Strategy

Wendy’s Same-Store Sales Growth Falls to 0.4%

Comp sales for the second quarter were well below expectations but Wendy's says its move to franchising is paying dividends.
Matthew HellerAugust 10, 2016

Wendy’s Co. on Wednesday reported disappointing same-store sales growth, but revenue beat expectations and the company said its move to a franchised model is boosting earnings.

The burger chain’s same-store sales for North America rose 0.4% in the second quarter, well below predictions of a 1.9% gain. In the first quarter, same-store sales increased 3.6%.

According to Wendy’s, declining grocery prices have encouraged consumers to eat at home more, hurting traffic at quick-service concepts so far in 2016. McDonald’s, Dunkin’ Brands, and Starbucks have also reported weaker-than-expected same-store sales growth for the second quarter.

“The continued gap in the cost of eating at home and dining out is at the widest point since the recession,” Wendy’s CEO Todd Penegor said in an earnings call.

For the full fiscal year, Wendy’s is now projecting same-store sales growth of 1% to 2%, compared to its previous guidance of 3%.

But Wendy’s second-quarter revenue of $382.7 million beat analysts’ estimates of $368 million, while its per-share earnings of 10 cents topped estimates of nine cents. Penegor attributed the bottom-line performance in part to the sales of company-owned restaurants to franchisees.

“While we are not fully satisfied with this outcome, this is a testament to the improved quality of our earnings as a result of transitioning to a predominantly franchised model, with royalties and rental income contributing a higher amount of earnings,” he said in a news release.

Wendy’s said it remains on track to reduce company-operated restaurant ownership to approximately 5% percent of the total system by the end of 2016. Through the end of the second quarter, it has sold 55 restaurants to franchisees and plans to sell about 315 more during the rest of the year.

“The purchasing franchisees are strong operators” with a commitment to the chain’s remodel program, known as Image Activation, Penegor said.

In trading Wednesday, Wendy’s stock fell as much as 6% before rallying to close at $9.91, a 2.75% decline.