Wendy's to spend big on breakfast for 2020 sales growth

NEW YORK (Reuters) - The Wendy's Co WEN.O on Wednesday projected system-wide sales to grow 10% to 15%, or up to $12.5 billion, through 2020 as the burger chain prepares next week to officially launch breakfast.

FILE PHOTO: A Wendy's Co restaurant is pictured in Monrovia, California November 4, 2015. Burger chain Wendy's Co reported better-than-expected quarterly same-restaurant sales, pulling in customers in North America with an expanded menu and refurbished restaurants. REUTERS/Mario Anzuoni

The Ohio-based restaurant chain plans to spend $70 million to $80 million this year to advertise its leap into morning meals, on top of the $17 million it has already spent gearing up, Chief Financial Officer Gunther Plosch said during a call to report fourth quarter earnings.

Wendy’s shares were down more than 2% after Wall Street opened.

Financial results were mostly in line with estimates. Net income for the fourth quarter ended Dec. 29 was $26.5 million, higher than analysts’ expected $19.61 million, according to IBES data from Refinitiv.

Global sales growth of 5.9% in the fourth quarter and 4.4% for the full year 2019 were offset by lower restaurant margins, hurt in part by higher labor costs.

Wendy’s began selling breakfast in some areas this week, though the official launch is March 2.

“It’s all incremental dollars that we’re bringing to the party,” Chief Executive Officer Todd A. Penegor said during the call. “We’re not stealing from lunch or dinner.”

The company hopes its Breakfast Baconator and Frosty-ccino – a blend of cold-brew coffee and Frosty shake – will claw customers away from their McDonald's Corp MCD.N Egg McMuffin sandwiches and other competing morning meals.

Wendy's joins other hamburger purveyors, including Restaurant Brand International Inc's QSR.TO Burger King, Jack in the Box Inc JACK.O, Hardee's Restaurants LLC, Carl's Jr. Restaurants LLC, as well as chicken chains Chick-fil-A and Bojangles' Inc, in serving breakfast.

Wendy’s has failed at breakfast three times before, beginning in the 1980s, according to Bernstein analyst Sara Senatore.

Breakfast is the only time of day seeing increased traffic in the fast food industry. Chains are otherwise clawing customers away from each other for lunch and dinner.

Morning customers are more loyal in their fixed routines, and breakfast items are also cheaper to make and so have higher margins than other meals, Senatore said.

McDonald's, Dunkin' Brands Group Inc DNKN.O and Starbucks Corp SBUX.O stand in the crosshairs - and are fighting back.

Earlier Wednesday, Starbucks said it will launch a Beyond Meat Inc BYND.O plant-based breakfast sausage sandwich on March 3.

On Thursday, Dunkin’ will offer a new green-tea based line of Matcha Lattes. And McDonald’s is now selling two breakfast sandwiches for $4, though it has offered similar deals in the past.

Wendy’s may seek to undercut the competition on beverage prices, according to BMO Capital Markets analyst Andrew Strelzik.

Its large hot coffee is priced in-line with McDonald’s but is 35% less expensive than Starbucks and Dunkin’ and 10-15% less than Burger King, Strelzik said in a report on Tuesday.

Reporting by Hilary Russ; Editing by Chizu Nomiyama and Steve Orlofsky