Wendy's/Arby's Group Inc.'s (WEN) first-quarter loss narrowed as the fast-food chain operator saw revenue edge up amid sales growth at its Arby's chain.
However, the company lowered its estimate of full-year earnings before interest, taxes, depreciation and amortization to $330 million to $340 million from its January forecast of $345 million to $355 million. Wendy's/Arby's blames significantly higher commodity costs, which it expects to be up 5% to 6% for the year, compared with a previous forecast of a 2% to 3% increase.
Wendy's/Arby's is the second major fast food chain to double its commodities inflation outlook for the year, now that previous expectations of beef costs easing in the fourth quarter have been replaced with concerns of further increases. Adding to that, winter weather caused an unexpected spike in produce costs during the first quarter.
McDonald's Corp. (MCD) in April raised its commodities outlook for the U.S. to 4% to 5% inflation for the year from the previously estimated 2% to 2.5%.
If chains of their size and scale are getting hit this hard, smaller restaurant operators are likely to fare worse, as they will have more difficulty offsetting the increases.
Wendy's/Arby's plans to partially offset these higher costs with strategic price increases and sales improvements from new products.
"We are introducing higher quality, fresher, real products, and in that regard, we have the ability to price them at a level that's higher than what they're priced at now," said Chief Executive Roland Smith on a conference call.
Wendy's/Arby's shares rose 4.2% to $5.02 following the conference call.
The company says its turn around efforts at Arby's are well underway, lead by its value menu, new Angus Three Cheese and Bacon sandwich and its latest marketing campaign unveiling the "Good Mood Food" slogan. Arby's North American same-store sales rose 5.5% in the first quarter and preliminary April same-store sales for company-owned restaurants were up 4.4%.
Wendy's/Arby's is planning to sell its Arby's sandwich chain, and says it has "multiple bidders" and is very active in the process. The company has been pressured to sell the chain as its performance was lagging until recently. It plans to use the money from the sale to pay off $200 million in debt and invest in expanding its remaining Wendy's brand, especially internationally.
Meanwhile, Wendy's North American same-store sales are coasting: flat for the first quarter and up just 0.5% at company-owned restaurants in April. However, the company is confident Wendy's will reach annual same-store sales growth of 1% to 3% this year as it unveils a new line of burgers followed by new chicken sandwiches in the second half of the year.
Wendy's is also investing in the roll out of its new breakfast menu this year, which is says will generate $150,000 in average sales per store, which is a sales lift of more than 10%.
"Breakfast as been the only day part really growing within the quick-serve burger industry for some time now," Smith said. "It's much more difficult to take market share from competitors in a flat or shrinking market; but it's much easier to grow with a growing market."
Wendy's reported a loss of $1.41 million, or less than a penny a share, compared with a year-earlier loss of $3.4 million, or 1 cent a share. The most-recent quarter included charges of 1 cent a share, while the year-earlier quarter included charges of 3 cents.
Revenue rose 1.2% to $847.8 million. Analysts polled by Thomson Reuters had most recently forecast earnings of 2 cents on revenue of $846 million.
Operating margin rose to 3.6% from 3.1%. Cost of sales rose 2.9% to $659.8 million.
Wendy's adjusted company-operated restaurant margins fell to 13.4% from 15.4%, while Arby's slipped to 10.6% from 10.8%.
However, the company lowered its estimate of full-year earnings before interest, taxes, depreciation and amortization to $330 million to $340 million from its January forecast of $345 million to $355 million. Wendy's/Arby's blames significantly higher commodity costs, which it expects to be up 5% to 6% for the year, compared with a previous forecast of a 2% to 3% increase.
Wendy's/Arby's is the second major fast food chain to double its commodities inflation outlook for the year, now that previous expectations of beef costs easing in the fourth quarter have been replaced with concerns of further increases. Adding to that, winter weather caused an unexpected spike in produce costs during the first quarter.
McDonald's Corp. (MCD) in April raised its commodities outlook for the U.S. to 4% to 5% inflation for the year from the previously estimated 2% to 2.5%.
If chains of their size and scale are getting hit this hard, smaller restaurant operators are likely to fare worse, as they will have more difficulty offsetting the increases.
Wendy's/Arby's plans to partially offset these higher costs with strategic price increases and sales improvements from new products.
"We are introducing higher quality, fresher, real products, and in that regard, we have the ability to price them at a level that's higher than what they're priced at now," said Chief Executive Roland Smith on a conference call.
Wendy's/Arby's shares rose 4.2% to $5.02 following the conference call.
The company says its turn around efforts at Arby's are well underway, lead by its value menu, new Angus Three Cheese and Bacon sandwich and its latest marketing campaign unveiling the "Good Mood Food" slogan. Arby's North American same-store sales rose 5.5% in the first quarter and preliminary April same-store sales for company-owned restaurants were up 4.4%.
Wendy's/Arby's is planning to sell its Arby's sandwich chain, and says it has "multiple bidders" and is very active in the process. The company has been pressured to sell the chain as its performance was lagging until recently. It plans to use the money from the sale to pay off $200 million in debt and invest in expanding its remaining Wendy's brand, especially internationally.
Meanwhile, Wendy's North American same-store sales are coasting: flat for the first quarter and up just 0.5% at company-owned restaurants in April. However, the company is confident Wendy's will reach annual same-store sales growth of 1% to 3% this year as it unveils a new line of burgers followed by new chicken sandwiches in the second half of the year.
Wendy's is also investing in the roll out of its new breakfast menu this year, which is says will generate $150,000 in average sales per store, which is a sales lift of more than 10%.
"Breakfast as been the only day part really growing within the quick-serve burger industry for some time now," Smith said. "It's much more difficult to take market share from competitors in a flat or shrinking market; but it's much easier to grow with a growing market."
Wendy's reported a loss of $1.41 million, or less than a penny a share, compared with a year-earlier loss of $3.4 million, or 1 cent a share. The most-recent quarter included charges of 1 cent a share, while the year-earlier quarter included charges of 3 cents.
Revenue rose 1.2% to $847.8 million. Analysts polled by Thomson Reuters had most recently forecast earnings of 2 cents on revenue of $846 million.
Operating margin rose to 3.6% from 3.1%. Cost of sales rose 2.9% to $659.8 million.
