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3 Key Takeaways from Wendy's Q3 Earnings

By Ella Vincent - Nov 12, 2019 at 11:54AM

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Customers are eating up the restaurant's menu offerings and expansion strategies.

Savvy use of social media and a strong focus on global expansion drove Wendy's ( WEN 0.47% ) strong third-quarter results, which featured increased revenue and strong guidance for future earnings. A combination of customer demand and digital-marketing savvy boosted profits in the quarter. Here are three vital insights for investors.

the image provider did not specify whether these nuggets are spicy but i choose to believe that they are

Image Source: Getty Images.

DoorDash and Twitter made sales nice and spicy

Wendy's Q3 revenue jumped 9.3% from a year ago to $437.9 million. The fast-food chain's success came from the return of its spicy nuggets, whose resurgence started when hip-hop artist Chance the Rapper urged Wendy's to bring back the item on Twitter ( TWTR -1.36% ). Wendy's social media team masterfully used their Twitter page to get customers to like their tweet about spicy nuggets 2 million times as a condition for returning the offering to stores. 

After the nuggets returned, Wendy's also gave away 2 million nuggets through a successful promotion with DoorDash. Wendy's CEO Todd Penegor touted the initiative, saying, "Supporting the launch of spicy nuggets for promotions through our mobile app ... led to an increased awareness of our digital platforms, as we doubled our number of mobile ordering transactions during the promotion." 

Wendy's wants to expand beyond the United States

Wendy's same-store sales grew by 4.4% in the third quarter. Sales in international locations increased by 9.7% after the opening of 40 new restaurants in Europe in the past quarter. Penegor has high expectations for global expansion, especially as restaurants in the U.K. open over the next year. 

"We believe that internationally, we can grow to 1,500 restaurants and double our sales to approximately $2 billion by 2024, driven by growth in our existing markets, as well as expansion into Europe," Penegor said. 

Wendy's movement into Europe will enable the company to reach its goal of 1.5% new net growth for the year. 

Guidance is strong for 2020

Wendy's plans for global growth are part of its strong 2020 guidance. The company expects global profits of $12 billion to $12.5 billion next year. Chief Financial Officer G.P. Plosch noted raised expectations for adjusted EBITDA: "As a result of our strong sales performance, we are now expecting adjusted EBITDA to be at the high end of our guidance range."

The company also projects that digital sales will grow by 10% over five years. Management expects 10% of its sales in 2020 to come from its breakfast menu. 

The future looks appetizing

CFO Plosch also vowed that the quick-service company will return a higher dividend to investors in the next quarter — a 20% surge from its current $0.48. All in all, Wendy's is a spicy nugget for investors interested in dividend stocks (and others), who can be calmed by its steady growth in the past quarter and excited by ambitious plans for the future.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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