There were a few more tricks than treats for Wendy's (NYSE:WEN) in October, if same-store sales are to be the judge. Today, we learned that Wendy's same-store sales dropped 5.8% for the month. Is Wendy's party over?
Investors bid the shares higher, though, likely heartened by the fact that in its press announcement, Wendy's stood firm in its guidance for 7%-to-10% earnings growth for the year.
This time around, Wendy's didn't have any hurricanes to blame; remember, because of the stormy September, it reported same-store sales down 1.4%. Instead, it seems the problem was "increased competition and discounting in the quick-service restaurant sector." It sounds as though McDonald's (NYSE:MCD) and privately held Burger King might be cutting into some of Wendy's sales.
Meanwhile, as has been the case in the past, break out the Tim Horton's concept and you find an impressive same-store sales gain, with a 6.1% to 6.4% U.S. increase and a whopping 9% increase in Canada. However, there was no word on Baja Fresh, the company's faltering Mexican grill concept (which competes with McDonald's Chipotle).
Of course, there is the argument that the strength of Wendy's same-store sales increases this time last year are making for tough comparisons, and one might have expected a decrease from those levels. Then again, it's hard to ignore that McDonald's fared very well in September, despite the hurricanes, with a 10.6% increase in same-store sales for the month. (Be on the lookout for McDonald's same-store sales for October, due Nov. 8.)
It's understandable that investors might take heart in the fact that Wendy's is still standing firm to its guidance for the year. However, there are a few elements that probably deserve a watchful eye. After all, there are well-known challenges on the horizon that could hamper growth, including the high cost of beef and other commodities, the flagging fortunes of Baja Fresh, as well as the idea that the competition is -- obviously -- primed and ready.
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Alyce Lomax does not own shares of any of the companies mentioned.
