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Quarterly Calls Offer Mid-Year Updates

Quarterly earnings conference calls by Red Robin Gourmet Burgers, The Wendy’s Company and Jack in the Box provided interesting snapshots of where the burger-restaurant business stood through the first half of 2012.

Same-store sales reports were positive if not stellar. Red Robin’s comp sales for it Q2 ended July 8 were up 0.8% thanks to a 0.9% gain in traffic that was weakened by a 0.1% drop in average check (see full results here). For its Q2 ended July 1, The Wendy’s Company reported company and franchised same-store sales increase of 3.2%. For its Q3 ended July 8, Jack in the Box said comp sales were +3.4% for company units (helped by traffic growth of 1.2%, a 2.2% increase in average check and a 3.1% boost in pricing).

Red Robin's Tavern Double burger has been an epic success.

Some worries were voiced by the chains about the second half of the year and 2013 as the impact of the drought is felt on food costs. This is in addition to concerns about potential increases in minimum-wage and health-care costs and continuing high unemployment rates.

Red Robin warned that its Q3 sales will see a 3% to 5% negative impact on sales from the London Olympics, which is keeping people home by the TV in the evening. QSR sales are less affected because most meals purchased are not eaten in-store.

The Tavern Double burger that Red Robin introduced in April has been a double success. CEO Steve Carley called it the chain’s single most successful product launch, delivering the sales of the popular Oktoberfest LTO. More importantly over the long term, the Tavern Double’s permanent $6.99 price give it a gateway “everyday value” item that frees it from bringing out seasonal LTOs at $6.99 initially and then raising the price later to regain profitability (as with the Oktoberfest). New “styles” or topping variations for the Tavern Double and larger (6 oz. patty) Red’s Big Tavern burgers are in the works, Carley said.

Carley called the value-priced Tavern Double “a powerful tool to protect our brand from fast casual.”

A new menu that will be introduced at Red Robin in October is expected to revamp appetizer and desserts offerings. Lower appetizer sales were one reason for the Q2 softness in average check. Red Robin also is continuing its focus on building its beverage and bar business. Carley said alcoholic beverages’ share of sales rose to 7.2% from 6.5%. SVP-Chief Marketing Officer Denny Post promised a surprising beverage initiative this fall that will “put us squarely in the beer business.” This could be a proprietary house beer brand possibly under a Red’s Tavern label or even a brewpub experiment although the company gave no details of its plan.

"Red" is Wendy's "brand offering" spokesperson.

Upgraded burger presentations also will be part of the menu shift, which will be accompanied by a “modest” menu-price increase. “We’re testing a ton of things for fall,” Post told analysts.

Wendy’s was modest in its boasting despite a fairly strong quarter (see results here). CEO Emil Brolick credited new products such as the Spicy Guacamole Chicken Club sandwich and guest-service improvements (part of the My Wendy’s initiative) for the strong comp-sales gain.

Brolick may have been subdued because he needed to deliver less-than-encouraging news about Wendy’s longtime (five-plus years) test of a breakfast menu isn’t yielding satisfactory margins. “We’ve made significant progress operationally, yet our breakfast economic model is not producing the results we need across a full spectrum of restaurants,” Brolick told analysts. “On systemwide initiatives, our commitment to franchisees is that we will achieve a green light from consumer, operations and economic perspective before full-scale commercialization. We have more work to do, and in particular, around economics.”

Wendy's says the breakfast menu in test "is not producing the results we need" for a rollout.

Wendy’s strategy of using Wendy Thomas as the “Brand Promise” spokesperson and the character called “Red” (actress Morgan Smith Goodwin) in “Brand Offering” roles is working well, Brolick said. He repeated his earlier commitment to spend more marketing dollars against Hispanic consumers. Hispanics account for only 13% of Wendy’s customers, compared with 21% for all QSRs.

Brolick noted that in Q2 Wendy’s used advertising to promote late-night hours for the first time since 2005. The result: a 7% increase in late-night sales.

Wendy’s will have remodeled 50% of its restaurants by the end of 2015, Brolick pledged. In 2013, it will “reimage” 100 stores (double this year’s 50), with the majority of them Tier 1 remodels. These top-tier makeovers require an investment of $650,000 to $700,000, but Brolick said the 10 Tier I remodels already done have seen a 25% average sales lift. Tier II remodels cost $500,000 and produce a 15% sales boost; Tier III gets a 5% bump for a $300,000 investment.

Jack in the Box Chairman-President-CEO Linda Lang said that the chain’s completion of its restaurant re-imaging program already is resulting in more dine-in business (where checks tend to be higher). Speed of service has been improved by 30 seconds per transaction compared with a year ago, she said. In explaining Jack’s strong comp sales (thanks to a 2.2% increase in average check and a 3.1% boost in pricing; see results here), Lang also pointed to its food-quality improvements, including improved burgers. “And we’re seeing higher sales of our core burgers as a result, she told analysts. Value-priced combo meals such as $3.49 Value Deal also help.

Lang said the chain saw some sales softness in June but reported that the July 5 dual introductions of the $4.99 All-American Jack Combo and the Breakfast Waffle Sandwich improved unit sales.

Jack in the Box is searching for a new marketing chief. Lang announced that Chief Marketing Officer Terri Graham is leaving the company after 22 years with the chain.

1 comment to Quarterly Calls Offer Mid-Year Updates

  • Dr. Pepper

    Interesting guess on what that fall beverage is, but not quite. It’s one specific new drink that’s being introduced, that’s not at all what you’d expect from Red Robin.

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