Wendy’s set to refranchise 500 more restaurants

Company to target 5% corporate ownership by next year

In order to reduce its corporate ownership of restaurants within 6500-unit system, the Wendy’s Co. will sell 500 of its owned restaurants to franchisees by next year, that is, 2016 and will reduce its ownership to 5%.

Wendy’s CEO, Emil Brolick, told that company’s plans for 2015 and beyond involve improving quality of earnings by expanding margins, growing same-restaurant sales, and evolving plans for their system optimization. The Wendy’s Co. will sell restaurants to franchisees in the range of $400 million to $475 million and, in the process, will reduce capital expenditure requirements.

This refranchising effort has come less than a year after the Dublin, Ohio-based quick food service operator sold more than its 400 restaurants to franchisees as a part of its system optimization drive. As per this company, selling off the restaurants to franchisees will help speed up the efforts to remodel locations under its program of Image Activation. Company, then, asks franchisees to remodel their restaurants as a condition of their purchase.Brolick further commented that while reduced restaurant ownership will impact growth rate of earnings in 2016, it will be for short-term only. Nevertheless, the system optimization initiative will see strong growth rate in future in long term. This is because new commitments for Image Activation program will be generated and new franchised restaurants will be developed.

As Wendy owns fewer company-operated restaurants, it registered a fall of 15.3% in revenue in the fourth quarter – from $592.4 million in 2014 to $502 million in 2013. Earnings before Interest, taxes, Depreciation, and Amortization (EBITDA) grew by 20.3% – from $89 million in 2013 to $107.1 million in 2014.

Company store sales rose by 1.9% while franchise store sales rose by 1.6% in the fourth quarter. Same-store sales were higher in the fourth quarter, due to which margins rose 50 basis points to 16.8%. There was an increase in commodity costs of 160 basis points which saw an offset in sales, mainly due to higher beef costs.

There was a decline in the net income due to higher tax rate – the fourth quarter saw a fall from $33.1 million in 2013 to $23.3 million in 2014. Adjusted earnings also saw a fall – from 10 cents in 2014 and were 11 cents in 2013.In 2014, Wendy’s company-operated stores saw rise in sales by 2.3% with average unit volumes of $1.6 million.

Since 2011, Wendy’s 794 eating outlets have been newly opened and reimaged or are under construction. In 2015, company and its operators plan to build 80 new units and reimage 450 locations. Company also plans to invest in technology this year. Wendy’s is adding a system-wide point-of-sale structure that will help it add mobile rewards and mobile ordering. This is already installed in more than 2,600 restaurants of Wendy’s and by 2016, all 6,500 outlets will have this system in place.

Wendy’s is using mobile ordering in seven restaurants in Ohio and Columbus and plans to transform the Phoenix market by the end of this year. The chain is also testing a loyalty program in nine markets. As far as mobile payment is concerned, Wendy’s is a member of the Merchant Customer Exchange which is a coalition of about 40 merchants and represents almost 80 brands of both restaurants and retailers. Wendy’s, in its effort to come up with a system to build merchant and customer friendly mobile payment system, will begin a pilot test of the system, CurrentC, soon.

According to Brolick, platforms like mobile ordering, mobile payment, and loyalty programs are fast growing in the retail marketplace and provide potential benefits like consumer convenience, higher check, increased transactions, seamless brand experience, and faster speed of service. Adding to it, he said that Wendy’s understands that these elements are crucial to its growth strategy and are important to increase its brand relevance and enhance its economic model.

This year, Wendy’s expects adjusted EBITDA to rise within 5 and 8%; within $390 to $400 million, along with growth in same-store sales of 3%. Adjusted earnings are also expected between 33 to 35 cents per share in 2015.

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