George Noble
Investment Writer, Former Fund Manager at Fidelity, Former Assistant to Peter Lynch
Wendy's fundamentals are falling apart, so the stock was never cheap even well off its highs. It has posted six straight quarters of falling same-store sales as smaller portions and higher prices erased the value proposition that defined the brand. Meritage Hospitality, the franchisee running 314 of its restaurants, just filed for Chapter 11 after its store-level earnings fell 48% last year. x.comÂ
Wendy's prolonged sales weakness and rising food and labor costs threaten franchise survival, leaving the company near bankruptcy. Restaurant tracker John Gordon says it ranked in the bottom five of roughly 60 brands week after week for at least a year; promotions have not delivered a meaningful turnaround, and more closures are likely. Several franchisees say they are trying to sell to avoid bankruptcy; repeated lunch checks found 0-1 cars in the drive-through. x.com x.comÂ
Wendy's is on a path to bankruptcy because cutting product quality while raising prices is a near-certain recipe for failure. Those choices were likely forced rather than greedy: as the big cycle turned down, the only options left were bad or worse, with no way out. Many more companies will face the same. x.comÂ
Wendy's seems to have more upside than downside because Peltz might bid $8 a share if he is willing to offer $7. x.comÂ
McDonald's roughly $8.5 billion plan to help franchisees serve better food, improve service and simplify restaurants comes too late and will likely end the same way as Wendy's. Plunging real estate values add further pressure on McDonald's. x.com x.comÂ
Wendy's is no longer worth holding after Trian said it has no plans to bid for the company at this time, per @wallstengine. x.comÂ
Wendy's has squeeze potential backed by real fundamentals: short interest is 30% of a small 160 million-share float, and its forward P/E is cheaper than Domino's, McDonald's and Cheesecake Factory. WallStreetBets is trying to squeeze it as it did Beyond Meat, but unlike Beyond, Wendy's has good fundamentals. x.comÂ
Wendy's looks dead with about 10 years needed to pay off its debt, especially as it needs capex to refresh stores, though it is better off than Jack in the Box. Per @waterboystocks, it carries $2.7 billion of long-term debt against a $1.2 billion market cap, with EBIT covering interest 2.7x. x.comÂ
Chipotle's same-store sales are falling as even more affluent Americans can no longer afford to eat out. That makes it look like the next Wendy's. x.comÂ
Wendy's stands to profit from rising US fast-food consumption, which will only continue. Fast-food stocks are surging, and Wendy's in particular has broken a multi-year downtrend aggressively. x.comÂ
Restaurants are struggling, making Red Robin unattractive to own. Former restaurant ownership and complaints from restaurant-owner friends underpin the short view. x.comÂ
