Wendy’s same-store sales have fully recovered from their April struggles, rising 5.1% in June and 8.2% in July, as consumers flocked to the chain’s drive-thrus and made a point of trying the company’s new breakfast offering.
The new daypart, started with great fanfare in early March just before the coronavirus hit, represented about 8% of systemwide sales, meaning it made up just about all of the increase last month.
Company executives believe they have the potential to generate even more sales during the morning, and plan to spend $15 million in the second half of this year to market breakfast.
“We plan to market breakfast in a big way in the back half of the year as more people fall into their daily routines,” CEO Todd Penegor said during the company’s second-quarter earnings call on Wednesday. “We believe we have a huge opportunity” to increase breakfast sales even further.
Company executives said that breakfast was largely incremental and didn’t take away from Wendy’s lunch or dinner business.
Its strength is particularly surprising given that, generally, the breakfast daypart has been among the hardest hit during the pandemic as commuting patterns changed and more people work from home. “We’re very pleased with breakfast,” Penegor said, calling the daypart “another layer of growth.”
The Dublin, Ohio-based company also said that digital sales doubled during the quarter and are now 5% of sales, up from 2.5% of sales last year. Most of that increase has come through delivery channels.
Wendy’s has added Uber Eats to its roster of delivery partners and now has deals with every major third-party delivery company.
Penegor said that the company plans to hire a chief information officer, who will report directly to the CEO. He also revealed that Chief Digital Experience Officer Laura Titas, who had overseen Wendy’s digital efforts, has left the company.
The chain believes that digital is a big part of its future as more customers opt to order their meals through their phones or computers. Wendy’s recently introduced its Wendy’s Rewards last month as part of that effort. “Frequency remains an opportunity for us,” Penegor said on the call.
For the quarter ended June 30, same-store sales in the U.S. declined 4.4% while they decreased 18.4% in international markets.
Revenues declined 7.6% to $402.3 million, from $435.3 million, while net income fell 23% $24.9 million, or 11% per share, from $32.4 million, or 14 cents.
Sales improvements, combined with a focus of restaurants on drive-thru orders, have helped Wendy’s improve speed in its drive-thrus and overall profitability. Profit margins at Wendy’s 357 company-owned restaurants was 14.4% of sales for the quarter ended June 30.
While that was down from 16.5% in the same period a year ago, executives noted that margins accelerated throughout the period thanks largely to improved efficiency.
“As we’ve gone to drive-thru-only, we’ve had lower waste, utilities, lower maintenance and security costs,” Penegor said, noting that “some” of those savings will continue.
But he also said the company has been able to better prepare for busier times of the day. And Penegor said recognition pay awarded during the quarter kept turnover down and ensured the chain kept its best workers, which also helped with efficiency.
As for the rest of the year, Wendy’s is preparing to push more value, an important consideration given the weak state of the economy. Wendy’s plans to offer a value priced Spicy Chicken sandwich starting next week. That sandwich will be part of its 4-$4 value bundles.
For now, Wendy’s executives said that transaction sizes have increased during the pandemic as customers made larger orders. The company has seen improved customer counts, while average check has remained elevated.
That is “continuing to hold through July,” Penegor said. “We have to see what happens. It’s too early, and there are so many variables, with COVID and whether school goes virtual.”
Wendy’s did manage to fix one of its biggest problems during the quarter: A fresh beef shortage that resulted in many stores running out of burgers in May. The company shifted its marketing focus to chicken, but supplies have returned, executives said, and Wendy’s beef prices have come back down.
UPDATE: This story has been updated to correct Wendy's second-quarter sales figures.