February 21, 2019 / 12:32 PM / 3 months ago

UPDATE 3-Wendy's gives poor profit outlook as digital spending grows

(Recasts with earnings forecast, adds CEO quote, updates share price)

By Nivedita Balu

Feb 21 (Reuters) - Wendy's 2019 profit outlook fell short of Wall Street forecasts, as the burger chain steps up spending on digital initiatives in efforts to lure more customers in a crowded U.S. fast-food market.

Wendy's said on Thursday it would spend $25 million this year on digital scanners and data analysis to gain insights about customer behavior, as part of its efforts to increase the speed and accuracy of orders.

Major fast-food chains across the United States are remodeling outlets, introducing promotions or investing in new technologies like online delivery, to draw more diners who expect refreshed menus and a speedy, hassle-free restaurant experience.

"Everybody's going to be having technology but who does it the best and creates the best customer experience — that's the opportunity for us," Wendy's Chief Executive Todd Penegor said on a conference call with analysts.

To compete better with much larger rival McDonald's Corp , Wendy's has been launching value meals and innovative food to keep diners satisfied.

In the quarter ended December, it launched S'Awesome cheeseburgers and $5 junior bacon cheeseburgers, while last year it began offering "4 for $4" meal deals to rival McDonald's value meals.

Still, sales at established Wendy's restaurants rose only 0.2 percent during the December quarter, lagging Wall Street forecasts of a 0.74 percent rise.

Wendy's said demand for hamburgers was slightly lower than expected and that it was seeing increasing competition from Mexican-inspired chains and big chicken restaurants.

Many U.S. fast-food chains have had a dour end to 2018 — McDonald's had its slowest growth in nearly two years — and analysts believe a harsh winter and the partial shutdown of the U.S. government may have curtailed consumer spending.

Wendy's projected adjusted earnings between 61 cents and 63 cents per share, a forecast that includes expenses related to its new digital scanners. Analysts were expecting earnings of 66 cents.

The Dublin, Ohio-based company's fourth-quarter revenue overall climbed 3.6 percent to $397.8 million, but fell below analysts' estimates of $400 million.

Excluding one-time items, Wendy's reported earnings of 16 cents per share, one cent above analysts' forecasts, driven by higher net rental income and lower operational expenses.

Shares of Wendy's were up 0.2 percent at $17.71 in morning trade, after falling nearly 3 percent in early trade. (Reporting by Nivedita Balu in Bengaluru; Editing by Sai Sachin Ravikumar)

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