The Wendy’s Co. (NASDAQ: WEN) reported first quarter earnings this morning and managed to post another profit — barely. The company reported adjusted EPS of $0.01 versus a consensus estimate of $0.03. Revenue totaled $593.2 million, higher than a year ago, but below the estimate of $608.4 million. What will demolish shares today is Wendy’s reduction in its full-year outlook.
Competitors McDonald’s Corp. (NYSE: MCD), Yum! Brands Inc. (NYSE: YUM), and Chipotle Mexican Grill Inc. (NYSE: CMG) have already reported quarterly results, with Yum and Chipotle Mexican Grill raising their outlooks rather than lowering them. Jack in the Box Inc. (NASDAQ: JACK), which reports later this month, is expected to post higher profit on slightly lower sales.
Wendy’s saw its margins drop from 13.4% a year ago to 11.8% this year, “due primarily to the impact from higher commodity costs — especially for fresh beef — and the impact from unfavorable product mix.” Commodity costs are what they are, and every restaurant faces the same issue, but having the wrong products is a management issue.
The company plans to fix that by remodeling its stores:
We are allocating substantial resources toward restaurant development, marketing, product innovation and customer service initiatives that we believe will ultimately accelerate sales growth, enhance the quality of our store base and grow our worldwide presence over time.
The key word there is “ultimately.” Will investors give the company the time it will need to make all those changes? And will the changes actually deliver on the promises?
The company closed a net 13 stores in the first quarter, bringing its worldwide total of locations to 6,581, only 354 of which are outside North America. Wendy’s also said that it “continues to target more than 8,000 locations outside North America.” The question is whether or not the company waited too long to look for growth overseas.
In the pre-market this morning, Wendy’s shares are down about -2.5% at $4.75 in a 52-week range of $4.29-$5.62.
Paul Ausick
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