Wendy’s reported a sharp increase in profit as higher franchise fees and strong same-store sales offset the loss of revenue from stores it has sold to franchisees.
For the third quarter, the fast-food chain’s net income soared to $49 million, or 18 cents a share, from $7.6 million, or 3 cents a share, a year ago, even though revenue fell 21.7% to $364 million, from $464.6 million, thanks to the decrease in company-owned restaurants.
Same-store sales, a key metric, increased 1.4% in Wendy’s North American restaurants, marking the 15th consecutive quarter of growth. To stimulate traffic, Wendy’s has upgraded traditional menu items such as its grilled chicken sandwich and burger and offered a promotion giving customers four items for $4.
“Despite the ownership of 433 fewer company-operated restaurants relative to last year, we were able to deliver high quality earnings, with franchise revenues contributing a higher amount to the bottom line,” Wendy’s CEO Todd Penegor said in a news release.
Franchise revenues rose 28.2% in the quarter to $135.4 million, while total costs and expenses fell 37% to $257.9 million.
The Columbus Dispatch said the third-quarter results appeared to vindicate the company’s strategy of “selling stores to franchisees, remodeling older units and balancing its menu between value meals and premium burgers.”
As part of its “system optimization initiative,” Wendy’s plans to reduce its restaurant ownership to approximately 5% of the total system by the end of 2016, with a total of about 315 stores to be sold to franchisees this year. More than 200 stores were sold in the second half of 2015.
Wendy’s has also been quickening the pace of store remodeling, an initiative it calls Image Activation. According to Penegor, the company expects to remodel 600 restaurants in 2016, exceeding its original target by about 60 restaurants.
“We are on track to achieve our goal of image activating at least 60 percent of our North America restaurants by the end of 2020,” he added.
In trading Wednesday, Wendy’s stock rose 1.8% to $11.33.