Wendy's (NYSE: WEN) finished up fiscal 2005 by posting some soggy figures. Unfortunately, it has kicked off 2006 with continued top-line weakness.
While Wendy's effectively launched its IPO for Tim Hortons (NYSE: THI) on March 24, first-quarter results for fiscal 2006 include the impact of this concept. And it's a good thing too, since the coffee-and-donut specialist has been the only bright spot for Wendy's in recent quarters.
Tim Hortons saw strong business in both Canada and the U.S., growing total revenue by 25.1% compared to the year-ago period. New site openings, solid same-store sales, and a positive currency exchange were contributing factors. Were it not for these gains, Wendy's International would have posted declining revenues year over year.
The company's total revenues increased by a meager 4.2%. In the quarterly earnings conference call, management acknowledged that results were "lower than expected." Comps for its company-owned sites declined 4.8%, while franchised units saw a drop of 5.2%. Finally, its Baja Fresh concept also continues to struggle; total revenues from this category were lower by 4.8%, with comps declines of 3.7%.
Quite frankly, there is little about Wendy's latest performance worth savoring. Management indicated that its spicy chicken sandwich continues to do well, despite the new competing spicy chicken sandwich recently released by McDonald's (NYSE: MCD). But more is obviously needed from the company. Wendy's plans to implement new initiatives that it hopes will reinvigorate the enterprise. It has introduced new deli sandwiches called "Frescatas." The new line includes ham and roasted turkey varieties that will be served on fresh-baked artisan bread. According to CEO Kerrii Anderson, this is Wendy's most important "product launch" in recent years. She adds that the company is already seeing positive results, despite the new line having hit the market in just the past few weeks.
New product entries are just one ingredient of the turnaround plan. In the second quarter, Wendy's will initiate a new advertising campaign to "re-energize" its Late Night business. Additionally, the company will be focusing on improving its operational performance. Called "Next Chapter" initiatives, the plan is to reduce overhead costs by $100 million, while at the same time improving efficiency and service.
Anderson admitted that the company has lagged behind competitors in recent quarters. If it wants to get moving in the right direction, Wendy's definitely has its work cut out for it. With Tim Hortons' spinoff, the company is losing its No. 1 performer. The best strategy now might well be sitting on the sidelines to see whether Wendy's can come up with another winner.
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Fool contributor Jeremy MacNealy does not own shares of any companies mentioned.
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