Growth Strategies

Wendy’s Selling 640 Stores

The fast-food chain is also disposing of a bakery unit and refinancing some debt.
Katie Kuehner-HebertMay 6, 2015

Fast-food chain The Wendy’s Co. reported better-than-expected profit for the first quarter, updated investors on the sale of stores to franchises, and announced the sale of its Ohio bun-making bakery unit.

Net income fell 40.6%, to $27.5 million, mainly from year-over-year reductions in gains on the sale of company-operated restaurants, partly offset by a reduction in certain operating costs and an 870-basis-point drop year-over-year in the company’s effective tax rate.

Revenue fell 10.9%, to $466.2 million, partly affected by ownership of fewer stores, but adjusted earnings per share increased by a penny, to 6 cents.

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Analysts polled by Thomson Reuters forecast earnings of 5 cents a share and $475.6 million in revenue, according to a Dow Jones story.

“Our first-quarter results demonstrate continued progress with Wendy’s brand transformation,” Wendy’s president and chief executive Emil Brolick said in a press release.

“We generated an increase in same-restaurant sales of 2.6% at company-operated restaurants and a 160-basis-point year-over-year improvement in restaurant operating margin. Our ‘Image Activation’ initiative continues to produce solid results, as re-imaged restaurants made a strong contribution to company-operated same-restaurant sales, primarily as a result of increased customer counts.”

Wendy’s also updated the sale of its restaurants to franchises, now planning to sell roughly 380 stores in 2015 and another 260 in 2016, to total roughly 640, with the goal to own just 5% of its stores by mid-2016.

“We believe the sale of our domestic restaurants will result in pretax cash proceeds of approximately $400 million to $475 million and significantly reduce future capital expenditure requirements, as reflected in our long-term free cash-flow outlook,” Brolick said.

The company also announced its intent to sell its bakery operations in Zanesville, Ohio, and will update its outlook on June 3 to reflect the expected impact of its debt refinancing and anticipated share repurchase program, along with the planned sale of the bakery operations.

Dow Jones said that Wendy’s is following other restaurant chains, including McDonald’s and Burger King, which have been selling off company-owned restaurants to franchisees to ensure a more predictable cash flow and higher margins.