Wendy's in test mode

by Monica Watrous
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Wendy’s is testing a recrafted recipe for its grilled chicken sandwich.
Wendy’s is testing a recrafted recipe for its grilled chicken sandwich.

DUBLIN, Ohio — Same-restaurant sales growth came in below expectations for the Wendy’s Co. in the recent quarter, prompting the company to lower its guidance for the full year. But the burger chain has plans for boosting business at its company-operated stores. Emil Brolick, president and CEO, shared three initiatives under way with financial analysts during an Aug. 5 conference call to discuss quarterly performance.

For the second quarter ended June 28, Wendy’s had net income of $40,195,000, equal to 11 cents per share on the common stock, up 39 percent from $29,007,000, or 8 cents per share, for the prior-year period. Results include the impact of discontinued operations.

Revenues totaled $385,048,000, down 3.3 percent from revenues of $407,651,000 in the comparable quarter. The decrease resulted from Wendy’s ownership of 141 fewer restaurants at the end of the quarter compared to the beginning of the comparable quarter.

Same-restaurant sales at Wendy’s North America company-operated restaurants for the quarter increased 2.4 percent, and system-wide same-restaurant sales increased 2.2 percent. For fiscal 2015, management now expects same-restaurant sales growth at company-operated restaurants to be 2 percent to 2.5 percent, down from its previous guidance of 2.5 percent to 3 percent.

Wendy’s remains on track to reduce its ownership of company-operated restaurants to approximately 5 percent of the total system. The company completed the sale of its company-operated restaurants in Canada during the second quarter and is moving ahead with the sale of the remaining 540 domestic restaurants to franchisees, with plans to sell approximately 280 restaurants during the second half of the year and approximately 260 restaurants in 2016.

The company also reported higher sales at remodeled restaurants. Wendy’s and its franchisees plan to reimage approximately 450 total system-wide restaurants and build 80 new restaurants by the end of the year, with a long-term goal to revamp at least 60 percent of its North American restaurants by the end of 2020.

Beyond refranchising and remodeling, Wendy’s has identified three ways to improve performance going forward.

Refining the value proposition

Two and a half years after introducing the Right Price, Right Size menu, featuring items at 99 cents, $1.19 and $1.99 price points, Wendy’s is still honing its value strategy. Most recently, the chain began testing bundled meals with a check range of $4 to $6.

Wendy’s is still honing its value strategy.
Wendy’s is still honing its value strategy.

“We know that our Right Price, Right Size menu alone is not a sufficient value proposition to consistently attract the contemporary value-seeking consumer, so we have been testing various value bundles, and we are gaining important insights moving us closer to a solution,” Brolick said. “We expect to see this pay off later in the fourth quarter of this year.”

Sourcing antibiotic-free chicken

Wendy’s is testing a recrafted recipe for its grilled chicken sandwich, which has marinated grilled chicken with spring mix and tangy herb sauce on a toasted multigrain bun.

“As part of this test, we are offering grilled chicken raised without antibiotics to determine our supply chain capability as well as customer appeal,” Brolick said.

The changes came about because the company felt its grilled chicken sandwich wasn’t “as competitive as it was at one time” in the quick-serve restaurant landscape, he added.

“And so, the product we have in the marketplace is something that we believe that not only addresses the importance of the taste profile, but also the issue with antibiotics that have become increasingly important in the minds of consumers,” Brolick said. “And we know that sourcing issues, particularly for the millennials, is something that’s very, very important to them. And we believe a product like this can satisfy very loyal baby boomer customers, along with the millennials.

“And you’ll continue to see us do work on our core products as well as LTOs, because maintaining that quality margin advantage over traditional competitors is something that is extremely important to us, and we are committed to maintaining that advantage.”

Investing in technology

Consumer-facing technology is another priority for Wendy’s.

“We are investing in platforms such as mobile payments, mobile ordering, and customer self-order kiosks, which provide consumer convenience, the potential for a higher check, faster speed of service, and a seamless brand experience, along with the opportunity for increased customer counts,” Brolick said. 

Emil Brolick, president and CEO of Wendy's.
Emil Brolick, president and CEO of Wendy's.

The company has been testing mobile ordering and payments in select markets with plans to upgrade its app later this year.

“And at that stage, we’d be able to put integrated offers based on consumer behavior into the mobile order/mobile payment complete experience (and) be able to do national coupon drops,” said Todd Penegor, CFO. “So that is a big element of how we’d upgrade the full experience. And once we get to that app 2.0, that really gives us the platform to continue to drive hard on customer self-order kiosks into our restaurants … as an investment to mitigate some of the pressures that we are seeing on the labor front.”

Looking ahead

For the first six months of the fiscal year, Wendy’s had net income of $67,702,000, equal to 19 cents per share, down 10 percent from $75,310,000, or 20c per share, for the same period of the previous fiscal year. Year-to-date revenues fell 10 percent to $742,617,000, which compared with $825,722,000.
The company raised its outlook for full-year adjusted earnings before interest, tax, depreciation and amortization from continuing operations to $385 million to $390 million from its previous guidance of $375 million to $385 million, representing an increase of 8 percent to 9 percent over the company’s 2014 adjusted EBITDA results.

“In summary, we believe our strategic growth priorities have positioned us to continue to deliver value to our shareholders and franchisees,” Brolick said. “Key to this is our brand heritage of quality and cut-above brand positioning, our strong company and restaurant economic models, system commitment to executing our recipe to win, and a highly dedicated franchise system of brand ambassadors.”

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