Wendy's (WEN) is continuing with its plan to own fewer and fewer of its restaurants, saying Tuesday it will sell another 500 stores on the way to operating only 5% of its system by the middle of 2016.
The third-largest U.S. fast-food burger seller has sold a significant number of stores in recent years, a move investors have welcomed because it lowers costs and provides more predictable royalty and rent revenue from franchisees. As it gets toward a system that's around 95% franchised, Wendy's said it's anticipating pretax cash proceeds of $400 million to $475 million, along with, not surprisingly, a significant reduction in future capital spending.
And with that, shares of Dublin, Ohio-based Wendy's, already up 15% this year as of Monday's close, were on the way higher. Recently, the stock was gaining 5.1% to $10.94. At the day's best, the shares traded at $11.50, a price area they last saw in 2007.
Not unlike previous instances when Wendy's has detailed plans to sell locations, the announcement made a simultaneous earnings update secondary news. This time, Wendy's offered preliminary results for 2014 and an outlook for 2015, with some discussion of later years. For the fourth quarter, adjusted earnings were 10 cents a share on revenue of $502 million. The EPS was in line with estimates, while revenue was around $7 million below the analyst outlook. However, the miss wasn't a major concern, considering the company's revenue reporting is changing significantly through the ongoing move toward a greater number of franchised units. Still, same-store sales were a disappointment, with a 1.9% increase at company-owned Wendy's vs. what Consensus Metrix said was a 2.4% estimate. At FactSet, it was 2.6%.
The North American company-operated restaurant margin in the quarter was 16.8%, up from 16.3% a year ago, though that improvement was somewhat diminished by higher commodity costs, mainly beef.
During the full year, same-restaurant sales at corporate stores climbed 2.3%, again below Wall Street's projection and also Wendy's goals it had discussed last November. The company did have record average annual unit sales volumes at its company-owned North American stores, at $1.59 million. It hopes to get that to $2 million in five years.
Wendy's has been continuing to roll out new offerings in an effort to be perceived more like a fast-casual store and less like McDonald's (MCD), such as with limited-time barbecue last year and a current promotion for a burger with bacon and blue cheese on brioche rolls. Even so, it's also having to renew its efforts to retain customers who don't want to pay too much for fast food by talking more about its value menu.
At the end of December, Wendy's had 6,515 stores, with 6,112 of those in North America. Last year, 237 company restaurants were sold to franchisees. The Wendy's system, which is remodeling a large number of stores, plans to update 450 restaurants and build 80 new locations this year. Almost 800 stores have been updated or seen the work begin. The company believes at least 60% of its stores in North America will be in the new format -- restorations it has credited with higher sales -- by the end of 2020.
Adjusted earnings for the year were 34 cents, matching the FactSet consensus number. For 2015, Wendy's is planning to earn 33 cents to 35 cents. Those annual results probably won't be directly comparable, because the company said it's making changes to how it discloses its earnings when certain gains are left out.