Fast food chain Wendy’s Co (NASDAQ:WEN) announced its first-quarter results on Wednesday, May 10, before the bell, and investors liked what they saw. WEN stock continued apace to new all-time highs thanks to Street-beating results and upbeat guidance for the rest of the year.
Wendy’s, like many of its fast-food peers, has struggled as consumer preferences changed. While the firm still is struggling, Wendy’s initiatives to drive customer traffic appear to be paying off.
Wendy’s reported earnings per share of 9 cents, down from 11 cents in the year-ago period but a penny higher than expectations. Revenues dropped more than 24% to $285.8 million, but that too was better than estimates, which were set at $282.6 million.
What had investors piling into WEN stock were same-store sales that increased for the 17th consecutive quarter — an indication that the firm’s turnaround plans are pulling through and that the Wendy’s brand has staying power.
A New Wendy’s
In the final quarter of 2016, Wendy’s completed a system optimization initiative in which the firm reduced the number of company-operated restaurants by offloading them to franchise owners. This was expected to help the company increase margins, though some of those cost savings were offset by increasing beef prices.
The full benefits of the firm’s optimization initiative haven’t been realized, but it’s important to note that the big drop in revenue seen this quarter can be explained somewhat by the decrease in store ownership.
This quarter, Wendy’s also carried on with it’s rebranding strategy, which is aimed at refreshing old stores and driving customer traffic. The new store images have been positively received, something that has given the brand even more strength.
Wendy’s also unveiled a new partnership with Snap Inc (NYSE:SNAP) on Tuesday, which is likely to further enhance the Wendy’s brand name. The Snapchat messaging service will offer an exclusive Wendy’s filter which, when shared, will donate $5 to the Dave Thomas Foundation for Adoption.
Another catalyst for growth in Wendy’s stock has been the company’s efforts to open 1,000 new restaurants around the world by 2020. During the first quarter, the firm was able to open 33 restaurants around the world.
Food Promotions
Wendy’s also upped its game in promotions this quarter, another way in which the firm was able to increase store traffic (though it weighed on margins).
Not only did Wendy’s 4 for $4 meals continue to be a hit among consumers, but its premium, seasonal meals also helped increase spending and bring people in the door. Wendy’s also addressed eaters’ growing concern about food quality by offering sustainable chicken sourced from smaller birds. This is meant to improve both the quality of the chicken served as well as the taste and ties in well with the industry-wide trend toward healthier ingredients.
Bottom Line on WEN Stock
Wendy’s shares are set to open Wednesday’s trading at $15.50, marking fresh all-time highs in a year that has seen the stock grow 15% already. The company has clearly put itself on a path toward future growth and made the necessary changes to cope with rapidly changing consumer demands.
Wendy’s management has said the firm is on track to meet its 2020 initiatives, and the fast-food chain is likely to continue its trend of posting positive comps in the quarters to come.
As the nation’s third-largest burger chain, Wendy’s enjoys a strong brand name that has been able to carry it through a difficult transition period. It appears the firm has been able to come through to the other side relatively unscathed.
Investors who get on board now will still be able to enjoy additional gains delivered as WEN stock completes its turnaround.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
