The Wendy’s Co. will sell another 500 company-owned restaurants to franchisees by mid-2016 in an effort to reduce corporate ownership of restaurants to 5 percent of its 6,500-unit system, the company said Tuesday.
“As we look to 2015 and beyond, we plan to continue improving the quality of our earnings by growing same-restaurant sales, expanding margins and evolving our plans for system optimization,” Wendy’s CEO Emil Brolick said in a statement.
The company could sell restaurants to franchisees for $400 million to $475 million while reducing capital expenditure requirements, he added.
The refranchising effort comes less than a year after the Dublin, Ohio-based quick-service operator finished selling more than 400 restaurants to franchisees at the start of its “system optimization” initiative. The company said selling the restaurants to franchisees will speed efforts to remodel locations under its Image Activation program. The company usually requires franchisees to remodel restaurants as a condition of their purchase.
“Our reduced restaurant ownership will have a short-term impact on our earnings growth rate, particularly in 2016,” Brolick said. “However, we believe our system optimization initiative will create a strong platform for future growth by generating new commitments for our Image Activation program and the development of new franchised restaurants.”
Since it owns fewer company restaurants, Wendy’s revenue decreased 15.3 percent in the fourth quarter ended Dec. 28, to $502 million, from $592.4 million the same period a year ago. Adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, rose 20.3 percent, to $107.1 million, from $89 million the previous year.
Same-store sales increased 1.9 percent at company restaurants in the fourth quarter and 1.6 percent at franchise locations. Company-operated restaurant margins rose 50 basis points, to 16.8 percent, in the fourth quarter due to higher same-store sales. Sales were offset by an increase in commodity costs of 160 basis points, Wendy’s said, largely due to higher beef costs.
Net income was $23.3 million in the fourth quarter, a decrease from $33.1 million the same period a year ago, a decline due to a higher tax rate. Adjusted earnings per share were 10 cents, compared with 11 cents a year ago.
For the full year, Wendy’s said company operated same-store sales rose 2.3 percent, with average unit volumes of $1.6 million.
Since 2011, 794 restaurants have been reimaged, newly opened or are under construction, the company said. This year, Wendy’s and its operators plan to reimage 450 locations and build 80 new units.
Wendy’s also plans to invest in technology. The chain is adding a systemwide point-of-sale system that should help it add mobile rewards and mobile ordering. The system is installed in more than 2,600 restaurants. All 6,500 of Wendy’s locations should have the system in place by the end of 2016.
The company is using mobile ordering in seven restaurants in Columbus, Ohio, and plans to convert the Phoenix market by the end of 2015. Wendy’s is also testing a loyalty program in nine markets.
As for mobile payment, Wendy’s said it is a member of the Merchant Customer Exchange, a coalition of about 40 merchants representing nearly 80 brands, including retailers and restaurants. The company said the system would build customer- and merchant-friendly mobile payment systems. Wendy’s expects to begin a pilot test of the system, CurrentC, in the coming months.
“Platforms such as mobile payment, mobile ordering and loyalty programs are rapidly growing in the retail marketplace and provide potential benefits such as consumer convenience, increased transactions, higher check, faster speed of service and a seamless brand experience,” Brolick said. “These initiatives are essential elements of not only our growth strategy, but also our ongoing efforts to increase our brand relevance and enhance our economic model.”
In 2015, Wendy’s said it expects adjusted EBITDA to grow 5 percent to 8 percent, to $390 million to $400 million. It also expects adjusted earnings per share in the year of 33 cents to 35 cents. Same-store sales are expected to grow 3 percent.
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