Pretzel Bacon Cheeseburger, the Pretzel Pub Chicken, the relaunch of a burger updated with a brioche bun, two chipotle-sauced sandwiches for the value menu, and the newly announced Premium Cod. McDonald's and Burger King have both recently blamed their introductions of too many products for their slumping comps. 

Here's what to expect from Wendy's fourth-quarter results -- and why 2014 might prove to be a bumpier ride. 

Source: Wendy's 

Preliminary fourth-quarter results 
Wendy's reported a 3.1% comps increase at company-owned stores and 2.8% growth at North American franchise stores. Those figures compare to last year's comps losses of 0.2% and 0.6%, respectively. Wendy's attributed the growth to the successful Pretzel Pub Chicken sandwich and the Bacon Portabella Melt on Brioche promotion. Both sandwiches were limited-time offers. Unaudited revenue for Wendy's was $592.4 million -- a 6% year-over-year drop the company attributed to the conversion of company-owned stores to franchises.

For the full year, Wendy's comps were only up 1.9% at company-owned stores from 1.6% in 2012. The small change shows how much the accelerated comps for the latter part of the year helped boost the weaker start. The acceleration was largely due to the immense success of the Pretzel Bacon Cheeseburger, which drove the third quarter to deliver the chain's highest comps in eight years. However, again, this strength has all come from limited-time products that are falling off the menu in favor of the Premium Cod sandwich and other new, short-term items. 

2014 outlook overly optimistic? 
Wendy's forecast full-year comps growth of 2.5-3.5% for company-owned stores along with earnings per share of $0.34-$0.36. The EPS projection matches analysts' consensus estimate. However, the comps growth projection seems a bit optimistic. 

Compare the comps Wendy's posted last year to those of Burger King and McDonald's: 

 

Q1

Q2

Q3

Q4

Full-year

Wendy's

0.8%

0.4%

3.2%

3%

1.8%

Burger King

-1.4%

0.6%

0.9%

1.7%

0.5%

McDonald's

-1%

1%

0.9%

-0.1%

0.2%

Source: Company filings. Wendy's comps represent the average of company-owned and franchise-owned comps. Burger King and McDonald's comps represent their global performance. 

Wendy's has beaten its competitors on comps since the start of the year. The comps from early 2013 could represent more customers coming back toward Wendy's higher-priced items as the economy improves. And Wendy's could benefit from having a smaller fleet of locations than its competitors, which tends to create less risk of closely spaced Wendy's stores stealing customers from each other. At the end of the third quarter, Wendy's had about 6,500 locations while McDonald's and Burger King finished the fourth with 35,000 and 13,000, respectively.    

The nearly 3% bump between the second and third quarters came from the success of the Pretzel Bacon Cheeseburger. The fourth quarter started to show a deceleration as the Bacon Cheeseburger and Pretzel Pub Chicken moved off the menu. 

So Wendy's could achieve its 2014 full-year comps forecast -- if the company manages to keep sandwiches as popular as the pretzel bun offerings on the menu all year. With the company's devotion to moving products through at a near break-neck pace, that might prove a difficult task to accomplish. 

Foolish final thoughts 
The fourth-quarter report will still merit a read for any clarifying comments and some of the more in-depth financial metrics. However, the preliminary results provided more clues that Wendy's might not maintain its competitor-thumping comps if the newer limited-time sandwiches don't drive the same type of attention as last year's launches did. 

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