MW Wendy's is having some trouble at home, as U.S. sales fall and costs rise

By Tomi Kilgore

U.S. same-restaurant sales fall for first time since height of the pandemic, while inflation and higher labor costs hurt profitability

Shares of Wendy's Co. slumped toward a five-year low Friday, after the fast-food burger chain reported a drop in a key quarterly sales metric for the first time since the height of the COVID pandemic, as struggling U.S. consumers cut back on restaurant visits.

The decline in same-restaurant sales, which are sales of restaurants open at least 15 months, also hurt profitability of Ohio-based Wendy's $(WEN)$ U.S. business, as did higher costs for commodity products and worker pay, which was partially offset by a higher average check.

And while profit for the first-quarter to March 31 matched expectations, the company cut its full-year outlook, on the assumption that the consumer will continue to struggle.

The stock dropped 1.2% in morning trading, toward the lowest closing price seen since March 23, 2020. It has shed 3.1% this week, putting it on track for the seventh weekly loss in the past eight weeks.

On the subject of tariffs, Chief Executive Kirk Tanner indicated on the post-earnings call with analysts that they wouldn't have much affect, given that most ingredients are sourced where they are sold.

In the U.S., 95% of ingredients are sourced domestically, including 100% of the beef.

"We apply the same sourcing principle in many of our largest international markets. For example, in Canada we use 100% Canadian beef," Tanner said, according to a FactSet transcript. "This is particularly advantageous in the current environment as tariffs have minimal impact on our supply chain."

For the first quarter, overall same-restaurant sales were down 2.1% from a year ago. That was the first decline since they were down 5.8% during the second quarter of 2020, and missed the average analyst estimate compiled by FactSet for a 1.2% drop.

In the U.S., same-restaurant sales were down 2.8%, also the first drop since Q2 2020. That missed expectations for a 1.3% decline.

"This was driven by adverse weather in January and February, coupled with a weaker-than-expected consumer environment throughout the month of March," Tanner said.

Rival burger chain McDonald's Corp. $(MCD)$ had also reported a decline in U.S. comparable sales, of 3.6%, due to lower traffic to its restaurants.

And company-operated restaurants in the U.S. were less profitable, as margins dipped to 14.8% from 15.3%.

Meanwhile, international same-restaurant sales continued to grow, and were up 2.3% in the first quarter.

Overall revenue, which includes sales of newer restaurants, slipped 2.1% from a year ago to $523.5 million, which was just shy of the FactSet consensus of $525.4 million.

Net income was down 6.7% to $39.2 million, while adjusted earnings per share, which excludes nonrecurring items, slipped to 20 cents from 23 cents to match the FactSet consensus.

For 2025, the company cut its guidance ranges for overall sales to be down 2% to flat from a previous range of growth of 2% to 3%, and for adjusted EPS to 92 cents from 98 cents from 98 cents to $1.02.

Chief Financial Officer Kenneth Cook said on the call that the lowered outlook assumes that the current "challenging" consumer environment will continue for the rest of the year.

Wendy's stock has dropped 24.3% in 2025, while McDonald's shares have gained 8% and the S&P 500 index SPX has slipped 3.7%.

-Tomi Kilgore

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

May 02, 2025 10:26 ET (14:26 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.