Wendy’s Rides the 2020 Roller Coaster

Wendy's has had a rough quarter, but breakfast means 2021 could be better if it stays out of Twitter jail

Wendy’s (NYSE:WEN) has had a tumultuous month, but it has yet to impact the Wendy’s stock price.

wendy's stock
Source: Jonathan Weiss / Shutterstock.com

The lowlight came when one of its restaurants in Atlanta was burned down following the death of Rayshard Brooks.

That wasn’t all. There was the lockdown, a beef shortage, and even a Twitter (NYSE:TWTR) blowup. The June quarter is expected to show a profit of just 10 cents per share, on revenue of $365 million. Sales would be down roughly 20% from a year ago.

Through it all, the stock has gone up and down, but finished nowhere. Wendy’s opens for trade July 1 at about $21.40, 20 cents above where it started the year. That’s a market cap of $4.8 billion on 2019 sales of $1.7 billion. There is a 9.75 cent per share dividend yielding 1.79% and a nosebleed price-to-earnings ratio of 43.

Trouble, Trouble, Trouble

Shares had rebounded by 5% from June 29, but should head lower as NPC International heads to bankruptcy court. NPC represents 385 Wendy’s franchised locations, about 6% of the total.

NPC, based in Kansas, tried to expand too rapidly, taking on debt, then got hit by the COVID-19 viral load. It probably wasn’t the Wendy’s restaurants that sank it, however. More like it was those of YUM! Brands (NYSE:YUM) Pizza Hut, of which it held 1,200.

Meanwhile, Wendy’s has been going around the country, asking “where’s the beef?” to navigate a shortage. Supply has returned, but prices are higher, putting pressure on margins.

The pandemic and the beef shortage sent per-unit sales down 14% in April. They recovered to only down 3% in May. Roughly 3% of Wendy’s restaurants remain closed, and the rest have limited seating under social distancing rules. This gives bears a lot to think about as COVID-19 cases spike and new restrictions are imposed in many areas.

Then there’s James Bodenstedt. He’s another major Wendy’s franchisee, through his Muy Companies. Like NPC, Muy also owns YUM franchises, including Taco Bell outlets, 750 units in total. Business Insider found Bodenstedt gave $400,000 to the Trump campaign. Cue the Twitter outrage!

Wendy’s social media went dark for three weeks in June, then claimed to have no politics. Keep reading, this is important.

It also turned out the outrage had the wrong target. The Trian Partners hedge fund owns 12.4% of Wendy’s and its managing partner, Nelson Peltz, is one of Trump’s main men.

Can Breakfast Save Wendy’s Stock?

For all the short-term trouble there is a reason to speculate on Wendy’s stock today. That would be breakfast.

Wendy’s launched its breakfast menu in March, and at first things went well, with sales up 15% that week.

Then the lockdowns hit. With people stuck at home everyone selling breakfast got hit, even Starbucks (NASDAQ:SBUX) and McDonald’s (NYSE:MCD).

Breakfast could “transform the model” for Wendy’s, adding $200,000 to the top line of franchises now bringing in $1.7 million per year each. Social media has been important to the launch. The Twitter storm interrupted Wendy’s breakfast momentum.

While the rest of 2020 looks bleak, the pandemic will end, and those breakfast sales should return when it does. Early reviews on the food are excellent.

Wendy’s shares were rising before the pandemic, reaching a high near $24. After the pandemic is over, they could reach those heights again, thanks to breakfast.

But getting from here to there is going to be a challenge. Not just for Wendy’s but for everyone in the fast food business. While it’s a good speculation, you might be able to get Wendy’s stock cheaper in a month or two. Take advantage of the pandemic, then be ready to come out the other side.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear,  available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story. 


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