Emil Brolick, chief executive of The Wendy’s Co., said during the company’s fourth-quarter earnings conference call that the next three years would be “the three most intense years of capital investment in Wendy’s history, as we implement many strategic initiatives.”
In the near term, the Dublin, Ohio-based quick-service chain will continue its reimaging program on a small scale and rebalance its menu with new products and a new marketing campaign, officials said.
The company is projecting same-store sales growth between 2 percent and 3 percent next year as a follow up to fiscal 2011’s same-store sales improvement.
The Wendy’s Co.’s earnings turned out as expected, after preliminary results were released weeks ago at its Investor Day conference. The company reported net income for the fourth quarter of 2011 of $4 million, or 1 cent a share, compared with a loss of $10.8 million, or 3 cents a share, in the same quarter a year earlier.
For the year, the company said it had net income of $9.9 million, or 2 cents a share, versus a year-earlier loss of $4.3 million, or 1 cent a share.
The company said that on a continuing operations basis, or excluding results for the divested Arby’s division, fourth quarter net income was $4.3 million, compared with net income of $6.1 million in the same fiscal 2010 period.
For the year, ongoing operations brought in $17.9 million, versus $18.1 million for fiscal 2010. Consolidated revenue rose 5.6-percent to $615 million, compared with $582.6 million in the fourth quarter of 2010.
Same-store sales in Wendy’s North American system increased 4.4 percent for the quarter, reflecting gains of 5.1 percent at company-owned units and 4.2 percent at franchised locations.
Full-year consolidated revenue rose 2.4 percent to $2.43 billion, from $2.38 billion a year earlier. North American same-store sales rose 1.9 percent, comprising increases of 2 percent at company-owned stores and 1.9 percent at franchised locations.
Building up the reimaging program
Brolick reiterated Wendy’s plans to remodel 50 restaurants and build 20 company-owned units in 2012 to carry the new design of the “Image Activation” reimaging program. About $80 million of Wendy’s planned $225 million in capital expenditures this year will go towards reimaging, which costs between $750,000 and $850,000 per remodel.
“This is not a sprucing up of the restaurants; this is a reimaging of the brand, which is a dramatically different statement,” Brolick said. “Everything we do works better in these restaurants.”
Sales growth at the 10 locations that received the reimaged look in 2011 is exceeding expectations, and Wendy’s is developing financing sources for franchisees to begin adopting the new design, he said.
“There’s tremendous support for the idea that we need to reimage restaurants; we have 100-percent alignment on that,” Brolick said. “The franchisees would rather spend less than more, but we’ve done a good job of demonstrating this isn’t just about a physical upgrade. They’re visiting these ‘new QSR’ restaurants and reimaged McDonald’s restaurants, and it has their attention. They’re saying it’s ‘game on.’”
For franchisees with lower-volume restaurants who want to adopt the new look in the next few years, Wendy’s would be open to an incremental-remodel approach, Brolick said.
Each new “Image Activation” restaurant also will begin selling the chain’smenu. That morning daypart menu will expand to a Northeast market this year, the company said.
Managers and consumers have received the breakfast menu positively, Brolick said, but “we’re still working in the financial area” to ensure widespread profitability.
“When you launch an initiative like breakfast, you’ll have to take a different approach in your marketing, and that requires incremental dollars to drive this,” he said. “We wanted to make sure we’d have the big push and also sustain it. When you build those costs into the restaurant-level P&L, it’s a different kind of look. That’s where most of the conversations are taking place.”
Wendy’s also expects franchisees to open 40 new units in North America in 2012. About three or five franchisees will participate this year in the Image Activation program this year, Brolick said.
Hints about new ad campaign
At Wendy’s Investor Day on Jan. 30, Brolick said he was close to naming a new chief marketing officer, and that the brand would launch a new ad campaign in the second quarter. Some ideas about advertising strategy and complementary menu innovation emerged during Thursday’s earnings call.
“The goals we have set for our new ad campaign are quite clear,” Brolick said. “We’ve got to win the hearts and the minds of consumers. Today, brand communication is not just about selling products; it’s also about competing for mind space, and creating an emotional connection with consumers.”
As competitors, namely McDonald’s, put large investments behind commercials touting the quality of their ingredients — such as McDonald’s ads starring beef and potato suppliers — Wendy’s cannot cede ground on the fight for promoting food quality and authenticity, Brolick said.
“We have to be in that space, sharing what makes us different and what makes us better, and there will be a component of that in our new advertising campaign that is designed to deal specifically with that, along with the traditional need to drive sales through product innovation,” he said.
That product news would include upgrades and limited-time offers in its core burgers,sandwiches and salads, he said, including another premium seasonal salad. A presentation slide contained a picture of a sandwich called the Spicy Guacamole Chicken Club.
The March advertising window is a local marketing window, and most franchisees are using the W as their product of choice to advertise, Brolick said. The W took a price increase to $3.19 from $2.99, he said, adding that, in December, Wendy’s did not get the level of drag-along sales in French fries and soft drinks it wanted. New TV spots are now much more competitive directly against the Big Mac, he said.
Watch Wendy’s commercial for the W; story continues below
Wendy’s operates or franchises 6,594 restaurants in the United States and 27 foreign markets.