Image revamp helps Wendy's boost North American same-store sales
(Reuters) - Wendy's Co (WEN.O), the second-largest U.S. hamburger chain, reported a 2.7 percent increase in quarterly sales at established company-operated restaurants in North America, helped by re-branding and introduction of new products.
Shares of the company, which also doubled its dividend and announced a new share repurchase program, rose as much as 7 percent in morning trade.
The company is undergoing an image revamp — a process it calls Image Activation — that includes a new logo, spruced-up restaurants and fewer company-operated restaurants, to reduce capital spending and boost margins.
Restaurant operators have been battling sluggish demand as customers curtail spending due to the slow pace of economic recovery in the United States.
Wendy's image revamp and introduction of new products like Bacon Portobello Melt have helped the company win market share from larger rival McDonald's Corp (MCD.N), which on Thursday reported its first monthly same-store sales fall since March 2003.
"Wendy's combination of new menu innovation and more modern, reimaged restaurants is gaining traction among consumers," analyst Sara Senatore of Sanford C. Bernstein & Co said in a note.
On a post earnings call with analysts, Chief Financial Officer Stephen Hare said the company had the flexibility to invest up to $500 million for Image Activation by the end of 2015.
"Average annualized sales volumes for the restaurants we reimaged during 2011 have increased more than 25 percent," Chief Executive Emil Brolick said in a statement.
"We remain on track to reimage 50 percent of our company-operated restaurants by the end of 2015," Brolick added.
As of September 30, the Dublin, Ohio-based company had cash and cash equivalents of $453.6 million.
"Over the long run, we believe Wendy's will benefit from its Image Activation renovation program," Janney Capital Markets analyst Mark Kalinowski said.
However, Kalinowski was cautious about growing competition in the burger segment and rising commodity costs.
Resurgent rivals like Burger King Worldwide Inc BKW.N and Yum Brands Inc's (YUM.N) Taco Bell have also stepped up promotional activity with revamped menus, low-priced food and catchy advertising to lure diners.
Wendy's, known for its square ground-beef patties, has more than 6,500 franchise and company-operated restaurants worldwide.
Wendy's adjusted quarterly profit missed Wall Street's estimates as it increased spending on marketing.
Excluding a pre-tax charge of about $50 million from early extinguishment of debt, Wendy's reported adjusted earnings from continuing operations of 3 cents per share.
Analysts on average had expected a profit of 5 cents per share, according to Thomson Reuters I/B/E/S.
Revenue rose 4.1 percent to $636.3 million due to an increase in average check, but missed estimates of $640.2 million.
However, Wendy's reiterated its full-year outlook for adjusted EBITDA from continuing operations of between $320 million and $335 million, including the impact of superstorm Sandy.
The company's shares were up 3 percent at $4.40 in afternoon trading on the Nasdaq.
(Additional reporting by Siddharth Cavale in Bangalore; Editing by Joyjeet Das, Maju Samuel)