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In Focus: Wendy's
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November 28, 2000: 12:51 p.m. ET
Analyst Andrew Barish comments on 'good eats' companies
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NEW YORK (CNNfn) - Wendy's International Inc., which said Tuesday it would close underperforming restaurants in Argentina and take a fourth-quarter charge against earnings, remains poised to meet better-than-expected growth projections for the year, one Wall Street analyst said.
Andrew Barish, a restaurant analyst with Robertson Stephens and a guest on CNNfn's In Focus, said the Dublin, Ohio-based restaurant chain will continue to benefit from its balanced marketing strategy in North America. At the same time, he said, Wendy's, like its fast-food competitors, remains insulated from the emerging market slowdown as demand for convenience food soars.
(Click here for the full story on Wendy's and its fourth-quarter restructuring charge.)
In Focus airs daily on CNNfn's network at 12:10 p.m. The following includes comments made both during the show and in the pre-show interview.
CNNfn: Wendy's raised its 2000 earnings per share growth expectations to 17 percent to 19 percent, up from its prior range of 14 percent to 17 percent. Analysts had been expecting $1.51 per share, or an increase of 14 percent, for the year. Did that surprise you?
Barish: No. The restaurant industry hasn't seen any impact from a slowing economy. There are other drivers in place in terms of sales -- like lifestyle changes and the need for convenient meals and the necessity of eating out. Those factors have driven continued strong sales in restaurants despite what's going on in the economy. Unless we go into a recession, we won't see changes in same-store sales. The sales environment is still positive for the sector. There are different drivers for restaurant demand. Eating is a necessity, unlike other areas of the consumer sector which have seen weakness.
CNNfn: The company cited "strong" fourth-quarter business trends as the reason it upgraded it earnings outlook -- what do they mean by that?
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They have a balanced marketing approach while others have been a little schizophrenic with their marketing.
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Andrew Barish, analyst, Robertson Stephens |
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Barish: I haven't spoken to the company yet, but I imagine they're looking at the sales trends quarter-to-date. They release monthly sales and the next release will be in about a week, at the beginning of December, for November sales. I imagine they will continue to see good trends through November in Wendy's and Tim Horton's in Canada. In October, sales were up 3.4 percent for Wendy's, which is a continuation of a good trend.
CNNfn: What's driving the strong sales trend?
Barish: It's solid positioning of the brand. They consistently get the highest consumer attributed scores of any QSR (quick service restaurant) chain. They get incremental sales through their late night business -- they've been open for later hours for much of this year and that's helping drive incremental sales. They also have a little pricing increases in there as well, probably about 1 percent. They have a balanced marketing approach while others have been a little schizophrenic with their marketing.
CNNfn: The company will be closing 18 stores in Argentina and laying off 600 employees. Argentines are big meat eaters; what happened there?
Barish: The political and economic situation down there is such that it's become a difficult business environment. With 18 units they don't have enough critical mass to stick it out. McDonald's (MCD: Research, Estimates) is also having trouble there but because they have a larger presence they'll wait for the economy to come back.
CNNfn: Wendy's has been more focused in North America than McDonald's and Burger King, but sales were up significantly in Latin America and the Caribbean. Should they be more spread out?
Barish: Wendy's has re-evaluated its international business over the past few years. They've written down and exited markets like the U.K. and Argentina because they couldn't be profitable or get returns there, and they made the right decision. Those markets were really tiny parts of the business and more of a management and earnings drain than was really desired. They made the right decision in looking at opportunities and potentially other businesses to acquire in North America down the road. That's the right way to approach growth for Wendy's.
CNNfn: Wendy's stock is trading close to its 52-week high -- what's your outlook for WEN?
Barish: I continue to recommend it. It's a "strong buy" rated stock. At $26 it's (trading at 15 times earnings), so it's still an attractive stock. It's historically traded in the 18 times range and given these uncertain economic conditions consumers will look for safe stories like Wendy's.
CNNfn: So a slowing economy won't have a negative effect on the restaurant group? What's your outlook for the sector?
Barish: The restaurant industry is now a consumer staple, not a consumer cyclical, and so it's not exposed to swings in the economy, unless they're dramatic, like going into a recession. GDP growth slowed significantly from the second quarter to the third quarter, yet restaurant sales gains were stronger in Q3 than in Q2, which tells me that restaurants aren't subject to the same swings that go on in the economy. There are secular drivers going on.
CNNfn: What are your favorite stocks in the restaurant sector?
Wendy's (WEN: Research, Estimates), Brinker International (EAT: Research, Estimates) and Rare Hospitality (RARE: Research, Estimates).
-- compiled by Tanya Helenius. Carmina Perez contributed to this report. 
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