Wendy's to sell Canadian restaurants

by Monica Watrous    View Me on Google+
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DUBLIN, OHIO — The Wendy’s Co. has announced plans to sell its approximately 135 company-operated restaurants in Canada, where unit growth has been stagnant for a decade. The fast-food company will reinvest proceeds into franchise restaurant development and reimaging, which has proved to be a successful move in the United States.

“We believe this strategy will be a catalyst for restaurant growth in Canada and complement our goal of returning our U.S. restaurant system to positive new development,” said Emil Brolick, president and chief executive officer, during an Aug. 7 call with financial analysts to discuss second-quarter earnings. “Similar to the 418 restaurants that we sold in the United States, the purchasers of the restaurants in Canada will be committing to certain reimaging and development of requirements as part of the transactions. We believe these commitments, in turn, will help ensure that the Wendy's brand remains relevant with consumers, by expanding brand access and assuring our restaurants convey a contemporary brand image consistent with brand transformation.”

Wendy’s said a mishandling of the Canadian marketplace may be to blame for limited progress in restaurant growth.

“As it relates to Canada, one of the motivations for the sale of the restaurants is we do feel that as we look back at time that we’ve probably been guilty of treating Canada as too much like America and executing it that way, and we realized that Canada is a tremendous close ally of America, but also the competitive set is different there, and we do feel that by putting these restaurants in the hands of our franchisees, that is one of the things that will make us more successful in the marketplace because they do have a better understanding of the Canadian consumer and the Canadian marketplace,” Mr. Brolick said.

Wendy’s expects to complete the sale by the end of the first quarter of 2015. Going forward, the company said it will continue to own a core portfolio of company-operated restaurants in the United States.

For the second quarter ended June 29, Wendy’s had net income of $29,007,000, equal to 8c per share on the common stock, up 142% from $12,002,000, or 3c per share, in the prior-year period, reflecting higher operating profit and effective tax rate as well as a pretax charge from an early extinguishment of debt.

Revenues totaled $523,427,000, down 20% from $650,544,000 the year before. The reduction in revenue resulted in part from the franchising of 418 company-operated restaurants during the past year. A new Tuscan Chicken on Ciabatta sandwich and new salads helped drive sales during the quarter.

Same-restaurant sales increased 3.9% at company-operated restaurants and 3.1% at franchise restaurants in North America during the quarter.

“As we enter August, we expect this trend to continue with another quarter of positive comp sales growth, despite rolling over the strong performance of our Pretzel Bacon Cheeseburger promotion in 2013,” Mr. Brolick said. “We expect our third-quarter same-restaurant sales growth to be slightly less than the low end of our full-year outlook of 2.5% to 3.5%.”
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