Wendy’s Non Food Refresh Gamble. Deep Value? $WEN $MCD $YUM

Wendy's

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Wendy’s Company (Nasdaq:WEN) reported Q4 and year end numbers announcing same store increases and all time highs for average unit volume. Investors many be pondering is this a deep value play a la Warren Buffett. Lets go through some of the upcards.

Wendy’s is the third largest Quick Service Restaurant (QSR) chain behind McDonald’s (NYSE:MCD) and Yum Brands (NYSE:YUM).  Both McDonald’s and Yum Brands are very expansion focused. Wendy’s needs to do something to get back into the game. A refresh has been long anticipated. Despite this being an earnings announcement Wendy’s President and Chief Executive Officer Emil Brolick took the opportunity to remind investors that the program is expected to earn 15%. Currently the new Image Activation costs between $750,000 to $850,000. The Wendy’s system has 6,594 stores. You can do the math. Management is quick to point out they are still value engineering the concept.

Emil Broderick also reminded investors that they intended on using their balance sheet and cash flow to pay for the program. Investors are only too aware of the huge $1.3 billion dollar loan that continues to hang around their neck.

They only plan to spend $80 million on new restaurants and remodels.  Not enough to make a difference. So its back to the basics. Food and value. Sure customers like to hang in a nice place. But until customers have compelling value propositions Wendy’s will not have a reliable driver.

Can this company become a deep value proposition? The following will have to be lining up.

  1. Compelling menu’s  that bring back customers and generate good margins.
  2. Decreased debt load releasing cash flow for investor friendly strategies.
  3. Fast paced expansion plans increasing store count. Many markets have been surrendered.

Investors will have to monitor managements heavy lifting and look for well priced entry points. Deep value investments look ugly when purchased.  McDonald’s and Yum look way prettier than Wendy’s.

George Gutowski writes from a caveat emptor perspective.

 

 

 

Wendy’s Where is the beef? Big pricing discussion. Nothing on commodity costs #WEN

Wendy's

Image via Wikipedia

Wendy’s (NYSE:WEN) disappointed investors with the latest quarterly results. The stock hovers just over the $5 level but seems to continue with a dividend despite all the restructuring. The earnings release focused primarily on top line items that the marketing guy’s worry about. Sales, new stores, new products.

Just a one line item about commodity costs and margins. This time the margin increased because of pricing and better sales leverage. Just what is better sales leverage? They do mention that the price increases out paced commodity increases of 140 basis points.

That normally is very good news. If you have pricing power and can pass on increasing costs that’s the mark of a winner. Strangely enough Wendy’s management did not expand on the point in the press release. Which means they are not confident they can pull it off again?

Will we see pricing compression soon? Does management see signs which are problematic? Will this be a Black Swan. Investors need to view this issue from a caveat emptor perspective?