Wendy’s has lowered its 2004 profits forecast. Citing a severe hurricane season and escalating beef prices, Wendy’s International has lowered its profit outlook for 2004. The company believes its woes are short term, and it does have some successful concepts such as the Tim Hortons coffee shops. Yet it may be that the chain’s woes do not end with hurricane season: its overall offering would benefit from a wider revamp.
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The Ohio-based restaurant company has lowered its 2004 profit outlook, citing hurricanes and skyrocketing beef prices. Wendy’s re-forecast its third-quarter earnings at 59 cents per share, down 8% from analysts’ expected earnings of 64 cents per share.
Hurricanes contributed to more than 2,000 lost store days in the third quarter, by forcing Wendy’s to close or evacuate restaurants. The storms negatively affected sales at 1,030 Wendy’s Southern outlets, accounting for 18% of the company’s 5,840 total US restaurants. Escalating beef prices have also hit the fastfood company hard. Declining cattle populations have forced beef prices up by almost 8%. Costs for beef are expected to continue their rise over the next year.
Wendy’s also faces challenges at its fast-casual Baja Fresh chain. Due to underperformance, the company slowed expansion from 73 new outlets in 2003 to less than 40 in 2004. Fast-casual restaurants have decreased in popularity as fastfood chains such as McDonald’s and Burger King have added new gourmet-style menu options.
In fact, it has been a good year for McDonald’s and Burger King. McDonald’s posted a 7.2% increase in same-store sales in August. Burger King’s same-store sales climbed 5.1% in August, topping off seven consecutive months of growth. Some of the sales growth may be attributed to efforts to appeal to younger consumers, particularly through music partnerships with Sony Connect and AOL, respectively. Wendy’s has not enacted a marketing campaign to attract younger consumers in particular.
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By GlobalDataDespite its woes, Wendy’s believes its problems are only here for the short term. Indeed, Wendy’s saw a 5% growth in same-store sales in August, and its Tim Hortons coffee shops are also growing fairly rapidly. As Wendy’s looks to brighten its future, it should focus more on its more successful coffee and fastfood ventures. The company might want to consider adding gourmet-style options to its Wendy’s menu and work to attract younger consumers in an effort to stay competitive and fresh.
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