Wendy's new CEO is embarking on a turnaround initiative, while acknowledging that issues around food quality and service have turned customers away

Wendy's reported second-quarter earnings on Friday.

Wendy's made a name for itself by promoting an elevated form of fast food, with an emphasis on fresh ingredients. But today, as the burger chain's new CEO tries to reverse more than a year of weaker sales trends, a new approach may be needed.

"Traffic is down, our value proposition has slipped and franchisee economics are under pressure," CEO Bob Wright said on Wendy's earnings call Friday.

Rising competition and a cautious consumer backdrop have suppressed sales, analysts say, and frequent management changes have muddled the strategy. And amid the ongoing fast-food discount wars, analysts note that Wendy's value menu has perhaps gotten too complex.

Moreover, the ubiquitous advertising campaigns of years past - featuring founder Dave Thomas through the 1990s, and the catchphrase "Where's the beef?" even before that - have given way to promos that aren't as distinctive. Outdated restaurants and underinvestment have hurt the chain's drive-through service, according to experts.

"They positioned themselves as a cut above traditional fast food, a little bit higher quality," said Mark Kalinowski, a restaurant analyst and CEO of Kalinowski Equity Research. "I think that type of positioning in today's economy just doesn't resonate all that well."

Wendy's stock $(WEN)$ has fallen 7.7% so far this year and is now trading at around $7.70. That's well off highs of around $25 reached in 2021. On Friday, CNBC reported that Burger King had surpassed Wendy's as the U.S.'s second-biggest burger chain.

Meanwhile, same-store sales at Wendy's have fallen for six straight quarters, with a 6.3% drop in the most recent period. New leadership has recently made an effort to diagnose the chain's problems - cutting the dividend and pulling the company's full-year forecast in an effort to drive a bigger turnaround effort.

Wright, who took over the top post in May, called out "quality degradation" and an overreliance on one-off promotions. He said the Wendy's Biggie value menu had become "increasingly complex," which had made it "less compelling and less effective." And he said the chain's drive-throughs needed to get better at handling demand during the busiest hours - noting that by focusing too much on cost savings, the company had hurt its competitive standing.

Wright added that the company would "rebuild the menu at the ingredient level" and rethink how it prices its items. He said he would share more detail on specific turnaround actions during Wendy's next round of earnings.

"I've seen this brand at its best, and I know we can fix these issues," the CEO noted.

BTIG analyst Peter Saleh, in a research note on Friday, suggested patience was of the essence.

"We're optimistic that new leadership can bend the curve on traffic, but remain realistic that direct competitors have also gotten noticeably sharper, and the planned initiatives will take time to bear fruit," he wrote.

In decades past, committing to things like fresh beef and staying away from toys and collaborations were enough for Wendy's to set itself apart from McDonald's $(MCD)$ and Burger King, which is owned by Restaurant Brands International $(QSR)$. But Burger King's efforts to improve service, and the rise of Chick-fil-A and fast-casual chains, cranked up the pressure on Wendy's.

After restaurants raised menu prices in the wake of the pandemic's disruptions to the economy, and as costs for beef have risen, more diners have focused on value. In May, the Financial Times reported that Nelson Peltz's Trian Fund Management was looking at ways to take Wendy's private.

Wendy's has also had a number of shakeups at the top. Before Wright - who most recently was CEO of sandwich chain Potbelly and held senior roles at Wendy's in the past - Ken Cook was interim CEO. Cook took that job after Kirk Tanner left for Hershey $(HSY)$ last year, following roughly a year and a half leading the chain. Before Tanner, Todd Penegor, a decade-plus veteran at Wendy's, held the job.

The company has also shuffled its lower ranks over that time. Steve Cirulis became Wendy's new chief financial officer in June. Cirulis, like Wright, is a veteran of Potbelly.

During Friday's earnings call, Wright said U.S. customer satisfaction at Wendy's had improved, and noted its international business saw sales growth. But he pointed to other issues; a collaboration involving the "Minions & Monsters" film didn't drive traffic the way management thought it would, and neither did new chicken sandwiches.

Analysts say that promotional tie-ins around movies or sports, along with minor changes to ingredients, might not be harmful on their own - but their effect, over time, can add up.

"That might not show up immediately, but over time people do recognize that change, and over time it erodes the brand positioning," Stephens analyst Jim Salera said.

Analysts also noted that as restaurants hurl value deals at reluctant consumers, new deals on Wendy's Biggie menu - different-sized combos priced at $4, $6 or $8 - could be structured in a simpler way to cut through the noise. McDonald's, on its own earnings call earlier in the week, said changes to its value menu and overlapping promotions had led to questions from consumers.

Finally, analysts have observed that outdated restaurants in poor condition have hurt Wendy's sales, and that the company needs to ensure sufficient staffing and cleanliness.

Kalinowski described the last Wendy's he went to, in Maryland, as dirty and said there was only one other customer in the restaurant, who may have only been there to use the bathroom. Outside, he said, trash had not been picked up.

"The whole vibe of the restaurant was: 'Don't come in here,'" he said.

-Bill Peters