Wendy’s late-night push pays off as it rivals Taco Bell for the midnight crowd
Wendy's (WEN) is on a mission to satisfy consumers' late-night cravings — and it's working.
Up to 90% of the fast food chain's US restaurants are now open until midnight or later, CEO Todd Penegor said in a call with investors. He added the recent push into late night "paid off with double-digit sales growth versus both the prior quarter and prior year."
Margins also got a nice boost too, thanks to higher checks and less staff required.
"We're seeing higher average checks and a skew towards delivery," Penegor said. "We can continue to drive sales without adding any labor, so [late night] is really margin accretive to us through the bottom line."
Wendy's has high hopes for the late-night business. The company shared plans to double down on late night as a key driver of growth in May. Then in July, Wendy's said it was going to extend its drive-thru hours even later.
"We can build into customers' routines that we are there for them on the late-night daypart," Penegor said during the earnings call Wednesday. "It is highly incremental. It's a business that we don't have today. It's a strong category that's been growing consistently for the last couple of years."
In the second quarter, Wendy's US company-owned restaurant margins reached 17.3%, while US same-store sales increased 4.9%.
But Wendy's Frosties and its hot and crispy fries have some major competition in the late-night business. Taco Bell, known for late night, has been serving up Crunchwrap Supremes at midnight or later.
In its Q2 earnings report, Taco Bell parent Yum! Brands (YUM) said the taco giant's same-store sales increased 6% last quarter, boosted by an "expansion of trading hours with strong growth at both the breakfast and late night dayparts," Yum! Brands CEO David Gibbs said on the call.
the best nights end with taco bell
— Taco Bell (@tacobell) August 9, 2023
Taco Bell Cantina locations, which offer alcoholic drinks, are also "generally open later than the standard Taco Bell restaurant from 7 a.m. to 2 a.m," a Taco Bell spokesperson said.
And on Wednesday, Taco Bell announced a new iteration of its prototype Go Mobile restaurant design that aims to get customers through the drive-thru faster, especially in the late hours.
The spokesperson told Yahoo Finance the "digital forward restaurant design" was created to "help problem solve for the influx of orders that usually occurs in the drive-thru when the dine-in option is unavailable during late-night."
Wall Street thinks there's another takeaway from the push into late-night offerings: that staffing and margin conditions have improved for the industry.
In a note to clients, TD Cowen analyst Andrew Charles weighed in on the late-night strategy, saying both breakfast and late night were "the strongest dayparts, which we attribute to the most acute industry staffing challenges at these 2 dayparts in 2022."
Morningstar analyst Sean Dunlop cautioned that investors shouldn't get too excited about a potential catalyst to Wendy's stock from late night just yet, however.
"I wouldn't necessarily expect it to move the comp [same-store sales] materially," Dunlop told Yahoo Finance. "I mean, we're talking about a couple points of comp as you think about the dayparts break down."
Still, Dunlop noted there is some good news for fast-food restaurants.
"We're now at a point where the industry is only about 2% below pre-COVID staffing levels," he said, and that's in addition to wage inflation ticking down. "The hope is that this is reflective of an environment where restaurant margins are going to be pressured a little bit less, even when we start to see top line [growth] slow."
Yum! Brands stock is up nearly 14% from a year ago, while Wendy's stock is up less than 1% compared to last year.
—
Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
Read the latest financial and business news from Yahoo Finance
