Wendy's (WEN) Attempts to Go Bistro
Last week, fast food giant Wendy's (WEN) slid after the company reported disappointing first quarter earnings. For its first quarter, the second largest burger chain after McDonald's (MCD) reported a profit of $0.01 per share, or $2.1 million, an 83% plunge from the prior year quarter that still beat modest analyst estimates. However, Wendy's year-ago earnings included a 5 cent benefit from the sale of an investment, which indicates that its bottom line actually grew from the previous year.
Revenue climbed 2% to $603.7 million, which missed the analyst estimate of $615 million. Daily Chart
Wendy's same-store sales rose 1% at company-owned locations and 0.6% at franchised ones during the quarter. Its new flatbread grilled chicken sandwich, a healthier alternative intended to compete with Panera Bread's bistro offerings, also sold well in April. Wendy's has been trying to shake off its slow growth cycle by distancing itself from rivals McDonald's and Burger King (BKW
) by offering lighter, higher-class bistro fare in newly renovated stores. Wendy's has spent heavily to renovate its locations, adding flat screen TVs, cozier seating areas and even fireplaces to its stores. Wendy's intends to remodel half of its company-owned stores by the end of fiscal 2015. Wendy's currently operates 6,500 locations, with the majority of them in North America. 1,600 of its U.S.and Canada locations are run by the company. However, Wendy's attempts to replicate the success of Panera Bread (PNRA
) and Chipotle (CMG
) come at a risky time for the company. Wendy's "Right Price, Right Size" value menu of $1 to $2 products provided a weaker-than-expected revenue boost during the quarter. This has forced Wendy's to address the problem with a new 99-cent menu for the current quarter. Appealing value menus have become the most important part of the menu for its rivals McDonald's and Burger King as well. McDonald's recently stated that it was willing to sacrifice profitability to gain market share from its rivals by aggressively promoting its value menu. Meanwhile, Burger King suffered last quarter when it placed too little emphasis on value menu offerings in favor of premium items. Therefore, with margins already strained from heavy sales of value menu items, it's a risky move for restaurants to dabble with expensive renovations. Wendy's finished last quarter with a negative profit margin of -0.12%, which doesn't bode well for future expenditures. Looking ahead, Wendy's expects a refinancing benefit to boost its 2013 adjusted earnings to $0.20 to $0.22 per share, up from the $0.18 to $0.20 per share that it had originally forecast. This comes in ahead of the $0.19 per share that analysts had expected. Shares of Wendy's trade at 26.3 times forward earnings with a 5-year PEG ratio of 2.02, signifying that the company is both fundamentally overvalued with slow growth ahead - a dismal combination. However, the stock pays a quarterly dividend of $0.04 per share - a 2.77% yield at current prices. Other News About WEN Wendy's Loses Share in Value Menu Category
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Published on May 17, 2013
By Leo Sun