‘We have a menu that can compete’ in breakfast

Shares of Wendy’s tumbled last month when investors got word that the fast-food chain was jumping in the breakfast business, but CEO Todd Penegor on Friday sold his long-term case to CNBC’s Jim Cramer.

Despite the more than 10% stock price decline on Sept. 10 coming off the announcement, the franchise is betting that its $20 million investment in the competitive morning-side meal market will pay dividends.

“We have a menu that can compete, a low-investment and a high-return model for our franchise community,” Penegor said in a “Mad Money” interview. “So we’re leveraging all of our existing equipment and we’re going to bring it to life in a big way in 2020.”

Wendy’s is already serving breakfast food in more than 300 restaurants and expects to roll it out in all of its roughly 6,180 U.S. stores next year. The breakfast menu includes the Breakfast Baconator, Frosty-ccino and Honey Butter Chicken Biscuit.

The Breakfast Baconator is a cousin to Wendy’s well-known Baconator burger on the lunch menu substituting eggs for the burger meat.

“You put bacon on just about anything, folks love it,” Penegor said.

To support the breakfast service, Wendy’s will go on a hiring spree, adding 20,000 people to its staff. The chief said they will have a three-person model to handle breakfast service. Two people will open the store and a third worker will later join the team in the workday.

“[Twenty thousand] seems like a big number, but when you think about it as three per restaurant it’s not going to be that hard. It’s a great day part to staff, it’s very convenient for folks to come in in the morning and be done by lunch time,” Penegor said. “So we feel good about our employment proposition to bring folks in and create a great experience for them.”

Some analysts aren’t quite as bullish about those prospects, however. Guggenheim analyst Matthew DiFrisco wrote in a September note that it’s a “risky way to add topline growth.”

“Wendy’s has had multiple attempts to establish a breakfast business, 1985, 2006 and 2010, that were unsuccessful and pressured franchise margins,” he said.

Management projects that breakfast will comprise about 10% of Wendy’s total day sales. Wendy’s had about $1.59 billion in sales and 59 cents earnings per share in 2018, according to FactSet.

Analysts expect the restaurant chain’s full-year sales and profit to be near $1.7 billion and 59 cents per share in 2019 and near $1.79 billion and 75 cents per share in 2020, according to FactSet.

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