If you were interested in a high-flying company, you might not be interested in one that was posting 0.4% comparable sales growth. That’s pretty low when you consider that companies such as Starbucks Corporation (NASDAQ:SBUX) can put up 8% comparable sales growth.
Welcome to the world of The Wendy’s Co (NASDAQ:WEN). The burger chain announced preliminary second-quarter results earlier this week, and investors ate them up. The stock has risen 30% in 2013, handily beating out the S&P 500. The company is sitting on about three times as much long-term debt as it has cash, and sales are sluggish. So what gives?
A little goes a long way
When The Wendy’s Co (NASDAQ:WEN) beat expectations, it did so by earning $0.08 per share when the market was expecting $0.06. The company managed to generate a lot of excitement with that result, because it’s seen as the very beginning of a turnaround. An analyst from Barclays said of the turnaround, “traction is finally building.”
What’s been building for so long is the change from burger chain to slightly nicer burger chain. While that may seem like a small thing, The Wendy’s Co (NASDAQ:WEN) has put a lot into the business to make it happen. The company is planning to redo many of its corporate locations to give them a fresher feel. It also wants to change up the menu offerings, effectively moving itself closer to the fast-casual side of the scale.
The challenge for the company is how to walk the line. It still wants to be a fast-food place, but it wants to offer items to people looking for a slightly more upscale dining experience. That means introducing things like the Pretzel Bacon Cheeseburger to entice — sort of — picky diners.
Walking a thin line
The difficulty that The Wendy’s Co (NASDAQ:WEN) has had, and will continue to have, I think, is that it’s very hard to be all things to all people. The idea of being the better burger chain means that The Wendy’s Co (NASDAQ:WEN) is going to be competing not only with McDonald’s Corporation (NYSE:MCD) and Burger King Worldwide Inc (NYSE:BKW), but also Five Guys and In-and-Out Burger.
If Wendy’s can do it right, that could be a great move. McDonald’s Corporation (NYSE:MCD) reported underwhelming earnings earlier in the week, and the company blamed much of the softness on larger economic issues. The fact that the market is now seemingly saturated with similar chains means that The Wendy’s Co (NASDAQ:WEN) could break out of the pack and make for the blue waters of high-end burger heaven. Five Guys, for instance, is thought to be the fastest growing fast-food joint in the US, with sales approaching $1 billion annually. That’s a place where Wendy’s could get comfortable.