Wendy's selling more restaurants, bakery operations

by Monica Watrous
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Wendy’s said it will reduce ownership of company-operated restaurants to approximately 5 percent of the total system by mid-2016.

DUBLIN, Ohio — The Wendy’s Co. announced plans to sell its bakery operations in Zanesville, Ohio, as well as 640 restaurants by the end of next year. The fast-food company’s share price rose nearly 5 percent in mid-morning trading on May 6 from the previous close of $10.43 after first-quarter results exceeded expectations. Wendy’s net income for the period ended March 29 was $27,507,000, or 8 cents per share on the common stock, down 41 percent from $46,303,000, or 12 cents per share, in the year-ago period.

Revenues totaled $466,246,000, down 11 percent from $523,196,000 the year before, as a result of owning fewer restaurants.

Wendy’s said it will reduce ownership of company-operated restaurants to approximately 5 percent of the total system by mid-2016. Wendy’s now intends to sell 380 restaurants this year and 260 in 2016 for a total of approximately 640 restaurants, which includes 100 Canadian units. Executives expect the sale of domestic restaurants will result in pretax cash proceeds of approximately $400 million to $475 million and significantly reduce future capital expenditure requirements.

“Going forward, we intend to buy and sell restaurants opportunistically, to act as a catalyst for growth by further strengthening our franchise base, driving development and accelerating image activation adoption,” said Emil Brolick, president and CEO, during a May 6 earnings call with financial analysts.
The company plans to close on the sale of its bakery operations this month.

“We believe this divestiture will provide us with greater sourcing flexibility as our use of artisan buns has increased with our premium limited-time-only offers,” Brolick said. “In addition, the divestiture will focus our resources on our core restaurant business and eliminate future bakery capital expenditures.”

Same-restaurant sales for the quarter increased 2.6 percent at North America company-operated restaurants and 3.4 percent at North America franchise-operated restaurants. System-wide same-restaurant sales grew 3.2 percent over the year-ago quarter. Reimaged restaurants contributed higher sales from increased traffic, the company said.

The company expects to re-image approximately 450 system-wide restaurants and build 80 new restaurants in 2015, adding to the 486 total reimages and new restaurants completed or under construction in 2014. By 2020, the company plans to reimage at least 60 percent of the company’s restaurants in North America.

Wendy’s said it also will invest in technology platforms, including mobile payment and ordering and self-order kiosks in the restaurants, which executives expect will increase traffic and average check in the restaurants.

“These initiatives are essential elements of our strategy to increase brand relevance to all demographic groups,” Brolick said. “We clearly see a move toward more of a self-service economy, and everyone wins in this.”

For 2015, management continues to expect adjusted earnings before interest, taxes depreciation and amortization (EBITDA) of approximately $380 million to $400 million, or a 5 percent to 8 percent increase over the prior year. The company now expects same-restaurant sales growth of 2.5 percent to 3 percent at company-operated restaurants for the year. The full-year outlook assumes the ownership of approximately 380 fewer restaurants at year-end compared with 957 company-operated restaurants the year before.

The company said it remains on schedule to complete its debt refinancing on June 1 and is targeting a leverage ratio of 5 to 6 times its adjusted EBITDA. Wendy’s said it will return net proceeds from refinancing to shareholders through a share repurchase program.

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