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Wendy's today announced its second quarter results, including a same-store sales increase of 3.9 percent at company-owned North American locations and 3.1 percent at franchised stores.
The company also announced today that it will accelerate its expansion in Canada, with plans to franchise all company-operated restaurants in that market. During the company's earnings call, CEO Emil Brolick said this plan, which initially includes approximately 135 restaurants, will help the brand penetrate the market more quickly than it would with a company-owned model.
"We feel we probably have been guilty of treating Canada too much like America in executing. We realize Canada is tremendously close ally but also the competitive set is different there. We feel by putting these (restaurants) into hands of franchisees, it will make us more successful in marketplace. They have a better understanding of the Canadian consumer and marketplace," Brolick said.
In addition to market penetration north of the border, Brolick added that another key driver behind this plan is to kick start more activity on the international side.
"Our restaurant counts in Canada have been stagnant for the past 10 years. It peaked in 2004. We've seen other competitors continue to grow there and over the years, we've lost market share. We can't continue to do that," he said.
While other QSRs such as KFC, McDonald's and Burger King are finding solid footing in other international markets such as India, Russia and China, Wendy's has been all but absent overseas. Some international markets are on the radar, Brolick said, but it will be "a couple of years."
"We clearly have a line of sight on how to bring that into play. We want to be a stronger global player than we are today," he said.
In Canada, Wendy's expects to grow its footprint by about one-third and to have about 60 percent of restaurants in that market in the new image by 2020.
Though the Canadian franchising strategy was the big news from today's call, Wendy's also expects to return to positive net unit growth in the U.S. by 2016 "at the latest," Brolick said.
Domestic results of 3.9 percent were driven by the "Image Activation" remodeling program as well as "food and creativity," such as the Tuscan chicken on Ciabatta, Asian cashew chicken, barbeque ranch chicken and strawberry fields chicken salads, Brolick said.
The 3.9-percent same-store sales growth marked the strongest quarter since Q4 2011, when Wendy's relaunched Dave's Hot and Juicy Cheeseburgers.
CFO Todd Penegor said the marketing calendar remains strong for the remainder of the year, which should help offset a higher-than-forecasted commodity environment. Wendy's will also continue to look at "modest" price increases and menu mix.
In addition to product innovation, Wendy's has also honed in on its digital initiatives. Penegor said mobile payments capabilities now exist at about 85 percent of the system, and mobile ordering is in test.
"Mobile payments is nice to have and a convenience for our customer base. We're pleased with the uptick," he said. "We are in beta test on mobile ordering and will eventually take some of that and and put it into loyalty going forward. We believe the digital space is a great opportunity not to just to create more loyalty and drive transactions, but to also create operational efficiencies."
To green light the mobile ordering platform, Wendy's has to be on a common POS system. Executives said all company-owned restaurants will be on the Aloha POS system by the middle of September, and franchisees have committed to be on the platform by the middle of July 2015. Loyalty also remains a priority, driven by younger consumers.
"We are very focused on getting to (loyalty) as fast as we possibly can. It's not lost on us the success other brands out there have had. Particularly for millennials, building that one-on-one relationship is extremely important and this is the dominate way they look at communicating with the brand," Brolick said. "We have a very specific thought process about this and are very aggressive in this space."
Image activation update
The ongoing remodeling efforts continue to bring in 10 to 20 percent sales lifts. Penegor said the third quarter will include 165-percent more closure time (five to six weeks) for the remodels, which will cause some sales pressures.
"If we come over that hump, that's when you'll see the return on both same-store sales and the bottom line. It will be a little choppy with the closure weeks, but we are comfortable with the returns we're seeing," he said.
Brolick called the performance of Image Activation restaurants "demonstrative and dramatic."
"The great news is as we look across dine-in, carryout and drive-thru, we are seeing increases in all of those with our Image Activation restaurants. Dine-in is experiencing the greatest increase. We are also seeing some improvement in family business and strengthening of late-night business," he said. "We believe it will continue."
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