I Finally Understand What The Wendy’s Co (WEN) Is Doing

Almost exactly a month ago, I wrote about the high market valuation that investors have bestowed on The Wendy’s Co (NASDAQ:WEN) and the plans that the company has for reinvigorating its image. At the time, I was skeptical that the plan was going to work, and I thought that the changes included in its “Image Activation” plan were too minor. That was before I went to a revived The Wendy’s Co (NASDAQ:WEN) location.

The Wendy's Co (NASDAQ:WEN)

This weekend, I was traveling through Houston’s Hobby airport, and I was hungry. As it turns out, most of the food served in the airport is near inedible. Enter The Wendy’s Co (NASDAQ:WEN). I happened upon a location in the food court, and was taken aback. The menu looked nice on digital screens, the food photography looked clean and new, the whole layout of this tiny little location had clearly been well thought-out. My own reaction shocked me, and I decided to revisit the stock.

The Wendy’s Co (NASDAQ:WEN) plan
The future of The Wendy’s Co (NASDAQ:WEN) is wrapped in the company’s new image plan. Renovated locations are supposed to look more modern, with clean lines and brighter lighting. The push is clearly meant to help The Wendy’s Co (NASDAQ:WEN) move beyond its burger roots and into the world — or at least the sales growth — of fast-casual companies like Panera Bread Co (NASDAQ:PNRA).

It’s not what anyone would call rocket science. If we take Panera Bread Co (NASDAQ:PNRA) as the leader in fast-casual and McDonald’s Corporation (NYSE:MCD) as the leader in plain old fast, it’s easy to pick a side. McDonald’s Corporation (NYSE:MCD) increased its comparable location sales by a measly 1% last quarter, while Panera Bread Co (NASDAQ:PNRA)’s comparable sales grew 3.8%. In McDonald’s Corporation (NYSE:MCD) defense, it’s still a cost king. The company pulls in a solid 31% operating margin, which blows Panera out of the water.

To tap into that sales growth — Wendy’s only increased comparable sales by 0.4% last quarter — Wendy’s is dressing itself up. The location I visited had cleared out all of the vestiges of fast food gone by. Those yellowed menu boards, huge registers, and fading food images had taken up refuge in the dumpster. In their place was a shiny new system and presentation. The business is also introducing new sandwiches to compete with the fancier chains. Earlier in the year it released a chicken flatbread sandwich and more recently it launched a pretzel bacon cheeseburger.