The weather changed in April, and so did sales at The Wendy’s Co.
The Dublin, Ohio-based quick-service chain on Wednesday said that its same-store sales rose 3.6 percent in the first quarter ended April 3, and increased 6.8 percent on a two-year basis.
That was the chain’s strongest two-year sales number in more than a decade, the result of better weather along with the chain’s value promotions and its limited-time offers.
But company executives on the earnings call said that same-store sales slowed in April, due at least in part to a cooler spring that might have kept some people at home in the Northeast.
Investors didn’t like to hear that. In premarket trading after the release, shares were up as high as 5 percent. After the company’s earnings call, shares fell by more than 7 percent — a 13-percent swing.
“The category softened modestly in April,” said Todd Penegor, who is nearing his promotion to CEO later this month, on the company’s earnings call Wednesday.
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“The consumer does continue to be cautious. There’s little to no wage growth. There’s general election uncertainty. It’s hard to pinpoint at this point.
“In the Northeast there was tougher spring weather.”
Penegor also mentioned the importance of marketing value. He said that the gap in inflation between food at restaurants and food at grocery stores widened, which might have kept some consumers at home.
“That’s why we have to have a compelling value message,” Penegor said. “Food at home is still the biggest competitor and therefore the biggest opportunity.”
Still, Wendy’s expects full-year same-store sales to rise 3 percent despite the April slowdown, as well as a more difficult fourth quarter given tougher comparisons.
That’s when the chain starts running into comparisons with the introduction of its 4-for-$4 offer, a deal that helped generate more traffic at the concept from consumers looking at value.
The company has also targeted premium consumers with higher end limited-time offers like the Jalapeno Fresco Spicy Chicken sandwich and Ghost Pepper Fries.
That’s important, Penegor said, given the state of the economy.
“There are two different consumer bases out there,” he said. “We’re trying to meet the needs of both.”
Penegor added that the chain anticipates using value bundles and limited-time offers in the coming quarters.
The sales strength recently is giving franchisees more confidence to build locations. Penegor also noted that the chain expects to finish the year having opened more restaurants than it closed for the first time since 2010. Operators expect to build 110 new locations this year after opening 25 in the first quarter.
Revenue at the chain declined 16.2 percent in the first quarter, to $378.8 million from $451.8 million. That’s due entirely to refranchising: The company operates 375 fewer restaurants today than it did a year ago.
That refranchising is continuing. The company expects to sell another 315 locations to franchisees this year after selling 826 locations to operators over the past three years. Wendy’s ultimately wants to get down to 5 percent company-owned locations.
Net income, however, fell 7.6 percent to $25.4 million, or 9 cents per share, from $27.5 million, or 8 cents. The per-share increase was due to share buybacks.
Wendy’s did note that its margins at company-operated locations increased 250 basis points to 17.2 percent of sales from 14.7 percent of sales. That was due to improved sales leverage thanks to higher same-store sales, along with the impact of lower commodity costs.
Wendy’s expects commodity costs to fall about 3 percent this year.
Contact Jonathan Maze at [email protected]
Follow him on Twitter at @jonathanmaze
