With McDonald's (NYSE: MCD ) and so many other restaurants blaming their lackluster results on the winter storms, it's tough to determine what is a valid excuse and what is weakening business. Make no mistake about it, though. When it comes to Wendy's (NASDAQ: WEN ) , the old-fashioned burger chain continues to blossom.
The McDonald's chill
McDonald's domestic same-store sales came under great pressure the last few quarters. Criticism from many has included a menu that's gotten too complicated, orders taking too long, and weird introductions that just don't work, such as its Mighty Wings. Naturally, when same-store sales growth fell from bad to worse, McDonald's latest scapegoat, the weather, was met with skepticism.
For the first quarter, McDonald's saw domestic same-store sales slide 1.7%. That percentage might not sound like much, but for a company of McDonald's size, that's a lot. And it was worse than the 1.4% decline of the prior quarter. Operating income fell by 3%. McDonald's blamed "industry dynamics" in addition to the "severe winter weather."
Frosty at Wendy's
Meanwhile, Wendy's reported its fiscal first-quarter results on May 8. Same-store sales ticked up 1.3%. Adjusted earnings per share more than doubled from $0.03 to $0.07. The results were decent but not nearly as good as the 3.2% and 3.1% same-store sales gains in the third and fourth quarters, respectively, of last year. Adjusted earnings per share were higher at $0.08 and $0.11 then, too.
In the conference call, Emil Brolick, Wendy's CEO, said that the company was "negatively affected by winter weather," just like McDonald's claims. Similarly, it brings cause for concern. For McDonald's fans, the jury is still out as to whether it was the chill versus longer-lasting demand pressure. For Wendy's fans, rest assured, It was the weather.
Wendy's demand is beefing up
Brolick pointed out that the same-store sales headwind was felt across the industry. That would, of course, include McDonald's. However, what the 1.3% same-store sales gain for the full quarter doesn't directly show you is the way the quarter went after the storms subsided.
Todd Penegor, CFO and senior vice president of Wendy's, called it "a tale of two halves." He explained that the first half of the quarter actually had negative same-store sales; then, as the weather cleared up, there was a strong rebound in the second half. Same-store sales growth was 5% higher in the second half of the quarter than the first half. With the much improved weather, that momentum continued so far into the second quarter for Wendy's.
Penegor pointed out that same-store sales growth is now back to the robust levels of the third and fourth quarters of more than a 3% increase. This suggests that for Wendy's, it truly was only a few weeks of bad weather that beat up the overall number for the quarter, but demand is just as strong now as it was before the bad weather.
For Wendy's, growth continues to be strong despite a half-quarter speed bump. For McDonald's, we're going to have to wait and see.
One thing that certainly will help both McDonald's and Wendy's is on the cost side. Many restaurant chains have been complaining about higher heating bills from the cold weather. Penegor added that there were unusually high maintenance expenses, such as clearing snow from parking lots. Things like that don't usually come free.
Foolish final thoughts
Look for Wendy's to spring back with its second-quarter report. For the full year, it expects average same-store sales growth of between 2.5% and 3.5% along with adjusted earnings per share of between $0.34 and $0.36. Based on the current share price, that puts the P/E at around 23. It comes with a bit of a pricier P/E than McDonald's, but Wendy's also comes with confidence that its growth trajectory is intact.
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