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Wendy's North American sales up 15% 1st week of March, down 20% last week

Despite a successful re-entry into the breakfast daypart, Wendy's Q1 financials show the pain that even the largest QSRs are facing amidst pandemic restrictions on business.

The immediate impact of COVID-19 in the U.S. is clear in Wendy's Q1 sales report (Logo: File)

March 26, 2020

The Wendy's Company reported Thursday that it had a "very successful breakfast launch" that helped catapult sales up 15% in the first week of March. The bad news, however, was that sales had fallen about 20% by March 22 in the U.S. and Canada, where 92% of the chain's stores are located, according to a news release. 

The numbers are a dramatic illustration of the devastation that the COVID-19 pandemic is causing.

"This is an unprecedented time, and we are focused on the actions where we can make a positive difference," Wendy's President and CEO Todd Penegor said in the release. "To that end, we have taken several precautionary steps to advance public health goals, maintain essential access to high quality food, support our franchisees, and safeguard our team members and customers from the spread of COVID-19. As we navigate any challenges we face, we'll do it the Wendy's Way; with a focus on taking care of our people, customers and supporting our franchise partners as we navigate through this very challenging and historic time together."

For the quarter that also ended March 22, global same-restaurant sales were up 2.8% in the U.S. and Canada, and same-store sales were following the company's previous guidance, with same-store sales for the first two month of the quarter up approximately 4%

While earlier this week, Wendy's ceased carryout, its drive-thru and delivery operations are functioning, with the brand reporting that both have seen significant increases for the last week of the quarter. 

Some of the salient numbers from the quarterly report include:

• 90% of overall sales mix through drive-thru.
• 4.3% onlines sales, compared to 2.5% in the same first quarter last year. 
• 235 temporary restaurant closures, or approximately 3.5% of the the Wendy's system. 
• 46 U.S. restaurant closures.
• 189 international restaurant closures.

The company has updated its brand standard to include the closure of all dining rooms except where there are specific needs or a drive-thru or pick-up window option is not available. Decisions to continue to offer carryout services at select restaurants is made on a case-by-case basis and is in compliance with applicable state or local requirements.

Wendy's has also moved most of its office-based employees to their homes and has restricted all travel. The brand said it has not experienced any significant supply chain issues, however.

It recently added Postmates to its other delivery partners of DoorDash and Grubhub in the U.S., with increased marketing on delivery and digital ordering. In fact, the company said it is adjusting its overall marketing plan "to reflect the dynamic and changing conditions of the marketplace."

The company said the strong early performance of its entrance into the breakfast daypart, Wendy's will remove its incremental breakfast marketing spend investment this year and support franchisees in other ways.

Some of the financial changes taking place in response to the pandemic include a full draw-down of $120 million under its revolving financing facility of variable funding senior secured notes to improve its cash position that includes more than $340 million in cash on hand. 

The brand said it increased borrowing to provide enhanced financial flexibility in uncertain market conditions. It has also suspended all share repurchase activity and is evaluating planned 2020 General and Administrative expenses and its capital plan, while exploring opportunities to cut spending.

The chain is withdrawing its 2020 outlook and 2021-2024 long-term outlook, with more information coming on its Q1 earnings call. 

Finally, for franchisees, it's consulting with lenders to compile options, extending payment terms for royalties and marketing funds by 45 days for the next three months and deferring base rent payments on properties owned by Wendy's and leased to franchisees by 50% over the next three months.