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Hurricane headwinds hamper Wendy's same-store sales, forecast

Key Points
  • Wendy's reported lower-than-expected third-quarter profit and sales as hurricanes curtailed traffic at restaurants in Florida and Texas.
  • The results led the burger chain to cut its full-year earnings forecast.
  • Wendy's has the highest concentration of stores in Florida and Texas, which were slammed by hurricanes Irma and Harvey during the quarter.
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Wendy's reported lower-than-expected quarterly profit and sales as increased competition, lower grocery prices and hurricanes hit traffic at restaurants, leading the burger chain to cut its full-year adjusted earnings per share forecast.

The company's shares were down 3.5 percent to $14.22 in morning trade on Wednesday.

Wendy's also said higher commodity costs hurt profit margins by 1.7 percentage points during the quarter.

Commodities such as beef, bacon, and chicken account for a large share of the company's input costs, but Chief Financial Officer Gunther Plosch said high prices in the quarter were probably just a "onetime bubble."

"Beef and chicken are each about 20 percent of the commodity basket for Wendy's, so this has been a margin headwind," Evercore ISI analyst Matt McGinley said.

Wendy's, like its peers in the fast-food industry, is also dealing with a slide in grocery prices that is encouraging more consumers to prepare meals at home or use meal-kit delivery services such as Blue Apron, HelloFresh, and Plated.

This has intensified competition, with Wendy's, McDonald's, and Burger King offering deeply discounted meals to get more customers to visit their outlets.

Wendy's is also launching delivery services under a partnership with DoorDash, it said.

The company trimmed its full-year adjusted profit forecast to 43 cents to 45 cents per share for full-year, from 45 cents to 47 cents it estimated earlier, blaming an unexpected rise in deferred tax expense.

In the third quarter, Wendy's same-restaurant sales in North America rose 2 percent in the third quarter but came in below the 2.4 percent increase forecast by Consensus Metrix.

The burger chain, which has the highest number of its restaurants in Florida and Texas, said hurricanes Irma and Harvey reduced same-store sales in North America by 30 to 40 basis points.

The company also trimmed the higher end of its North American comparable-store sales forecast for the year to 2 percent to 2.5 percent from 2 percent to 3 percent.

Wendy's sold 249 restaurants to franchisees in the quarter, resulting in a 15.4 percent drop in sales to $308 million. Analysts had expected $311.9 million, according to Thomson Reuters I/B/E/S.

Excluding some items, earnings were 9 cents per share, missing analysts' average estimate of 12 cents per share.