The Wendy’s Co. (WEN): Three pillars for growth over the long-term

Shares of The Wendy’s Company (NASDAQ: WEN) have gained 30% over the past 12 months. The company delivered 11% growth in revenue as well as a triple-digit growth in profits for its most recent quarter but the top and bottom line numbers fell short of expectations. Looking ahead, the fast food chain has a growth strategy in place which is set on three main pillars:

Breakfast daypart

Wendy’s launched its breakfast daypart in 2020 and the company is optimistic about its potential. In the fourth quarter of 2020, breakfast comprised approx. 7% of sales and Wendy’s believes it can reach 10% plus of sales by the end of 2022.

Breakfast also contributed meaningfully to restaurant average unit volume growth during 2020 and is profit accretive which should be beneficial to unit economics and in turn drive new restaurant development going forward.  

Wendy’s invested around $20 million for the launch of its breakfast daypart as well as another $15 million in advertising during 2020 and plans to do the same in 2021. The company expects this business to grow by 30% in 2021.

Digital growth

In 2020, Wendy’s digital business saw meaningful growth helped by improvement in delivery services as well as its loyalty program. Digital more than doubled year-over-year in the fourth quarter rising to over 6% of sales in the US, while digital traffic share grew double-digits.

The company saw its delivery business expand thanks to strong promotions with delivery partners, and the addition of services like curbside and mobile grab-and-go will help in driving further growth in the digital channel.

Wendy’s loyalty program is going strong with an increase of about 25% in monthly active users since its launch. At the end of 2020, the company had around 3 million active users and 12 million total members. Wendy’s expects its digital business to reach 10% of sales by the end of 2021.

Global expansion

In 2020, Wendy’s opened around 150 new restaurants and ended the year with positive net unit growth, ahead of its expectations. In 2021, the company is planning to open around 250 restaurants, reflecting a year-over-year growth of 65%, bringing the total number of restaurants worldwide to around 7,000 by year-end.

Wendy’s rolled out a new incentive program that is expected to drive global unit growth to over 3% in 2022. By the end of 2025, the company aims to have around 8,000 restaurants open worldwide. Wendy’s is seeing strong growth in India and the Philippines and it expects to achieve growth this year in its largest international market Canada. As part of its European expansion plans, the company will open restaurants in the UK during the first half of 2021.

These three factors are expected to help drive meaningful growth for Wendy’s both in 2021 and in the long term.

Click here to read the full transcript of The Wendy’s Company Q4 2020 earnings conference call