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TheStreet Open House

Wendy's Turnaround Push Starts To Take Hold

Stocks in this article: WEN

In the latest quarter, Wendy's said its new two-pronged ad campaign helped drive sales. The TV ads feature a young, red-headed woman referred to internally at the company as "Red," who encourages customers to make better choices by picking food at Wendy's.

Other ads featuring the real Wendy Thomas, the daughter of founder Dave Thomas, are intended to underscore the company's roots and run less frequently.

Citing its second-quarter sales performance, Wendy's stood by its outlook for the year, with adjusted earnings before interest, taxes, depreciation and amortization costs, or EBITDA, from continuing operations to range from $320 million to $335 million. Wendy's said it still targets an average adjusted EBITDA growth rate in the high-single-digit to low double-digit range starting next year.

The company said it expects beef costs to ease for the rest of the year, as a result of the drought that has pushed up grain prices and prompted farmers to sell off cattle they can no longer afford to feed.

After that, however, Wendy's expects beef costs to rebound and continue pressuring margins. Beef and chicken each make up about 20 percent of the company's commodity costs.

For the quarter, Wendy's said it lost money because of costs to refinance its debt and impairment charges related to the consolidation of its restaurant support business.

For the three months ended July 1, Wendy's says it lost $5.5 million, or a penny per share. That compares with a profit of $11.3 million, or 3 cents per share, a year ago.

Excluding one-time items, Wendy's earned 5 cents per share, in line with expectations.

Revenue rose to $645.9 million, up 4 percent from a year ago but shy of the $647.9 million analysts expected.

The profit margin of company-operated restaurants during the quarter improved to 14.1 percent, from 13.9 percent, as a result of higher sales and selling more profitable items. The increase was offset by higher labor costs, the result of its efforts to improve customer service.

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