“Second-quarter system same-store sales growth of 3.2% marked our fifth consecutive quarter of positive system-wide store sales,” Wendy’s CEO, Emil Brolick, told investors. “This growth was the result of improved restaurant operating experience, compelling product messages and integrated marketing that really is beginning to resonate with consumers.”
The company reported adjusted EBITDA from continuing operations of $89.1m, down slightly from $89.4m in the same period last year. It experienced a net loss from continuing operations of $5.5m, which it said was primarily the result of a $25.2m pretax charge from the early extinguishment of debt related to a refinancing initiative completed in July.
Stephen Hare, Wendy’s chief financial officer and senior vice-president, said margins had also been hit by higher commodity costs, driven primarily by increased beef prices. He added that a drop in demand for ground beef as the result of the ‘pink slime’ controversy and the nationwide drought – which has seen cattle sent to slaughter sooner – would ease prices in the short term, but they were likely to remain higher than 2011.
“Longer term, we expect demand for beef will rebound, causing costs to increase, while herd rebuilding will take several years,” he said, adding that the higher beef cost will become the “largest driver” of Wendy’s commodity basket cost.
Looking to the future, the company said it was on track to re-image 50 existing company-owned restaurants in 2012, with plans for more company and franchise revamps in 2013 and beyond. It also plans to open at least 20 new restaurants this year, at least 17 of which will be built in the new ‘Image Activation’ design.
Brolick said that, based on the Q2 results, Wendy’s was maintaining its 2012 adjusted outlook of $320m to $335m. “We continue to see strong sales increases at our Image Activation restaurants and plan to accelerate the expansion of the programme in 2013,” he said. “We are confident that the substantial capital investment we and our franchisees are making will drive the long-term profitability and growth of the Wendy’s brand.”
Consolidated revenues increased 3.8%, from $622.5m in the second quarter of 2011 to $645.9m this year. Company-owned, same-store sales in North America increased by 3.2%, which the company said was “primarily the result of an increase in the average cheque”. Franchise store sales also saw a 3.2% increase.
