DUBLIN, Ohio – The Wendy’s Co. is continuing with its plan to reduce the number of company-owned restaurants in 2016 and to reimage existing restaurants. Despite the reduction of restaurants, same-restaurant sales increased 1.4 percent in North American restaurants in the third quarter ended Oct. 2, and same-restaurant sales increased 4.5 percent on a two-year basis, according to the company.
Net income in the third quarter ended Oct. 2 was $48.9 million up from $7.6 million in the year-ago period. Adjusted EBITDA from continuing operations increased from $99.7 million in 2015 to $100.2 million in the third quarter of 2016.
Revenues for Q3 were $364 million, down 21.7 percent from $464.6 million in Q3 2015. The company attributes this decline to the 433 fewer company-owned restaurants this year compared to last.
“Our solid third-quarter results demonstrate the positive benefits of our brand transformation efforts,” Todd Penegor, president and CEO, said in a statement. “Despite the ownership of 433 fewer company-operated restaurants relative to last year, we were able to deliver high quality earnings, with franchise revenues contributing a higher amount to the bottom line. Driven by our balanced marketing approach and a continued focus on profitable customer count growth, the North America system accelerated same-restaurant sales in the third quarter. We have now recorded 15 consecutive quarters of positive same-restaurant sales.”
Wendy’s reported a 28.2 percent increase in franchise revenues from $105.6 million in Q3 2015 to $135.4 million in the third quarter of 2016. The company’s system optimization efforts resulted in higher rental income, franchise fees and royalty revenue, which in return led to the increase in franchise revenues, according to the company.
The third phase of the company’s system optimization plan, including plans to reduce company-operated restaurant ownership to approximately 5 percent of the total system by the end of 2016 is nearing completion. The company sold 227 restaurants in the second half of 2015 and intends to sell 315 company-owned restaurants to franchisees in 2016. “The company continues to expect the third phase of system optimization to generate pretax proceeds of approximately $435 million,” the company reported.
“We have now completed approximately 85 percent of our 2016 system optimization sales and are confident that the remaining transactions will close before the end of the year,” Penegor said. “The remaining markets have been awarded to strong operators who have demonstrated a commitment to restaurant reimaging 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.”
Reported diluted earnings per share from continuing operations were 18 cents per share in the third quarter of 2016, compared to 3 cents per share in the third quarter of 2015. The increase reflects a 10.8 percent year-over-year reduction in the weighted average diluted shares outstanding, according to the company. Adjusted earnings per share from continuing operations were 11 cents per share in Q3 2016, compared to 9 cents per share in Q3 2015.
Wendy’s plan to reimage its restaurants continues in 2016 as a part of its Image Activation plan. In 2016, the company plans to reimage 500 North American restaurants and build 100 new restaurants.
“Our franchisees continue to see the benefits of Image Activation and are reimaging restaurants faster than we anticipated. As a result, we are now on pace to image activate approximately 600 restaurants in 2016, which exceeds our original target by approximately 60 restaurants,” Penegor said. “In addition, the North America system opened 28 new restaurants during the third quarter and we expect to deliver the first year of net new restaurant openings since 2010. With more than 28 percent of the North America system now featuring our new image, we are on track to achieve our goal of image activating at least 60 percent of our North America restaurants by the end of 2020.”