NEW YORK -- Wendy's is trying to reinvent itself as a purveyor of relatively higher-quality fast food. The problem is that its competitors are aggressively promoting deals and value menus and stealing away price-conscious customers.
Wendy's Co. (WEN), based in Dublin, Ohio, on Wednesday reported a first-quarter profit that met Wall Street expectations. But sales fell short of Wall Street's hopes. The company noted in a conference call with analysts that it had lost market share in the value category, which accounts for about 20 percent of the fast-food industry.
CEO Emil Brolick said Wendy's plans to adjust its marketing to emphasize the 99-cent portion of its revamped "Right Price, Right Size" value menu, which offers options ranging from 99 cents to around $2. The company had replaced its 99-cent menu in January to boost profit margins and give its franchisees more flexibility in pricing.
Brolick emphasized that the company's push to underscore the quality of its food remains a priority. The effort in part reflects the growing popularity of chains such as Chipotle Mexican Grill (CMG) and Panera Bread (PNRA), which offer food perceived to be of better quality and that commands higher prices.
But at a time when people are still being careful about their spending, Brolick added that Wendy's also needs to keep reminding people about its cheaper options.
"Because let's face it, there are a lot of other people who are," he said.
For the quarter, Wendy's said sales at established company-run stores in North America rose 1 percent, with higher prices offsetting a decline in transactions. The company said bad weather and shifts in the timing of the New Year and Easter holidays hurt its results.
At franchised stores, the metric edged up 0.6 percent. The figure is a key gauge of a restaurant operator's performance because it strips out the impact of newly opened and closed locations.
To recast itself to be more in line with fast-casual chains, Wendy's is also investing heavily in remodeling its restaurants to have a modern, inviting look. For example, the new layouts include cozier seating areas, flat-screen TVs and fireplaces.
The company said it had opened 86 new and remodeled restaurants as of April 30. It still expects to remodel half of its company-run restaurants by the end of 2015.
Wendy's has more than 6,500 locations, most of them in North America. In the U.S. and Canada, about 1,600 of them are company-run.
But Wendy's is undertaking an image makeover at a tough time for the restaurant industry, with companies fighting over every dollar. McDonald's (MCD) is touting its Dollar Menu and Burger King (BKW) is offering two sandwiches for $5 and Whopper Jr. burgers for $1.29.
For the period ended March 31, Wendy's earned $2.1 million, or a penny a share. That's down from $12.4 million, or 3 cents a share, a year earlier. Last year's quarter included an $18 million, or 5 cents a share, gain on the sale of an investment.
Excluding certain items, including remodeling costs, earnings in the latest quarter came to 3 cents a share, in line with Wall Street expectations.
Revenue rose 2 percent to $603.7 million versus a year ago but fell short of the $615 million forecast of analysts polled by FactSet.
Wendy's cited a refinancing benefit for raising its 2013 adjusted earnings outlook to 20 cents to 22 cents a share, up from 18 cents to 20 cents a share. Wall Street had predicted 19 cents a share.
Its shares fell 35 cents, or 5.6 percent, to $5.78 in afternoon trading Wednesday. They have traded in a 52-week range of $4.09 to $6.19.
(Updated at 2:26 p.m. ET)