Wendy's: Turnaround efforts take hold

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The Wendy’s Company's turnaround efforts appeared to be taking hold in the second quarter, and the company plans to accelerate remodeling efforts next year as “new look” units show a sales lift of up to 25 percent, the company said Thursday.

For the second quarter ended July 1, Wendy's reported a loss of $5.5 million, or a loss of 1 cent per share, compared with income of $11.3 million, or 3 cents per share, last year, primarily as a result of a $25.2 million pretax charge from the early extinguishment of debt.

However, consolidated revenues rose 3.8 percent to $645.9 million for the quarter, and both company-operated units in North America and franchise locations, respectively, generated a same-store sales increase of 3.2 percent, representing the fifth consecutive quarter of comparable sales increases.

The same-store sales climb was even better than the 3-percent increase projected at an analyst conference earlier this year. The increase also contributed to climbing margins at company-operated locations of 14.1 percent for the quarter, compared with 13.9 percent last year, though that increase was offset somewhat by higher labor costs as the chain invests in improving customers service with the new “My Wendy’s” initiative, training employees to be friendlier, greet all guests, show pride and other attributes.

The service improvements are part of Wendy’s ongoing “A Cut Above” brand positioning strategy, which has included menu innovation, cost cutting, daypart expansion and restaurant growth.

A cornerstone of the effort, however, has been Wendy’s reimaging campaign, which began last year.

Emil Brolick, Wendy’s chief executive, said 10 new-prototype restaurants opened in 2011 have shown a sustained average sales lift of 25 percent, and the company is shifting into overdrive, with plans to open 50 remodeled restaurants this year, along with another 17 new builds featuring the more contemporary design.

In 2013, that number will grow. The company is planning to remodel 100 locations and open another 20 with the new look. Another 100 franchised locations are scheduled for remodeling.

By 2015, Brolick expects about half, or 750, of the chain’s company-operated restaurants to have the new design.

The re-imaging comes in three options, or tiers, with the 25-percent lift seen among units with the Tier I redesign, the most comprehensive. Tier II tends to generate a 15-percent lift, and Tier III a 5-percent sales increase.

Brolick said promotions for late night launched around Memorial Day have helped increase sales during that daypart by about 7 percent.

Breakfast, however, remains a challenge. The company began testing a breakfast program in 2006 that has seen several iterations. Brolick said the daypart is still not showing the desired economic results, and work will continue.

“We want our share of [the breakfast] business, but it has to be a profitable share,” he said.

Wendy’s is also continuing efforts to build its market share among Hispanic consumers, which Brolick sees as an opportunity.

The chain’s marketing efforts in general are resonating with guests, Brolick said, including commercials featuring Wendy Thomas, founder Dave Thomas’s daughter, as well as a redheaded actress known as “Red.”

In July, the chain launched a new mobile app that helps guests plan a meal under a certain number of calories. Brolick said the app already has 26,000 users.

Higher commodity costs also remain a challenge, the company said. Some relief on beef costs is expected for the balance of the year, as the price of ground beef is dropping with more cattle being sent to slaughter because of the drought in the Midwest and lowered demand because of the “pink slime” controversy earlier this year. But beef prices are expected to rise next year because of herd liquidation, which could have a long-term impact.

Dublin, Ohio-based Wendy’s operated or franchised 6,547 locations at the end of the second quarter, including 1,425 company-owned locations. During the quarter, the company closed 19 underperforming restaurants and franchisees closed 28.

Contact Lisa Jennings at lisa.jennings@penton.com.
Follow her on Twitter: @livetodineout