Wendy's reinvesting in Canadian business
August 8, 2014
by Meat&Poultry Staff
DUBLIN, Ohio – The Wendy's Company plans to sell all of its company-operated Canadian restaurants to franchisees and reinvest the sale proceeds to promote incremental development of franchised restaurants in Canada. Meanwhile, Emil Brolick, president and chief executive officer, added the company's second-quarter results and accelerated Canadian growth initiative reflect the continued progress of its ongoing brand transformation.
"Our second-quarter Adjusted EBITDA and Adjusted Earnings Per Share growth were in line with our expectations," he said. "Also included in our expectations was a 20-percent year-over-year net reduction in revenue resulting from the franchising of 418 company-operated restaurants during the past year. Our Image Activation program and spring product promotions, including our Tuscan Chicken on Ciabatta sandwich and our new Asian Cashew Chicken, Barbeque Ranch Chicken and Strawberry Fields Chicken salads, helped drive sales in the second quarter by successfully leveraging our brand heritage of quality and innovation."
Selling approximately 135 company-operated Canadian restaurants will further unlock the Company's growth potential in North America by generating incremental commitments for its Image Activation program and the development of new franchised restaurants in Canada, he continued.
"We believe a franchise model will help us penetrate the market more quickly than under a company-operated restaurant model, as we plan to grow our Canadian restaurant base by approximately one-third and reimage approximately 60 percent of our Canadian restaurants by 2020," Brolick said. "In addition, we anticipate that the Canadian growth strategy will benefit the quality and consistency of our earnings through increased rental income and royalties.
"Along with our new Canadian growth strategy, our goal of returning our US restaurant system to positive net development will be a key component of our long-term strategic plan."
For Q2 2014, net income was $29.0 million, compared to $12.2 million in the second quarter of 2013. Consolidated revenues were $523.4 million, compared to $650.5 million in the second quarter of 2013. The 19.5 percent decrease resulted from lost revenue following the sale of 418 company-operated restaurants to franchisees as part of the company's system optimization initiative, partly offset by same-restaurant sales growth and increases in both rental income and franchise royalties.
Company-operated restaurant margin was 17.8 percent in the second quarter of 2014, compared to 16.7 percent in the second quarter of 2013. The 110-basis point margin improvement was due primarily to higher same-restaurant sales, and the positive impact of the company's system optimization initiative. Partly offsetting these benefits was an increase in commodity costs of 80 basis points, primarily from higher beef prices.
Adjusted EBITDA was $104.2 million in the second quarter of 2014, up 2.1 percent compared to second-quarter 2013 Adjusted EBITDA of $102.1 million, despite a 19.5-percent year-over-year net reduction in revenue resulting from the franchising of 418 Company-operated restaurants during the past year.
Operating profit was$63.9 million in the second quarter of 2014, compared to $57.0 million in the second quarter of 2013. The 12.1 percent increase resulted in part from a higher margin rate in 2014 compared to 2013. Reported earnings per share were $0.08 in the second quarter of 2014, compared to earnings per share of $0.03 in the second quarter of 2013.
"Based on our results to date and the current trends in our business, we are reaffirming our 2014 Adjusted EBITDA and Adjusted Earnings Per Share outlook," Brolick said. "We also remain confident in our longer-term outlook, as our Image Activation strategy is driving top-line growth in our core business."