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Wendy’s says cheaper groceries keeping people at home

Associated Press

DUBLIN, Ohio – Wendy’s is the latest major fast-food chain to report weaker-than-expected sales growth, with the hamburger company saying people aren’t dining out as much because it has gotten even cheaper to eat at home.

The chain known for its Frosty shakes and square burgers said Wednesday that sales edged up 0.4 percent at North American restaurants open at least 15 months in the second quarter. Analysts polled by FactSet forecast a 2.4 percent increase.

Wendy’s CEO Todd Penegor said during a conference call that customer traffic across the fast-food industry slipped starting earlier this year as the price gap between eating at home and dining out widened.

That’s because lower commodity costs have kept grocery prices down, while restaurant chains may maintain or raise prices as they deal with costs for running their businesses and try to improve profit margins.

Over time, Penegor said he’s confident fast-food chains will continue taking customer traffic away from sit-down restaurants.

“We view this as a bump in the road,” he said.

Shares were down 1.7 percent to $10.02 on Wednesday.

The results from Wendy’s follow disappointing sales from other chains including McDonald’s, Burger King, Dunkin’ Donuts and Starbucks. The other chains have cited a variety of reasons, including the political uncertainty created by the presidential election, for their performance.

During the Wendy’s conference call, an analyst asked whether the company had any hard data to show people were staying home because of lower grocery prices, or if executives were relying on their gut feeling.

Penegor responded that it was “some gut, and some science,” illustrating the difficulty for companies to diagnose what may be holding back their sales.

For the year, Wendy’s lowered its sales growth forecast to between 1 percent and 2 percent at established locations. That’s down from its previous prediction for 3 percent growth. The measure is a key indicator because it strips out the volatility of newly opened and closed locations.

In the meantime, restaurant chains are also taking advantage of lower commodity costs to attract customers with promotional deals. Wendy’s, for instance, has been offering a “4 for $4” meal combination, even as it tries to step up the image of its food and command higher prices.

Wendy’s also said the lower commodity costs helped it improve its profit margin during the quarter.

For the quarter ended July 3, Wendy’s earned $26.5 million, or 10 cents per share. That was a penny better than expected, according to Zacks Investment Research.

Revenue fell to $382.7 million from $489.5 million, mostly because the company has been selling back restaurants to franchisees. Wendy’s Co. said it’s still on track with plans to lower its company-run restaurant ownership to about 5 percent of the total system by year’s end.

The company now anticipates full-year adjusted earnings in a range of 39 cents to 40 cents per share. Its prior guidance was for 38 cents to 40 cents per share.

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