Wendy's is caught in a fast-food pickle
Consumers say its offerings taste better than the competition's, but its stock isn't so desirable, especially compared with McDonald's.
As The Wall Street Journal recently noted, Wendy's is in a race with McDonald's for the so-called value customers, with the former ramping up promotions of its value menu dubbed "Right Price, Right Size." But beating the home of the Golden Arches at its own game will be tough.
And so far, the results have been mixed.
Net income at Dublin, Ohio-based Wendy's fell to $2.13 million, or one cent a share, down from $12.4 million, or three cents a share, a year earlier. Excluding one-time items, profit was 3 cents per share. Revenue increased 1.8% to $ 603.7 million. Wendy's was expected to earn 3 cents per share on revenue of $614 million.
Wendy's CEO Emil Brolick has admitted the chain is struggling with value customers even as sales grew in April. These patrons are important given their frequent patronage of fast-food restaurants. McDonald's and Burger King are also courting them.
To be fair, McDonald's is struggling, too. Last month, its same-store sales rose 0.7% in North America. Wendy's did better on that metric, posting a 1% same-store gain in its home market.
However, if investors are going to bet on the fast-food market, McDonald's is the way to go. It has a market value topping $100 billion, giving it the financial heft to attract cash-strapped consumers without crushing its profit margins.
McDonald's stock is also far more reasonably valued, with a price-to-earnings multiple of 18.53. Wendy’s, by contrast, carries a P/E of near 1,500. The 52-week price target on McDonald’s is $106.67, about 7% higher than where it trades now.
Wendy's food may be delicious, but its stock is more likely to leave a bad taste in investors' mouths.
Jonathan Berr owns shares of McDonald's. Follow him on Twitter @jdberr.
the problem is nobody can compare with In N Out if they want a good quality burger...they always use fresh ingredients...you can watch them cut their fries from fresh potatoes, right there in front of you. if I want a burger and fries, that's where I go
to go to fast food plaes is not much cheaper than slow food restaurants.Except, I don`t
have to tip.
When my son (now 10 years old) was about 1-1/2 to 2 years old he used to sing "Ba Da Ba Ba Ba" in the car. I didn't put it together right away but then I noticed it was always as we were passing by a McDonalds. It is (or was) there theme song at the time followed by "I'm lovin' it" And even at that young age he related those golden arches with their commercial. There advertising is aimed at children and it works.
I can remember when all 3 of the big chains were desirable destinations in their own right. Over time though, they have become more conscious of shoving food out the window in the shortest minute rather than maintaining the quality of the product. I can't recall opening a wrapper to find a well constructed and hot sandwich. I'm referring to a "freshly" made (still warm) sandwich that wasn't slobbered with condiments to the point that you couldn't keep the bun in tact. McDonalds fares better due to the lack of tomatoes on their popular sandwiches, although the McRib destroys this advantage due to more sauce than bread. All things considered though, Wendy's does have the edge on taste if prepared the way intended when they began operations, but none of them really deserve their level of revenues until they clean up the drive thru quality. Unfortunately, they probably won't address the issue as most customers won't take the time to complain because the frequency of complaints would be staggering!
Wendy's service, nearest our home, is horrible. Doesn't matter how often I complain, they never respond to my email complaints. Love their food but we only eat Wendys if we are near one
away from the one nearest our home.
It's remarkable how this article is attempting to relay financial information, and the posts are largely about "oh I like their food" or "this one is cheaper".
Folks, this is about the economical status of a chain, not about "Do you like the food".
For the rest of those who do have a clue, and are financialy literate. (No wonder there's so many begging for entitlement handouts, most don't understand money.) I digress, the comparisson between both chains and the R.O.I. is largely vast. Income from Sales differ in the billions, Wendy's income growth is a terrifying - 69%, net profit margin is at -0.18%, it's Debt Ratio 0.74, EPS -0.01 Compare that to MCD income growth -.70, Net Profit 19.79%, Debt Ratio N/A .EPS 5.39. No way would I ever touch Wendy's stock with those numbers.
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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