The Wendy’s Co. plans to open 80 restaurants this year — its highest number of openings in eight years — as it continues to sell restaurants to franchisees.
Wendy’s is on track to refranchise 640 restaurants in the U.S. and Canada by early next year, the company said Wednesday. It also said it would sell its bakery by the end of the month and use different suppliers for its sandwich buns.
Meanwhile, Wendy’s is refinancing $1.3 billion in debt by June, and plans to use funds from the refinancing to buy back shares. Wendy’s said it will hold a meeting on June 3 to update investors and analysts on its plans.
The announcements came as the company reported first-quarter earnings, including 3.2-percent same-store sales growth in the quarter ended March 29.
“The first quarter continued our brand transformation journey,” Wendy’s CEO Emil Brolick said during a call Wednesday discussing earnings. “Growing domestic same-store sales is fundamental to the success of the brand. And we’re building a strong history of consecutive quarters of positive comps.”
Wendy’s is shifting toward a franchise-centric model, and plans to own 5 percent of its locations by next year. The company hired The Cypress Group to market 540 U.S. restaurants to refranchise over the next year, in two phases. The first phase will sell 260 locations in the second half of the year, with another 280 restaurants next year. In addition, Wendy’s plans to sell 100 units in Canada this year.
Brolick said once the sales are complete, the company will “buy and sell restaurants opportunistically to act as a catalyst for growth by further strengthening our franchisee base.”
Wendy’s will sell the restaurants to franchisees who are “strong operators with a commitment to Image Activation and new restaurant development,” Brolick said.
Image Activation, or Wendy’s remodeling program, requires franchisees to remodel 60 percent of their restaurants by 2020. The company has incentive plans and even a franchise development program to manage the remodels for operators. Wendy’s and its operators plan to remodel 450 units this year.
Wendy’s also hopes that franchisees will develop more units. Operators appear to be meeting that goal with the development of 80 locations, the most in the post-recession era. In addition, Brolick said Wendy’s hopes to achieve net restaurant growth by next year, for the first time since 2010.
Wendy’s, like many established restaurant concepts, largely halted growth during the recession. But as sales and the economy have improved, more brands have shifted toward growth.
Wendy’s said newly built restaurants under the new image have reported better sales than old restaurants. New restaurants have average unit volumes of $1.9 million, $300,000 more than the old design, executives said during the call.
Remodeled corporate units contributed 150 basis points to company-operated same-store sales growth of 2.6 percent in the quarter, Wendy’s said.
Additionally, refranchising will reduce Wendy’s capital expense costs, while shifting toward a more profitable franchising model, the company said.
Executives also said Wendy’s plans to sell its bakery, which it called a “non-core asset.” Doing so will give the company “greater sourcing flexibility,” Brolick said, particularly as Wendy’s increases the use of artisan buns in its limited-time offers. The deal is expected to close this month, but executives wouldn’t indicate the proceeds the company expects to receive in the deal.
Wendy’s executives said that they plan to roll out mobile ordering and payment over the coming months, with plans to have those capabilities in place systemwide by next year.
Brolick also mentioned the possibility of touchscreen kiosks to improve convenience, increase average check and speed service.
“We see a move to a more self-service economy,” he said, “and everybody wins in this.”
Net income fell about 41 percent during the quarter, to $27.5 million, from $46.3 million in the same period a year ago, in large part because the company received proceeds from the sale of restaurants a year ago, increasing profit.
Revenue in the first quarter decreased 10.9 percent, to $466.2 million, from $523.2 million, because the company operates fewer restaurants.
Commodity costs during the quarter increased by 160 basis points, executives said, but they noted that commodity costs should ease this year, even as beef costs remain high.
Executives also suggested that wage pressure is a growing issue.
“The market has tightened up in terms of the supply of labor,” Brolick said, noting that the company is dealing with that on a situational basis. “We have a good handle on this.”
Contact Jonathan Maze at [email protected].
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