Wendy's is going all in on breakfast ads, believing that, if you try it, you'll be back

By Tomi Kilgore

Stock falls to four-month low after fourth-quarter earnings and full-year outlook are below expectations

Shares of Wendy's Co. slumped Thursday, after the burger chain reported fourth-quarter profit that disappointed Wall Street, amid higher cloud-computing costs, and provided a 2024 outlook that was below forecasts.

The company also announced investments to boost growth, including $55 million in breakfast advertising, $15 million to support digital growth through mobile-app enhancements and $30 million for the rollout of digital menu boards.

'We are on a mission to ensure everyone has tried breakfast at Wendy's.'Kirk Tanner, CEO

The company said it has an "always-on approach" for its breakfast ads, across all forms of media.

"We are on a mission to ensure everyone has tried breakfast at Wendy's, because we know from experience that once customers try our fresh cracked eggs and crispy bacon, they will be back again and again," said Kirk Tanner, a former PepsiCo executive named Wendy's CEO last month, on a call with analysts, according to a FactSet transcript.

He said breakfast is "one of the most compelling levers" to grow sales and improve margins, because business can be increased without significantly adding employees.

Tanner expects the company's investments and growth plans to boost breakfast sales by 50% per restaurant over the next two years. And after meeting with some of Wendy's "growth-minded franchisees," he can say "they are all-in on breakfast."

Wendy's had launched its breakfast menu nationwide with unfortunate timing, on March 2, 2020, or about a week before the COVID-19 outbreak was formally declared a pandemic.

Meanwhile, the stock (WEN) was down 1.7% in the closing minutes of Thursday trading, trading intraday near a three-month low, on the back of a disappointing earnings report.

Net income rose to $46.9 million, or 23 cents a share, from $41.3 million, or 19 cents a share, in the same period a year ago.

Excluding nonrecurring items, adjusted earnings per share slipped to 21 cents from 22 cents, due to higher amortization of cloud computing arrangement costs and a higher tax rate, and missed the FactSet consensus of 23 cents.

Revenue grew 0.8% to $540.65 million, amid higher advertising funds revenue and an increase in royalty revenue, but was below the FactSet consensus of $546.8 million.

Same-restaurant sales, or sales at restaurants open at least a year, increased 3.2% to beat expectations of 2.5% growth, with U.S. growth of 2.3% topping forecasts for a 1.8% rise.

Wendy's spent $45.7 million during the quarter to buy back 2.4 million shares but said it has not repurchased any shares so far this year. As of Feb. 15, the company had authorization to repurchase up so $310 million worth of its shares.

For 2024, the company expects adjusted EPS of 98 cents to $1.02, which is below the FactSet consensus of $1.11.

Free cash flow is expected to be $280 million to $290 million, up from $274.3 million in 2023 and above expectations of $275.2 million.

The stock has been essentially flat the past three months, while the S&P 500 has gained 11.5%.

-Tomi Kilgore

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02-15-24 1557ET

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