Wendy's Results Boosted by Value Meal Popularity -- Update
12 May 2016 - 2:50AM
Dow Jones News
By Austen Hufford
Wendy's Co. reported a better-than-expected quarterly profit,
helped by the performance of the fast-food chain's value meal.
Still, sales and earnings fell year-over-year, and Wendy's
warned Wednesday that this quarter's same-store sales growth would
be "somewhat below" its unchanged full-year target of 3%. The
company's shares were down 7.4% in midday trading.
Chief Financial Officer and Chief Executve-elect Todd Penegor
said on an investor call that the fast-food sector was softer in
April, though the company raised full-year profit guidance.
"As you guys know, we have to lap our launch of our 4 for $4
[menu] in the fourth quarter," he said. "So that would be our
toughest comp...but we feel good about where we are on a full-year
basis."
The Dublin, Ohio, company also disclosed the results of a
previously announced cybersecurity investigation. Wendy's said the
point-of-sale system at fewer than 300 of its stores were breached
with malware, resulting in unusual credit-card activity. The
investigation also found about 50 franchise restaurants that are
suspected of having unrelated cybersecurity issues.
Wendy's -- like other restaurant chains, including McDonald's
Corp. and Burger King, a unit of Restaurant Brands International
Inc. -- has sought a more stable cash flow and higher profits by
selling its company-owned restaurants to franchisees.
The company cited its reduced ownership of restaurants as a
reason for its lower revenue in the quarter. A 28% decline in sales
revenue offset a 27% increase in franchise revenue.
Wendy's plans to sell about 315 more restaurants in the year.
The company has moved from having 78% of its restaurants owned by
franchisees to 85% and plans to have 95% of its restaurants
franchised this year.
The company said same-restaurant sales at North American
restaurants rose 3.6% in the quarter.
Wendy's said its new "4 for $4" meal, introduced nationwide in
mid-October, continued to boost sales. Mr. Penegor said Wendy's
also wants to drive growth in the premium parts of the business to
complement the growth seen in the value part of the business.
Wendy's and other chains previously struggled to come up with a
value offering that would resonate with customers. McDonald's
launched a value meal that allows customers to pick two menu items
for a total of $2. Other rivals have copied Wendy's $4 price point,
including Burger King with its "5 for $4" meal and CKE Restaurants
Inc.'s Hardee's and Carl's Jr. chains with their "$4 Real
Deal."
For the quarter, Wendy's posted net income of $25.4 million,
down from a year-earlier profit of $27.5 million.
Last year, Wendy's bought back more than $1 billion in stock,
reducing the number of shares outstanding by 26%. Because of that,
per-share earnings increased even as profit fell, to 9 cents from 7
cents. Excluding certain items, earnings from continuing operations
were 11 cents a share, up from 6 cents a share a year earlier.
Revenue slipped 16% to $378.8 million, largely because of the
ownership of 375 fewer company-operated restaurants in the
period.
Analysts had expected 6 cents a share on revenue of $352
million, according to Thomson Reuters.
For the year, Wendy's raised its profit guidance. It now expects
adjusted annual per-share earnings of 38 cents and 40 cents, up
from its previous guidance of 35 cents to 37 cents.
Julie Jargon contributed to this article.
Write to Austen Hufford at austen.hufford@wsj.com
(END) Dow Jones Newswires
May 11, 2016 12:35 ET (16:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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