Must-know: Why same-store sales are Wendy’s key valuation metrics

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Must-know: Wendy's quarterly overview for 2Q14 (Part 4 of 9)

(Continued from Part 3)

Understanding same-store sales

Wendy’s (WEN) operates restaurants all across the globe. But its North American segment—the U.S. and Canada—is its main source of operations. Same-store sales measures the percentage change in the revenues generated by existing restaurant locations over the similar period a year ago. The same-store sales are key valuation metrics to consider when investing in a restaurant stock.

Same-store sales for company-operated restaurants

Same-store sales for company-operated restaurants were 3.9% in North America during the quarter. The company credits the difference between company-operated and franchised same-store sales to its “Image Activation program.” The above chart demonstrates the change in same-store sales for the first two quarters in 2013 and 2014. An increase in average check attributed to the increase in the second quarter same-store sales.

Same-store sales for franchised restaurants

Same-store sales for franchised restaurants were 3.1%, which were also positively impacted by a higher average check and the company’s remodeled Image Activation restaurants. The Image Activation program is an incentive program for franchisees. For this program, the franchisees can reduce their royalty payment to Wendy’s for up to the first three years after franchisees remodel their existing restaurants or construct new re-imaged locations according to the “Image Activation” program guidelines. Wendy’s has arranged a third-party lender to facilitate financing to the franchisees who participate in this program.

McDonald’s (MCD) is also actively pursuing restaurant re-imaging  model strategies to improve its comparable sales. Read the McDonald’s earnings overview here.

System-wide sales

Together, revenues from company-operated and franchised restaurants are called system-wide sales. Wendy’s system-wide sales were 3.3% for the quarter. Yum! Brands (YUM), a competitor of Wendy’s, reported system-wide sales of 5% for its KFC division and 3% for Taco Bell in the U.S.

An investor can get exposure to the restaurant industry through ETFs such as the Consumer Discretionary Select Sector SPDR Fund (XLY) and the PowerShares Dynamic Food and Beverage ETF (PBJ).

Continue to Part 5

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