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Why Wendy's Stock Is Up 6% Today

By Rich Duprey – May 6, 2020 at 11:29AM

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Sales are up, but the fast-food chain missed analyst estimates and faces a looming meat shortage.

What happened

Wendy's (WEN -0.68%) stock was running 6% higher in morning trading Wednesday after the company reported first-quarter earnings.

Although the fast-food chain missed analyst expectations -- albeit with results better than what could have been -- the market is giving Wendy's a pass.

The exterior of a Wendy's restaurant.

Image source: Wendy's.

So what

The coronavirus pandemic upended all business, but restaurants were among the first establishments ordered closed when the COVID-19 outbreak hit in earnest. Fortunately, restaurants with takeout and delivery capabilities could continue serving customers. Wendy's reported 96% of its global footprint and 99% of the 5,865 restaurants in the U.S. remained open through the early days of the pandemic.

Systemwide sales grew 1% in the first quarter compared to 3.3% a year ago, with comparable sales down 0.2% versus a 1.4% gain last year. That's actually a pretty strong showing in the midst of a global pandemic and after McDonald's (MCD -0.89%) saw sales tumble 6% on a 3.4% drop in comps.

Wendy's did better in the U.S., with sales up 1% and comps flat, and while it resulted in a $40 million use of free cash flow for the period, that was influenced by a near-$25 million settlement in a lawsuit. Absent that, Wendy's says free cash flow would have been approximately $4.3 million.

Now what

Wendy's does face a new challenge with a meat shortage looming, which is leading the restaurant to begin removing burgers from its menu. 

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

The Wendy's Company Stock Quote
The Wendy's Company
$18.94 (-0.68%) $0.13
McDonald's Corporation Stock Quote
McDonald's Corporation
$243.76 (-0.89%) $-2.19

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