Wendy's comparable sales miss as fewer diners eat out

August 10, 2016 11:45 AM EDT

A Wendy's Co restaurant is pictured in Monrovia, California November 4, 2015. REUTERS/Mario Anzuoni


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By Gayathree Ganesan

(Reuters) - Burger chain Wendy's Co (NASDAQ: WEN) reported lower-than-expected quarterly comparable sales on Wednesday as a fall in grocery prices encouraged more diners to eat at home, sending the company's shares down as much as 8 percent.

Food prices have been on the decline in 2016, according to the U.S. Department of Agriculture.

Poultry prices dropped 3.4 percent in June from a year earlier, while beef and veal prices fell 6.7 percent, helped by lower transportation costs due to a fall in oil prices and the strength of the dollar, which has made imports cheaper.

Egg prices, which peaked during the avian flu outbreak last year, were 26.9 percent cheaper.

Restaurants, however, have not to been able to pass on the full benefits as their labor costs have risen substantially due to increases in minimum wages.

Against this background, fast-food chains including McDonald's Corp (NYSE: MCD), Dunkin' Brands Group Inc (NASDAQ: DNKN) and Starbucks Corp (NASDAQ: SBUX), as well Wendy's, posted disappointing same-restaurant sales for the quarter.

"The most notable driver behind the sales slowdown appears to be the continued gap between cost of eating at home and cost of dining out, which is now at its widest point since the recession," Wendy's Chief Executive Todd Penegor said on a conference call with analysts.

COMP SALES MISS

Sales at Wendy's restaurants open for at least 15 months rose 0.4 percent in North America, missing the 1.9 percent rise expected by analysts polled by research firm Consensus Metrix.

Total sales fell 22 percent to $382.7 million as the company franchised more outlets, but beat the average analysts' estimate of $367.6 million, according to Thomson Reuters I/B/E/S.

Net income fell to $26.5 million, or 10 cents per share, in the second quarter ended July 3 from $40.2 million, or 11 cents per share, a year earlier.

Excluding items, Wendy's earned 10 cents per share, narrowly beating the average estimate of 9 cents.

Wendy's raised the lower end of its full-year profit forecast by 1 cent to 39 cents per share and maintained the upper end of 40 cents. Analysts on average were expecting earnings of 39 cents per share for the year.

Wendy's shares were down 2.4 percent at $9.94 at midday on the Nasdaq.

(Reporting by Gayathree Ganesan and Abhijith Ganapavaram in Bengaluru; Editing by Anil D'Silva)



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