The Wendy’s Company (Nasdaq: WEN) today reported Q1 2020 adjusted financial results and provided an update on the impact of the COVID-19 pandemic on the Company’s business.
“Wendy’s is a people business, and the spirit of our Wendy’s people remains strong during this challenging time. Our restaurants are essential to feeding our communities, and we could not do this without great leadership and support from our dedicated General Managers and restaurant teams who are on the frontlines. “-said Todd Penegor, CEO.
First Quarter Financial Highlights
The decrease in revenues was primarily driven by declines in advertising funds revenue and sales at Company-operated restaurants, both as a result of the COVID-19 pandemic.
The decrease in adjusted revenues was primarily driven by lower sales at Company-operated restaurants as a result of the COVID-19 pandemic.
Company-Operated Restaurant Margin
The decrease in Company-operated restaurant margin was primarily the result of labor rate inflation, higher commodity costs, breakfast training expenses and higher maintenance costs.
General and Administrative Expense
The increase in general and administrative expense was primarily due to higher salaries and benefits, an increase in severance costs, and meeting cancellation expenses due to the COVID-19 pandemic. These costs were partially offset by a lower incentive compensation accrual.
The decrease in operating profit resulted primarily from a decrease in Company-operated restaurant margin, higher reorganization and realignment costs as a result of the Company’s IT realignment plan, impairment of long-lived assets, and higher general and administrative expense.
The decrease in net income resulted primarily from a decrease in operating profit. Net income was also impacted by a higher effective tax rate that was driven by a reduction in projected operating profit in 2020, an unfavorable adjustment related to the prior year utilization of foreign tax credits and a reduction in the net excess tax benefits related to share-based compensation.
The decrease in adjusted EBITDA resulted primarily from a decrease in Company-operated restaurant margin and higher general and administrative expense.
Adjusted Earnings Per Share
The decrease in adjusted earnings per share resulted primarily from a decrease in adjusted EBITDA and a higher provision for income taxes.
Free Cash Flow
The decrease in free cash flow resulted from a decrease in net cash provided by operating activities which was driven primarily by the settlement of the financial institutions case, lower net income, a higher incentive compensation payout for the 2019 fiscal period paid in 2020, and the timing of vendor incentive payments. Excluding the $24.7 million payment related to the settlement of the financial institutions case, our free cash flow would have been approximately $4.3 million.
Percent of Operating Restaurants (as of 5/3/2020)
|# of Total|
|•||Substantially all restaurants that are open are operating Drive-thru and Delivery only; subject to local restrictions, dining rooms are operating at restaurant discretion.|
|•||Restaurants that are closed in the U.S. are primarily due to their locations (e.g., unique sites such as malls).|
|•||Restaurants that are closed Internationally are primarily due to country-wide closure mandates.|
Cost Savings Measures
Wendy’s evaluated its planned 2020 General and Administrative expenses and capital plan and identified reductions of approximately $10 million and $20 million, respectively, for a total of $30 million in potential savings. The Company believes these cost savings measures will allow for enhanced financial flexibility in 2020 considering the uncertain market conditions arising from the COVID-19 pandemic.
Wendy’s Co (NASDAQ:WEN) stocks are up in pre-market but closed lower on Tuesday.