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Wendy's (WEN) has named long time PepsiCo (PEP) executive Kirk Tanner as its new CEO, effective February 5. The company also reaffirmed FY23 guidance, likely to ease investor concerns that the change was perhaps being motivated by a weak Q4 result when WEN reports next month. Mr. Tanner succeeds Todd Penegor, who has served as CEO since May 2016 and has held senior leadership positions at Wendy's for more than a decade.

• Mr. Tanner most recently served as CEO of North American Beverages at PepsiCo, and joins Wendy's with 30+ years of experience across beverages, snacks and foodservice. At PepsiCo, he oversaw the $26+ bln business unit, which accounts for 30% of PEP's overall business. Before that, he oversaw PepsiCo's Global Foodservice division, during which time he expanded through strategic partnerships, new product lines and significant deals with major sports leagues and restaurant chains.
• Mr. Penegor did some good things during his tenure, perhaps most notably the re-launch of breakfast a few years ago. He has grown the digital business, with global digital sales mix reaching 13% in Q3 and total digital sales growing 30% yr/yr as its loyalty program continues to gain momentum. He has also been good about remodeling stores and has made some decent menu innovations with a focus on value.
• One of the first challenges the new CEO will face is getting customer traffic back up, which has been weak recently. The $75K+ income consumer continues to be healthy and WEN continues to see traffic growth in that segment. However the sub-$75K segment has been more stressed. WEN has been seeing some trade down from mid-scale casual and sit down into QSR, but WEN is also seeing some trade out from lower-income consumers out of QSR and into food at home.
• Also, we wonder if part of the reason for the change was in response to activist hedge fund Blackwells Capital reportedly preparing to challenge Wendy's board to push for improvements, according to a Reuters report in December (see InPlay archive).
• Part of the frustration is that WEN's share price has done little in recent years. It had been in an uptrend in the early years of Penegor's tenure from 2016-19, but has stalled out since then, mostly trading sideways. By comparison, McDonald's (MCD) has performed much better and has been in a general uptrend.

Overall, we view this as a good move for Wendy's. Tanner has some impressive credentials at PepsiCo. And we think hiring an outsider makes sense to bring new perspectives and perhaps shake things up a bit. Penegor had been promoted from within, but WEN wants to bring in an outsider this time. We are a bit surprised the stock is seeing only a muted reaction. We think this is good news for WEN to hopefully start getting the stock moving again. We look forward to the Q4 call next month to get a sense of what changes might be in store.