Wendy’s (NASDAQ: WEN) is set to report its Q3 earnings tomorrow, and it’s reasonable to expect a strong quarter – and perhaps an even stronger outlook.
The fast-food restaurant chain has, along with most companies, seen its shares dip over the past few weeks.
But if Wendy’s strikes the right chord with investors tomorrow, shares could quickly turn it around. Here are five reasons why I like the odds of that happening:
1. Breakfast is Holding its Own Despite Headwinds
Wendy’s started offering breakfast in March of this year. In other words, Wendy’s launched breakfast right when just about everyone stopped going into the office – one of the biggest drivers of fast-food breakfast sales.
Breakfast accounted for 8% of Wendy’s total sales in Q2, which is a very respectable number, all things considered. Breakfast awareness levels were around 50% in Q2, so Wendy’s should be able to add a lot of customers once more people start going into the office.
Breakfast is a very competitive space these days. Just ask McDonald's (NYSE: MCD)… But Wendy’s has seemingly found a winning formula. It should continue to hold its own for as long as the pandemic lasts, but post-pandemic, Wendy’s could be set for a breakfast boom.
2. Wendy’s Continues to Focus on Value
Early in Q3, Wendy’s launched its new Spicy Chicken Value Sandwich, and made it part of its four for $4 platform.
Wendy’s understands that its customers are focused on value, so this new offering has a great chance of long-term success. What I really like, though, is the promotion that Wendy’s is running for the new sandwich.
3. Customer Loyalty Program is Music to My Ears
Customers can get a free chicken sandwich until November 8 if they order it through the mobile app.
Wendy’s launched its customer loyalty program in July, and this free sandwich promotion should drive sign-ups. This program has a lotof long-term upside for Wendy’s. Chipotle (NYSE: CMG), for example, has used its customer loyalty program to drive massive digital growth. If Wendy’s has even a fraction of the success that Chipotle has had, sales could surge.
This program will take a while to really payoff, but expect Wendy’s to talk about the early returns during its Q3 call – and I think the early returns will impress.
4. Delivery is Gravy for Wendy’s
Wendy’s digital sales increased to 5% of total sales in Q2, which is double 2019 levels. Most of the digital sales came from delivery.
It’s important to note that Wendy’s, like other fast-food chains, has a low average check. A lot of people are ordering $5 worth of food and drinks at Wendy’s, and delivery simply doesn’t make sense at those levels.
The point is, delivery is never going to be a huge part of Wendy’s business. But that’s okay because Wendy’s doesn’t need it to be. It can, however, be a nice bonus – particularly in our “current normal.”
5. McDonald’s Beat Bodes Well
McDonald’s recently reported its Q3 numbers, and comparable sales dipped 2.2% yoy, beating estimates of a 4.7% decline.
Wendy’s outperformed McDonald’s over the first half of 2020 – on a percentage change basis – with its sales down 4.3% yoy to $807.3 million vs. McDonald’s, which saw sales decrease 19% yoy to $8.48 billion.
So, I believe Wendy’s, which already said US same-store sales were up 8.2% yoy in July after being down 14% yoy in April, could give us a nice surprise tomorrow.
Wendy’s Shares are Appetizing
I’m expecting a strong Q3 from Wendy’s, but the beauty of Wendy’s shares is that they are appetizing now and in the intermediate to long-term future.
Wendy’s drive-thru and digital operations mean that it will outperform most restaurants if we’re in for a tough winter with COVID-19. And in the long-run, post-pandemic, breakfast has a chance to really take off.
Bottom line: You should look to get into Wendy’s sooner rather than later.
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