Wendy’s delivery tests encouraged the brand to open the floodgates. By the end of the year, the burger chain said it expects to offer delivery via DoorDash to about 2,500 restaurants in 48 markets. Wendy’s president and chief executive officer Todd Penegor said during a conference call Wednesday the chain was “excited about expanding access to our brand further and continue to find new ways to provide convenience to our customers.”
Penegor wouldn’t provide exact details, but said delivery has generated higher average checks than in-store orders. Also, DoorDash has successfully brought Wendy’s food to customers in 30 minutes or less and the brand is one of the highest-rated quick-service experiences on DoorDash so far.
“That gave us all the encouragement [we needed]. Still see a lot of incrementality, especially in the dinner and evening day-parts, but we do see a lot of transaction lifts in help and support at that busy lunch day-part, too,” he said. “So all of those lined us up to have the encouragement to go faster and bigger with a good partner.”
Overall, Wendy’s third-quarter earnings underwhelmed Wall Street. The chain’s same-store sales in North America increased 2 percent, which fell below the 2.4 percent increase forecast by Consensus Metrix. Total revenues fell 15.4 percent to $308 million—short of Thomson Reuters’ estimate of $311.9 million. The company said the decrease resulted primarily from the ownership of 249 fewer company-operated restaurants at the end of the third quarter compared to the beginning of the third quarter 2016, which resulted in fewer sales at company-operated restaurants and a year-over-year decrease in franchise fees, partly offset by higher franchise royalty revenue and franchise rental income.
Additionally, Wendy’s lowered its full-year adjusted profit forecast to 43–45 cents per share, down from 45–47 cents, blaming a rise in deferred tax expense.
Hurricanes Harvey and Irma softened the company’s bottom line. Wendy’s said the storms negatively impacted North American same-store sales by about 30–40 basis points in the quarter. A real driver of margin in the quarter was commodity, Gunther Plosch, Wendy’s chief financial officer, said in the call.
Wendy’s experienced 230 basis points of adverse commodity, which translated into about 7.5 percent commodity inflation, he said.
Even with the weaker-than-expected results, Wendy’s still generated its 19th consecutive quarter of positive same-store sales in North America. The brand opened 42 new restaurants in the third quarter and has opened 110 units year-to-date, which is almost 30 more than this time a year ago.
Wendy’s also made progress on its “Image Activation” project, which involves reimaging existing restaurants and building new ones. Currently, 39 percent of the global system features the new image, and Wendy’s said it expects about 42 percent of all units to be image activated by the end of the year. Wendy’s is predicting net new units growth of 0.5–1 percent in North America this fiscal year, and about 14 percent internationally.
Wendy’s is moving forward with its franchisee-to-franchisee restaurant transfers as well, also known as “buy and flips.” While Wendy’s didn’t facilitate any such deals in the third quarter, the company said it plans to complete about 500–550 in 2017, an uptick from the previous expectation of 475. So far, Wendy’s has completed 410 buy-and-flips in 2017.
Penegor said Wendy’s is forging ahead as a value provider in limited service. Wendy’s began the quarter with its 50-cent Frosty promotion for a second year. It also introduced the Bacon Queso trio, “which was a great opportunity to show off our ability to innovate with on-trend flavors and also highlight our fresh, never-frozen beef and our improved chicken offerings,” he said.
The Giant Junior Bacon Cheeseburger $5 meal deal offered customers some flexibility from the 4 for $4 offer.
Penegor said competition is tightening the market and driving brands to improve their offerings across the board.
“We continue to all up our quality games. We continue to up our asset games with the reimaging of the restaurants. We continue to up our game on the service experience in the restaurant. A lot of the growth is driven by deal, but it is driven that way because the consumer economic model continues to be under pressure but we're seeing signs where that's starting to improve, too,” he said.