Wendy's higher priced burgers, franchisee fee boost quarterly results


Nivedita Balu

May 08, 2019

(Reuters) - Wendy’s Co on Wednesday reported quarterly revenue and profit above estimates, as the burger chain was helped by higher royalty fees from franchisees and its new premium burgers that come with avocado and bacon.

FILE PHOTO: A Wendy's Co restaurant is pictured in Monrovia, California November 4, 2015. REUTERS/Mario Anzuoni

The company refreshed its offerings with the introduction of the ‘Made to Crave’ line of fresh beef burgers that include applewood smoked bacon, asiago cheese and Kansas City-style barbecue sauce to woo customers looking for better fast-food choices.

Wendy’s also had three successful promotions during the quarter, which included a $5 giant Jr. bacon cheeseburger and a ‘Biggie Bag’ combo offer, which was $1 more than its previous ‘4 for $4’ value deal.

The new menu items did well despite the cold weather and grew “incremental traffic,” Chief Executive Officer Todd Penegor said on a call with analysts.

The company’s new line-up follows heavy discounting and promotions offered by fast-food chains in the United States last year, as they battled to attract customers.

Gordon Haskett analyst Jeff Farmer said there was a “clear shift” toward slightly higher priced value meal structure offered by restaurants, which also help drive traffic and profits.

A majority of Wendy’s restaurants, both domestic and international, are run by franchisees who pay royalty fees and rent for the restaurant space.

Revenue from these franchises, which had a 4 percent rise in royalties and about a 17 percent increase in rent, helped the overall revenue beat estimates.

Total revenue rose 7.4 percent to $408.6 million for the first quarter ended March 31, beating analysts’ estimates of $399.8 million, while same-store sales in North America met expectations.

Profit margins at restaurants operated by the company rose 15 percent, compared with a 13.9 percent increase a year earlier, mainly driven by higher prices of its products.

“Wendy’s appears to be stabilizing topline without significant additional margin trade off, low protein prices likely helped,” Bernstein analyst Sara Senatore said.

Excluding certain one-time items, the company earned 14 cents per share, beating the consensus estimate of 11 cents per share, according to IBES data from Refinitiv.

Shares of the company were up 2 percent at $18.79.