Wendy’s Stock Is Falling After Earnings Met Expectations but Sales Missed the Mark

Barron's

Connor Smith

Aug 10, 2020

Wendy’s said second-quarter sales dipped 7.6% from a year earlier, a bit below expectations. Shares of the fast-food restaurant chain were falling Wednesday morning.

The company reported earnings of 11 cents a share, in line with Wall Street’s consensus estimate. Sales of $402.3 million missed Wall Street’s mark of $409 million. Despite the pandemic hampering restaurants, Wendy’s first-half sales were down just 4.3%.

Same-store sales declined 5.8% globally, a bigger drop than Wall Street expected at 5.5%. Comparable sales declined 4.4% in the U.S. and 18.4% in the international category. 

Wendy’s (ticker: WEN) said trends were improving through July. Global same-store sales were down 15.3% year-over-year in April, but rose 3.4% in June. The company said U.S. same-store sales were up 8.2% in July, compared with a 14% decline in April. It said 98% of its restaurants globally were operating as of Aug. 2.

Sales declines were partially offset by growth for its breakfast menu, which made its debut nationwide in March. Breakfast accounted for about 8% of U.S. sales, while digital sales were 5% of U.S. systemwide sales. 

“Our business and restaurant economic model continue to show incredible resilience as we build momentum with U.S. same-restaurant sales accelerating to high-single digit growth in July, driven by the continued strength of our breakfast and digital businesses,” CEO Todd Penegor said in the company’s news release. 

Gordon Haskett analyst Jeff Farmer noted that McDonald’s (MCD) reported U.S. same-store sales down 2.3% in June, and “slightly positive in July.”

Farmer, who has a Buy rating on Wendy’s stock with a $26 price target, said he expects at least a one-year run of 5% or greater U.S. same-restaurant-sales growth from June onward. He points to share gains in the drive-through operator market, growth in breakfast, the company’s digital push, and its new loyalty program.

Wendy’s said it won’t provide an outlook until it can “reasonably estimate the impact of the Covid-19 pandemic and changing market conditions.” 

The stock was down 4.7% to $22.69 Wednesday morning. The S&P 500 index was up 0.6%.

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