Sale of restaurants gives Wendy’s a boost

August 7, 2014, 1:45 PM UTC
Views Of Wendy's Inc. Products Ahead Of Earns Figures
Wendy's Co. signage is displayed outside of a restaurant in Daly City, California, U.S., on Tuesday, May 7, 2013. Wendy's Co. is expected to release earnings data on May 8. Photographer: David Paul Morris/Bloomberg via Getty Images
Photo by Bloomberg—Getty Images

Wendy’s (WEN) has reported second-quarter earnings that doubled year-over-year as the fast-food chain continued to sell off company-owned locations.

Earnings were $29 million, or 8 cents a share, compared to $12.2 million, or 3 cents a share, in the year-earlier quarter, the company announced. The results were just shy of analyst expectations of 9 cents a share profits, according to Bloomberg data.

Over the past year, Wendy’s franchised 418 company-operated restaurants and plans to sell about 135 more company stores in Canada.

By spinning off company-owned stores into franchises, Wendy’s is able to ensure a more stable cash flow and higher margins. Competitors like Burger King (BKW) and DineEquity’s (DIN) Applebee’s have been pursuing similar strategies.

“We believe a franchise model will help us penetrate the market more quickly than under a company-operated restaurant model,” Emil Brolick, Wendy’s CEO, 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.”

Brolick expects to grow the Canadian store count by about one-third and renovate about 60% of existing restaurants in the country by 2020.

By selling 100% of the company’s Canadian operations, local growth in the area will accelerate while allowing Wendy’s to grow the U.S. base of company-owned restaurants. Brolick plans to continue the company-owned model in the states because it “is critical to demonstrating leadership to our franchisee base,” he said.

The ongoing store sell-offs contributed to Wendy’s 20% revenue decline to $523.4 million, though it also helped cut operating expenses by an ever more substantial 23%.

Company-owned stores notched a healthy 3.9% same-store sales growth, which helped dampen the revenue losses from the franchised locations.

The company reiterated its full-year outlook, expecting adjusted earnings-per-share of 34 cents to 36 cents.

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