Wendy’s reported Q2 results Wednesday, including systemwide sales growth of 6.9% led by a 12.7% increase in the company’s international business. In the U.S., systemwide sales were up 6.1%, while domestic same-store sales were up 5.1% on the quarter.
U.S. company-owned restaurant margins improved to 17.3% of sales, versus 15% a year ago, driven by higher average check. The increase was partially offset by higher labor and commodity costs, as well as customer count declines. During an earnings call Wednesday morning, CEO Todd Penegor touted the company’s “significant profit expansion,” as well as stronger cash flow.
“Our biggest opportunity on margin comes with late-night as we add a lot of sales without adding labor. Breakfast is also a big opportunity, and we know we can add a lot more sales with existing labor. Both add to a nice cash flow,” Penegor said.
No surprise, both dayparts were in the spotlight during the call, as they were during the company’s last earnings call in May. On the breakfast side, Penegor said Wendy’s experienced the highest quarterly breakfast sales volumes of all time, supported by its $3 croissant promotion launched in late March. The daypart experienced mid-single-digit sales growth and the company expects this momentum to continue with its new Frosty Cream Cold Brew and “additional menu innovations launching soon.” Rumors have swirled that those innovations could include a pumpkin spice-flavored lineup. Penegor is bullish about the breakfast daypart throughout the rest of this year because of these innovations, as well as more consistent promotional activity aimed at driving trial and repeat visits.
Bookending that breakfast business is Wendy’s late-night daypart. The company recently began advertising its late-night offerings for the first time in four years and 90% of its restaurants are now open until at least midnight. The daypart experienced double-digit sales growth last quarter.
“Late night is a big opportunity for us. It is highly incremental, adding business we don’t have today. It’s a strong category that’s been growing consistently for the last couple of years and we’re well positioned to compete with our made-to-order, great food,” Penegor said. “The piece we really like is it continues to drive sales without adding labor, so it’s really margin accretive to the bottom line.”
Late-night business also generates more delivery business, which drives higher checks and “further supports our economic model,” Penegor noted. Wendy’s will continue to drive awareness to ensure people know restaurants are open during that daypart and Penegor expects to gain market share in the near term. Generating awareness continues to be a priority for both dayparts, in fact.
“We’re still working to ingrain habit and drive frequency (at breakfast). The way the calendar lines up for the rest of the year, with our innovation news and promotions, lines up well for us,” Penegor said. “We continue to see opportunities at midnight or later … the more we drive awareness and get existing customers to come to us to see we’re reliably open, the more opportunity we have.”
On the digital side, those sales now represent 12% of the company’s global sales mix and there are now over 3.5 million members in Wendy’s loyalty program. The company is activating more personalized user experiences and one-to-one messaging, which is driving frequency, check and operational efficiencies, Penegor said.
“We’ve been working for awhile to make sure we have a database to better connect with customers and that started with general customer journeys and has quickly becoming more personalized,” he said. “We feel like we’re in a position now to lean into better connections and make sure we have offers customized to those customers who are morning, afternoon and late-night, and continue to evolve so it becomes one-to-one offers over time. We expect further growth on the digital side. A lot more to come.”
Contact Alicia Kelso at [email protected]