Wendy's Momentum?

Wendy’s Turn of Momentum: Real or Not?

On Monday, CNBC’s Jim Cramer featured Wendy’s as a real turnaround...lots of upside potential...less worse at Arby’s…. margins better…cheap for the current stock price. Cramer said the Wendy’s turnaround was real.

At the same time, yesterday, McDonald’s, one of the few companies still announcing monthly sales trends, announced world-wide same store sales increase of 4.3%, 2.6% in the US.

Is the Wendy’s sales turnaround real? We all know how complicated these restaurants are. Wendy’s and Arby’s are both 50 year old brands, both hailing from Ohio. Wendy’s was acquired by Triarc and financial engineer/investor Nelson Peltz in 2008, who already operated Arby’s.

As reported, for the quarter, Wendy’s same store sales were down 1.2% at company stores and flat at franchisees, while Arby’s stores were down 5.8%. But, since Wendy’s has removed their abandoned breakfast daypart, excluding breakfast, Wendy’s lunch/dinner same store sales would have been up .6% and system sales “positive”. The credit was given to Wendy’s new boneless chicken wings ($3.99 entrée /$5.99combo).

CEO Rollie Smith noted the Wendy’s July same store results would have been plus 3.4% (lunch/dinner only).  So that must be the turn.

Wendy’s sales components (traffic, average check, and subcomponents mix, price) were not disclosed, so we have to guess. Restaurants need incremental traffic to drive positive leverage, and price increases to cover inflation. 

Before this quarter, Wendy’s same store sales (not taking out breakfast) were plus .3% in Q1, plus 3.6% in Q4 2008, and plus .5% in full year 2008, plus .9% in 2007. 

I’d note the Wings are tasty and of good portion, with quality packaging. The Wings can be purchased either as an entrée or menu add-on. Thus, Wendy’s could be getting average check growth (customers buying the Wings as an add on) and losing customers, which is not sustainable in the long run.

To be sure, Wendy’s looks much better inside, with the new products. It is improving margins, as it promised, and has new products in the R&D pipeline.

Arby’s hasn’t turned materially yet, despite their Roastburger launch about 2 quarters ago. CEO Rollie Smith noted sequential improvement in the Arby’s negative trend.

Wendy’s/Arby’s is looking at expanding international (smart) and multi-brand, co-located Wendy’s/Arby’s units. On my July 1st Seeking Alpha article, I noted that really only Yum has made that work, thus far. Unless Wendy’s/Arby’s plans company operated development, it will be some time until they find the right mix of world-wide franchisees that can make co-branding work, since dual-branded restaurant operations is complicated.

So, Wendy’s Franchisees; whats going on?  I hope you will post comments to aid in general knowledge sharing.

John  A. GordonChain Restaurant Earnings Expertwww.pacificmanagementconsultinggroup.com

breakfast

Wow, what a botched execution on Wendy's breakfast.  Second time that I can remember that they tried serving b'fast.  Also the strange value menu strategy or non-strategy.  Advertise the 99 cent double stack but then the stores don't put it on their menu boards.  If you ask, you can get one.  But not on the menu even though it was advertised.

(Hey pal, so sorry I didn't answer the "assigned" quastion...)

Only hindsight will tell if this latest pundit actually called the bottom.  But I'm not seeing the wings product as a game-changer.

on August 11th, 2009

Jim Cramer Says Wendy's Turning Around

As per John Gordon's forum introduction above, here is CNBC's Jim Cramer on Monday saying how Wendy's looks to him like it is turning around and that now he is recommending buying the franchisor's stocks. See the first six minutes of the video stream below for details.

on August 13th, 2009

Wendy's franchisees, are things turning around?

Wendy's is chasing McDonald's, Burger King and CKE in the better burger fight.

Wendy's Bacon Deluxe will join the chain's Baconator, which features six strips of hickory smoked bacon, two quarter-pound from-fresh beef patties, two slices of American cheese, mayonnaise and ketchup - QSR Web

So Wendy's franchisees, it's been a rough stretch this year. You have been quiet since your buy out last September and the push to put a franchisee in as the CEO. Your new CEO appointed by Wendy's/Arby's promised to calm the waters and strengthen franchisee relations. So are things getting better for you under the new Wendy's/Arby's combined management team?

That would be a sign of better things to come.

--Related Reading:

Wendy's Franchisees Unite: Let's Put the 'We' Back in Wendy's

on August 14th, 2009