Wendy's CEO calls company's struggles of past few years 'self-inflicted wounds', plans to hire top-tier workers, reclaim market share from higher-end competitors
January 31, 2012
– Wendy's new CEO on Monday called the dour results of the past few years "self-inflicted wounds" and vowed to do better, laying out plans that included hiring top-tier workers and reclaiming market share from higher-end competitors like Five Guys and Smashburger.
Emil Brolick, the CEO since September, told investors on Monday that he was intent on winning back customers, jaded by a stale menu and inconstant service, as well as investors, who have grown weary of "a little bit of overpromising and under-delivering."
And rather than blaming the struggling economy for the revenue declines and quarterly losses of the past few years, Brolick said that the company's problems were its own fault. Though Wendy's had carved out a niche in the restaurant business as fast food for grownups, it had lost its way in recent years.
"These are not DNA issues," said Brolick, who also worked at Wendy's during more halcyon days of the late '80s and early '90s. "These are issues we caused, and any time you have self-inflicted wounds, you can correct self-inflicted wounds."
Brolick said he was intent on taking back lost market share from the likes of fast-casual competitors like Panera and Chipotle, offering food that was just as good but at a lower price. The company has revamped its menu and is remodeling stores. It sold Arby's, which had been a drag on earnings, over the summer. And it's now intent on hiring top-tier employees, Brolick said.
Brolick, who was most recently a top executive at Yum Brands Inc., said he's bringing all Wendy's locations up to consistent standards for friendliness and cleanliness, rather than current, unpredictable state of "one there is really, really good but this one over here isn't quite what it needs to be."
"We've made great progress in getting rid of those F restaurants and getting more A's and B's, but we're still in that territory," Brolick said.
He also said he'd hire store managers on par with the people he sees at higher-end competitors like Chipotle and Panera. "Those folks at the bottom corner, there's a job waiting for them at our competitors," said Brolick, who has also hired a new general counsel at the Ohio headquarters and is adding a chief marketing officer and chief people officer.
Brolick said it was important to grab market share from higher-end competitors because he doesn't want to "be caught in the middle." Companies need to appeal to either low-end shoppers, such as Wal-Mart and Costco do, he said, or to high-end shoppers, such as Tiffany or Nordstrom.
Like many fast-food chains, Wendy's is taking some of its turnaround plans from McDonald's book. The much-larger burger chain has introduced new offerings like fancy coffee drinks and smoothies meant to appeal to higher-end customers who previously might have shunned it. It has remodeled restaurants and added wireless access for the same reasons. And it has kept prices at fast-food levels so that its reliable base of cash-strapped customers don't flee for cheaper hamburgers at the gas stations.
It has run into some resistance from franchisees who sometimes have to foot the bill for the changes. Brolick said Wendy's franchisees were "very, very supportive "of the plans. He acknowledged that "we are going to spend a lot of their money," then added later: "The economics have to work. They do work."
Brolick's message to investors, who gathered at the Nasdaq building in New York, came a few hours after the company reported mixed results for the fourth quarter.
Wendy's income from continuing operations fell 30 percent to $4.3 million in the last three months of the year, down from $6.1 million in the fourth quarter of 2010.
However, that number offers the company some vindication for its oft-repeated argument that Arby's was to blame for the dour results of the past few years. The $6.1 million profit a year ago was far better than the $10.8 million loss it originally reported for that period, when it was still bundling its results with Arby's.
Wendy's marriage with Arby's was short-lived. It began in the depths of the financial crisis in fall 2008 and ended last summer when Wendy's sold Arby's to a private-equity firm, saying it wanted to focus on the Wendy's brand. Wendy's said Monday it spent nearly $46 million over 2011 to break up with Arby's, including severance costs for some employees and retention bonuses for others.
Revenue rose 5.6 percent to $615 million, narrowly beating the $613 million predicted by analysts. The chain credited more customers visiting and spending more when they did, including on the revamped Dave's Hot 'N Juicy cheeseburger. Higher prices also helped.
Revenue at restaurants open at least a year climbed 4.4 percent in North America, the highest number in nearly 8 years, according to the company. That's a key measure of a company's health because it strips out the effect of newly opened or closed stores.
On a per-share basis, adjusted earnings were 4 cents, in line with the expectations of analysts polled by FactSet. That number excluded one-time charges like the costs for selling Arby's and writing down the value of some of its assets. With those charges, per-share earnings would have been 1 cent per share.
Last week, Barclays Capital analyst Jeffrey Bernstein spoke favorably of the changes at Wendy's, listing the stock as a buy and saying that it was trading at a discount compared to other fast-food companies. Sanford C. Bernstein analyst Sara Senatore said Monday that revenue numbers beat her expectations. But she also said that the company's guidance for the year — it said it's expecting a low single-digit increase in a key measure called adjusted earnings before interest, taxes, depreciation and amortization — was below Wall Street's estimates of 7 percent growth.
Wendy's shares fell 11 cents, or 2.2 percent, to $5.09 in midday trading.
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