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 Wendy's value menu isn't a big enough value. Wendy's - Do What Tastes Right! Will Wendy's ambitious plans pay off? Other Stocks in the News Is it Time to Invest in this Watchmaker? Should you consider investing in Fossil? The House of Mouse Always Wins Disney beats the market again. Copyright 2013 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.

Published on May 17, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted 2020. Content published with author's permission.

Posted in ...