Wendy's Profit Up, To Sell Company-operated Canadian Restaurants To Franchisees

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Fast food chain Wendy's Co. (WEN) Thursday said its second-quarter profit increased from the prior year, helped by lower costs, despite a fall in sales. Adjusted earnings missed Wall Street estimates.

The firm confirmed its full year outlook and announced a new share repurchase program for up to $100 million of its common stock. The firm also said it plans to sell all of its 135 company-operated Canadian restaurants to franchisees.

Net income attributable to the company increased to $29.01 million from $12.22 million in the prior year. Earnings per share grew to $0.08 from $0.03.

Adjusted earnings per share grew to $0.09 from $0.08 in the second quarter of 2013. On average, 15 analysts polled by Thomson Reuters expected earnings of $0.10 per share for the quarter. Analysts' estimates typically exclude special items.

Revenues fell to $523.43 million from $650.54 million in the prior year. Analysts expected revenues of $518.11 million.

According to the company, the decrease was due to lost revenue following the sale of 418 company-operated restaurants to franchisees as part of the company's system optimization initiative, partly offset by same-restaurant sales growth and increases in rental income and franchise royalties.

Wendy's company-operated restaurants generated a same-restaurant sales increase of 3.9 percent, while Franchise same-restaurant sales in North America increased 3.1 percent.

Total costs and expenses declined to $459.57 million from $593.55 million.

The company expects its third-quarter same-restaurant sales growth to be slightly less than the low end of its full-year outlook of 2.5 to 3.5 percent.

For 2014, Wendy's continues to expect adjusted earnings per share of $0.34 to $0.36. Analysts expect earnings of $0.35 per share.

The firm expects mid-teens adjusted earnings per share growth beginning in 2015.

Further, as part of its ongoing system optimization initiative, the company also announced a plan to sell all of its 135 company-operated Canadian restaurants to franchisees and reinvest the sale proceeds to promote incremental development of franchised restaurants in Canada.

The company believes that the sale will further unlock its growth potential in North America by generating incremental commitments for its Image Activation program and the development of new franchised restaurants in Canada.

President and CEO Emil Brolick said, "We believe a franchise model will help us penetrate the market more quickly than under a Company-operated restaurant model, as we plan to grow our Canadian restaurant base by approximately one-third and reimage approximately 60 percent of our Canadian restaurants by 2020."

The company is targeting the end of the first quarter of 2015 for the completion of these transactions, and intends to retain its ownership of TimWen Partnership, its Canadian restaurant real estate joint venture with Tim Hortons Inc.

Wendy's expects the transactions to be neutral to net income in 2015 and slightly accretive thereafter.

The company also announced that its Board of Directors authorized a new share repurchase program for up to $100 million of its common stock through the end of 2015.

WEN, which closed down 0.6 percent at $7.98, is up 1.5 percent in pre-market activity.

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