Wendy's reports lower than expected Q2 sales
Aug. 10, 2016
by Kimberlie Clyma
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The leadership of Wendy's remains confident in the future of the chain despite a difficult second quarter.
DUBLIN, Ohio – Wendy’s president and CEO remains confident despite the chain’s lower than expected second quarter sales. Revenues for the Wendy’s Company were $382.7 million in the second quarter ended July 3, compared to $489.5 million for the year-ago quarter. According to the company, the 21.8 percent decrease was a result of the company owning 361 fewer company-operated restaurants at the end of the Q2 2016 compared to Q2 2015.
"In the face of challenging industry conditions, we remain confident that Wendy's can win in the QSR space," President and CEO Todd Penegor said. "In the second quarter, we were able to maintain strong performance on the bottom line even as sales came in lower than we anticipated. While we are not fully satisfied with this outcome, this is a testament to the improved quality of our earnings as a result of transitioning to a predominantly franchised model, with royalties and rental income contributing a higher amount of earnings."
The chain’s operating profit for Q2 2016 was $65.6 million, compared to $64.3 million in the second quarter of 2015. And same-restaurant sales increased 0.4 percent at North America system restaurants in the second quarter.
"The North America system has now recorded 14 consecutive quarters of positive same-restaurant sales, which demonstrates the long-term strength and relevance of our brand,” Penegor said. “We also believe that momentum from our strategic growth initiatives and continued improvement in key brand health metrics, such as quality and value perception, will set us up for sustainable growth in the future."
For the second quarter ended July 3, franchise revenues were $123.5 million, compared to $104.5 million in Q2 2015. The company credits the 18.2 percent increase as a result of higher rental income and royalty revenue which is part of the company’s system optimization initiative. The initiative involves a plan to reduce company-operated restaurant ownership to approximately 5 percent by the end of 2016. The company intends to sell 315 restaurants to franchisees this year. Wendy’s has sold 55 restaurants so far this year.
"We are now in the final stages of our system optimization initiative," Penegor said. "We have awarded all remaining markets to be sold in 2016 to strong operators who have demonstrated a commitment to Image Activation and opening new restaurants. We are confident we will strengthen the Wendy's brand as a result of these transactions.
"Going forward, we intend to buy and sell restaurants to act as a catalyst for growth by further strengthening our franchisee base, driving new restaurant development and accelerating Image Activation adoption," Penegor said. "We are also facilitating franchisee-to-franchisee restaurant transfers to ensure that we are putting restaurants in the hands of well capitalized franchisees that are committed to long-term growth."
Wendy’s also has a plan to reimage (or remodel) 430 of its North America system restaurants and to build 110 new restaurants in 2016. The reimaged restaurants include a new logo, new packaging on cups, bags and other items, new uniforms and include lounge seating with fireplaces, flat-screen TVs, Wi-Fi and digital menuboards. In 2015, 519 Wendy’s restaurants were built and remodeled.
"Our pipeline for restaurant reimaging and new restaurant development remains strong," Penegor said. "The North America system opened 12 new restaurants during the second quarter and we expect to deliver the first year of net new restaurant openings since 2010. With more than 26 percent of the North America system now featuring our new image, we are on pace to achieve our goal of reimaging at least 60 percent of our North America restaurants by the end of 2020."