Wendy's & Shake Shack earnings: U.S. consumer in focus

Fast-food chain Wendy's (WEN) saw outstanding global same-store sales of 13.6% — outpacing estimates of only 5.97% — while falling short of U.S. sales forecasts. Shake Shack (SHAK) reported an earnings beat on the top and bottom lines. Lastly, Papa John's Pizza (PZZA) shares fall after beating same-store sales expectations.

Yahoo Finance's Brooke DiPalma analyzes the biggest takeaways from these restaurant earnings and what it means for the state of the U.S. consumer amid affordability concerns for lower to middle-income Americans.

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Video Transcript

- Several names in the Fast Casual space delivered earnings this morning. Shake Shack and Wendy's both out before the bell, with slight gains in same store US sales. Joining us now with more is Yahoo Finance's, Brooke DiPalma. So Brooke, what were the standout takeaways here?

BROOKE DIPALMA: Yeah. Well, Wendy's did miss on US same-store sales estimates as they continue to see trade down into the category, but also some consumers feeling the pinch here in the US. But they did beat globally. Same-store sales for Shake Shack was a similar story. They did miss on same store sales estimates as well.

But Wendy's saying on the call that if you look at the consumer, really, is a tale of two sides, over $75,000 income cohort continues to be healthy and they continue to see growth in that segment. So for those who make 75K and less, they continue to be a little bit stressed, and that continues as you go down among lower income cohorts as well.

That led to less traffic during the quarter, as well as some trade down into the Wendy's value meals as well. But once again, consumers continue to look for value at Wendy's. We know about those Biggie Bag deals as well as their Value Menu continuing to stand out.

And Shake Shack, a more premium category. They did say that they are seeing a normal return to pre-COVID seasonality. And that led to a stronger July and then a softness in August as well as September. And that ultimately led to less traffic in the stores.

But they said most recently, momentum has picked up in October. They're seeing same shack sales, as they call it, same-store sales increased 3.5% in the recent month and traffic remained flat. In addition to that, they aim to present an opportunity to find the right mix between what consumers are looking for in terms of price, value, and also Shake Shack known for those limited time offerings that come at much more of a premium value as well.

- And a busy time in the food earning space. We also heard from Papa John's earlier today. That stock taking a hit after third quarter earnings missed analysts' expectations on revenue for the quarter. What happened there?

BROOKE DIPALMA: Yeah, Rachelle. Well, I just jumped off the phone with Rob Lynch, CEO of Papa John's. And he said that the miss on the bottom line was driven by the M&A that was executed this past quarter in the UK. He said, so the restaurants that they bought in the UK were diluted during the quarter. But if you look at the core North America operations, their operating income would have been up 12.5%, that is.

They also-- well, Rob Lynch also added that he believes that in North America, they continue to remain on top as the only pizza brand, of late, to deliver positive transactions. He said that investors are also missing the transformative evolution of their supply chain model that they announced. And he also added that customers are really seeking value. And it's important to keep a lookout on how Papa John's plays in that third party aggregators.

That's where they make a huge portion of their business. But he said they do have a leg up. Those looking for value, going to the store locations. And those who are looking for convenience, going on those third-party aggregators, for looking, also, willing to pay a more premium price as well.