Atlanta-based Wendy's/Arby's Group suffered a tough third quarter with both of its brands. The third largest U.S. fast-food chain said sales declines and higher commodity costs squeezed profit margins at Wendy's and Arby's restaurants.
Revenue fell 4.7 percent to $861.2 million, and the company posted a loss of $900,000. In the third quarter a year ago, the company turned a profit of $14.7 million.
"Let's begin by acknowledging that the third quarter was a difficult one, and the results were simply not satisfactory," Chief Executive Roland Smith said on a conference call with analysts. "We believe Wendy's/Arby's Group has significant long-term earnings growth potential."
At the Wendy's division, total revenue fell 2 percent to $600.7 million, mostly because of declines at company-operated restaurants that have been open at least a year.
The company said the launch of new natural-cut, skin-on french fries with sea salt later this month will contribute to sustainable sales growth. The company is also testing new cheeseburgers, planning to expand into breakfast, and trying to reverse losses in the "value" category by pushing 99-cent items such as its baked potato.
"We are re-energizing the Wendy's brand," Smith said. "We have much more work to do."
Executives said Arby's is in the early stages of a turnaround. But the brand's third-quarter performance was weaker than expected, with revenue falling 10 percent to $260.5 million. Sales at established stores in North America fell 5.9 percent.
Still, the parent company said the Arby's brand built momentum in October, with sales growth of 5.5 percent at company-operated restaurants, helped by the value menu and items such as the Junior Deluxe roast beef sandwich. October traffic was up by double-digit percentages.
The company said the market remains challenging in the fourth quarter, with higher commodity costs, even though sales trends improved at some restaurants in October compared with the third quarter.
"It continues to be a weak economic environment and our competitors continue to be very aggressive," Smith said.
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