The Wendy’s Co. released a bullish outlook for 2014 and beyond with its presentation at the ICR XChange in Orlando, Fla., forecasting an acceleration in same-store sales, its Image Activation remodeling program and the completion of its refranchising initiative.
The Dublin, Ohio-based quick-service chain aims to take the number of remodeled restaurants in its 6,558-unit system from 300 locations at the end of 2013 to between 700 and 750 units by the end of 2014. Same-store sales for company-owned restaurants are expected to increase between 2.5 percent and 3.5 percent.
Chief executive Emil Brolick told attendees of the investor conference that Wendy’s successful ad campaigns and limited-time promotions — including the Pretzel Bacon Cheeseburger, Pretzel Pub Chicken and Bacon Portabella Melt on Brioche — improved the brand’s company-owned average unit volume to $1.51 million in 2013, compared with $1.42 million in 2010.
But Wendy’s is targeting an even more aggressive sales level in the long run: $2 million in average unit volume.
“In October, at our franchisee convention, we went public and committed with our franchisees to achieving system average volumes of $2 million,” Brolick said during Wendy’s presentation. “We showed them a clear path on how we can get there.”
Reaching that milestone would require that Wendy’s hit a long-term target for annual same-store sales growth of 3 percent, executives said. The brand has some momentum on that metric, as company-owned comparable sales rose 1.9 percent for 2013, following a 1.6-percent gain in 2012.
Wendy’s forecasts further acceleration in company-owned same-store sales growth next year, to a systemwide range between 2.5 percent and 3.5 percent.
“With Image Activation tailwinds kicking in, a strong menu innovation pipeline and now having the exit of breakfast behind us, it gives us the confidence on that growth for this year,” chief financial officer Todd Penegor said during the ICR presentation.
The brand also expects restaurant-level profit margins to expand another 1.4 percent to 1.6 percent in 2014, to a range between 16.8 percent and 17 percent of sales.
Building momentum in 2014
The pace of Wendy’s Image Activation effort would increase significantly in 2014, Penegor said, both in the company-owned and franchised systems.
The Wendy’s Co. expects to remodel 200 restaurants next year, up from 100 completed in 2013, while franchisees are expected to reimage between 150 and 200 locations, up from 99 remodels in 2013. As for new builds, the company expects to open 15 new restaurants in 2014, compared with 26 last year, and franchisees project 45 new locations, compared with 11 last year.
About 80 percent of the restaurants likely to be reimaged through the Image Activation program would require an investment between $450,000 and $650,000, which is expected to produce a long-term sales lift of 10 percent to 20 percent, Penegor said.
The remaining one-fifth of restaurants in Image Activation would require a scrape and rebuild, at a cost of about $1.5 million to $1.9 million. That solution, typically reserved for much older restaurants in the Wendy’s system, is expected to generate a higher sales lift between 25 percent and 35 percent, Penegor said.
Brolick added that the company was “ahead of schedule” on the refranchising effort involving the sale of 415 company-owned restaurants back to franchisees. As of the end of 2013, 384 of those restaurants already were sold or under contract, and buyers have been identified for the remaining 31 locations.
Penegor added that within the agreements Wendy’s has signed with the “five-star franchisees” buying the restaurants are commitments to remodel 180 of those locations and to build 100 more new units with the “Ultra Modern” prototype design.
Initial results for 2013
An unaudited report for Wendy’s fourth quarter and full fiscal year of 2013 showed momentum in same-store sales, though refranchising efforts caused revenue to decrease.
For the Dec. 29-ended fourth quarter, the chain disclosed a preliminary range for net income between $25.2 million and $28.7 million, or 10 cents to 11 cents per share, compared with $26.4 million, or 9 cents per share, in the fourth quarter of 2012.
Revenue fell 6 percent to $592.4 million, compared with $629.9 million a year earlier, though same-store sales rose 3.1 percent at company-owned restaurants and 2.8 percent at franchised locations.
For the full year, Wendy’s projected net income between $37.6 million and $41.1 million, or 29 cents to 30 cents per share, compared with $7.1 million, or 17 cents per share, in fiscal 2012.
Full-year revenue dipped 0.7 percent to $2.487 billion, compared with $2.505 billion a year earlier. Full-year same-store sales increased 1.9 percent at company-owned locations and 1.7 percent at franchised units.
Brolick credited Wendy’s “high-low” menu strategy with driving positive results. New sandwiches on the premium end of the price spectrum like the Pretzel Bacon Cheeseburger drove sales in the second half of the year, he said, while the Right Price Right Size value menu allowed the chain to bolster its value perceptions.
“We’re very fortunate to be in the position as a brand where we don’t fall into the trap of having to simply lower our price to create value,” Brolick said. “We create value in both our Right Price Right Size menu as well as through our premium products. Not every brand can do that because not every brand has those quality characteristics that we do.”
He added that Wendy’s “Now that’s better” advertising campaign with red-headed spokeswoman Morgan Smith was the longest-running and most successful marketing effort Wendy’s has had since 2002, when longtime spokesman and brand founder Dave Thomas died.
Wendy’s operates or franchises about 6,558 restaurants, including 400 locations outside North America.