Fast-food chain Wendy’s (NASDAQ:WEN) missed analysts' expectations in Q3 FY2023, with revenue up 3.38% year on year to $550.6 million. Turning to EPS, Wendy's made a non-GAAP profit of $0.27 per share, improving from its profit of $0.24 per share in the same quarter last year.

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"We continued to make meaningful progress across our strategic growth pillars during the third quarter," President and Chief Executive Officer Todd Penegor said.

Founded by Dave Thomas in 1969, Wendy’s (NASDAQ:WEN) is a renowned fast-food chain known for its fresh, never-frozen beef burgers, flavorful menu options, and commitment to quality.

Traditional Fast Food

Traditional fast-food restaurants are renowned for their speed and convenience, boasting menus filled with familiar and budget-friendly items. Their reputations for on-the-go consumption make them favored destinations for individuals and families needing a quick meal. This class of restaurants, however, is fighting the perception that their meals are unhealthy and made with inferior ingredients, a battle that's especially relevant today given the consumers increasing focus on health and wellness.

Sales Growth

Wendy's is larger than most restaurant chains and benefits from economies of scale, giving it an edge over its smaller competitors.

As you can see below, the company's annualized revenue growth rate of 6.7% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was mediocre, but to its credit, it opened new restaurants and grew sales at existing, established dining locations.

This quarter, Wendy's revenue grew 3.38% year on year to $550.6 million, falling short of Wall Street's estimates. Looking ahead, the analysts covering the company expect sales to grow 3.94% over the next 12 months.

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Number of Stores

When a chain like Wendy's is opening new restaurants, it usually means it's investing for growth because there's healthy demand for its meals and there are markets where the concept has few or no locations. At the end of this quarter, Wendy's operated 7,000 total locations, in line with its restaurant count 12 months ago.

Over the last two years, Wendy's has generally opened new restaurants and averaged 1.47% annual growth in new locations, which is on par with the broader sector. Comparisons, however, should be taken with a grain of salt as the industry is quite mature. Analyzing a restaurant's location growth is important because expansion means Wendy's has more opportunities to feed customers and generate sales.

Same-Store Sales

Wendy's demand within its existing restaurants has generally risen over the last two years but lagged behind the broader sector. On average, the company's same-store sales have grown by 5.33% year on year. With positive same-store sales growth amid an increasing number of restaurants, Wendy's is reaching more diners and growing sales.

In the latest quarter, Wendy's same-store sales rose 2.8% year on year. By the company's standards, this growth was a meaningful deceleration from the 6.9% year-on-year increase it posted 12 months ago. One quarter fluctuations aren't material for the long-term prospects of a business, but we'll watch Wendy's closely to see if it can reaccelerate growth.

Key Takeaways from Wendy's Q3 Results

Sporting a market capitalization of $3.97 billion, Wendy's is among smaller companies, but its more than $634.8 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.

Wendy's missed revenue expectations, driven by a same store sales miss. However, the company slightly top analysts' EPS expectations this quarter and for next quarter, guided same store sales and cash from operations above Wall Street Consensus (revenue and EPS profit wasn't explicitly given). Lastly, the company maintained its longer-term outlook, showing it's staying on track. Overall, this was an ok quarter for Wendy's. The stock is up 2.42% after reporting and currently trades at $19.45 per share..

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The author has no position in any of the stocks mentioned in this report.