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Wendy's CEO: 'We're seeing a lot of trade-up' despite inflation

·Anchor, Editor-at-Large
·2 min read

Wendy's CEO Todd Penegor isn't seeing a recessionary diner come to his restaurants.

"What we have seen is a nice sequential step-up in Q2 [sales]," Penegor said on Yahoo Finance Live (video above) moments after his second-quarter earnings call ended on Wednesday. "We exited with really strong numbers in June, and that momentum has continued into July."

According to Penegor, menu innovation and bigger value deals have been key to that momentum.

"It's great when you have got some great items like the all-new strawberry Frosty — that really drove a lot of excitement," he said. "We're seeing a lot of trade-up from our Four for $4 [meals] into [$5] Biggie Bags. It's creating momentum in sales and traffic into the restaurants."

People carry food near a Wendy's fast food restaurant in Los Angeles, California U.S. November 7, 2017. REUTERS/Lucy Nicholson
People carry food near a Wendy's fast food restaurant in Los Angeles, California U.S. November 7, 2017. REUTERS/Lucy Nicholson

The resiliency of Wendy's customers allowed the chain to beat analyst profit estimates for the quarter, though U.S. same-store sales missed analyst estimates.

Here is how Wendy's performed compared to Wall Street estimates for the second quarter:

  • Net Sales: $537.8 million vs. $539.8 million.

  • Adjusted EBITDA: $132.9 million vs. $128.9 million

  • Diluted EPS: $0.24 vs. $0.22

The fast food chain's same-store sales in the second quarter rose 2.3% in the U.S. — versus 2.8% expected— and 15.2% internationally.

Wendy's stock was down more than 2% as of 2:01 p.m. ET on Wednesday.

"Given the stock's move over the past three months, we think today's results may not be enough to keep the shares grinding higher," Citi restaurant analyst Jon Tower wrote in a flash note to clients, pointing mostly to pressured store traffic as a key concern.

The restaurant giant did slightly raise its full-year profit outlook, voicing confidence in demand in the back half of the year.

Wendy's sees full-year earnings in a range of $0.84 to $0.86 per share, up from its prior outlook of $0.82 to $0.86 offered in late May. The Street was modeling for $0.83 per share on average.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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