November 8, 2013
Wendy’s believes it’s on the way to repositioning itself as “a cut above” its quick-service restaurant competitors.
For two years, the Dublin fast-food company has been aggressively rebuilding stores, sharpening packaging and marketing, and introducing one hit premium sandwich after another.
“Our ‘A Cut Above’ brand positioning is proving to be effective for us,” versus traditional quick-service restaurant competitors, as well as new competitors, Wendy’s CEO Emil Brolick told securities analysts during a conference call about third-quarter earnings yesterday.
Offering a premium sandwich at a quick-service price has been gaining consumer recognition for Wendy’s.
The company’s “brand transformation continues to strengthen the emotional bond between the Wendy’s brand and consumers,” Brolick said.
“It’s inching Wendy’s further and further away from McDonald’s and Burger King, which continue to reside at the bottom of consumer ratings,” said Darren Tristano, executive vice president at Technomic, a food and restaurant consultant in Chicago.
Wendy’s Pretzel Bacon Cheeseburger, introduced in July, helped boost sales in the company’s second and third quarters. It introduced a chicken version of the sandwich, the Pretzel Pub Chicken, last month, which is doing well, Brolick said.
Sales growth at company-owned restaurants open at least a year grew 3.2 percent in the third quarter. Last year, sales grew 2.7 percent in the third quarter at stores open at least a year.
“This is the best two-year, same-store sales increase since the first quarter of 2005,” Brolick said.
Some recently introduced sandwiches, such as its Grilled Chicken Flatbread sandwiches, reintroduced during the third quarter for a limited time, haven’t done as well.
“We are thrilled with Pretzel Bacon Cheeseburger in all regards,” he said. “But the flatbread chicken sandwich didn’t perform the way we expected it to.”
Wendy’s is moving on to what it hopes is another home run by Monday.
“We’re also excited about our Bacon Portabella Melt on Brioche, which will be in restaurants any day now,” Brolick said.
The new sandwich is made with sauteed portabella mushrooms, cheddar cheese sauce, thick-cut smoked bacon, two slices of American cheese, and a quarter-pound hamburger on a French-inspired brioche bun.
Though the new sandwiches and rebranding effort helped boost the operating profit margin of Wendy’s-owned restaurants in the third quarter, the company still lost money — $1.9 million, or zero cents a diluted share.
Omitting one-time charges for actions such as closing or rebuilding restaurants, as well as setting aside more money to pay income taxes, Wendy’s said it earned 8 cents a share in the recent quarter, compared with 2 cents last year.
The adjusted earnings per share beat the company’s expectations, so it raised its guidance for fiscal 2013 yesterday.
Even so, Wendy’s shares fell 11 percent to $8.05 yesterday.
Some recent steps in Wendy’s brand transformation have been investments in worker training and operating efficiencies.
In July, Wendy’s said it would sell up to 425 of its almost 1,300 company-owned stores to franchisees who committed to help with the company’s renovation program. This move is beginning to generate fee and rental income for the company.
But Wendy’s said it expects adjusted earnings to fall 10 percent in the fourth quarter as it evaluates investments “to drive sustainable future growth,” said Todd Penegor, Wendy’s new chief financial officer, during the conference call.