Leading quick-service restaurant chain,
The Wendy's Company
) completed its System Optimization initiative with the recent
sale of 104 restaurants in four U.S. markets - Phoenix, Los
Angeles/Palm Springs, Hawaii, and Albuquerque.
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The recent sale of 104 restaurants involves the sale of 40
outlets in the Phoenix region to Arizona Restaurant Company, LLC,
32 Los Angeles/Palm Springs area restaurants and seven Hawaii
outlets to Cotti Foods Hawaii, Inc., and 25 Albuquerque area
restaurants to JAAB Restaurant Holdings, LLC.
The System Optimization initiative was started in Jul 2013 for
transitioning into a franchise-based model. It aimed at
optimizing the restaurant portfolio by concentrating ownership
geographically and reducing total system ownership from 22.0% to
approximately 15.0%. As per the System Optimization initiative,
Wendy's sold 418 company-operated restaurants concentrated in 13
U.S. markets, mainly in the West.
This initiative also includes expansion, closure of
underperforming units, and several other growth initiatives.
Under the System Optimization program, the company is also
working on the image activation of these outlets. The company
intends to reimage about 180 restaurants in Wendy's contemporary
Image Activation restaurant design and also has development plans
for about 100 new restaurants. Operators with a proven track
record and conforming to the company's reimaging program are
being chosen for this transition.
This franchise-based business model helps in generating earnings
and return on equity growth by lowering capital requirements.
Moreover, it adds to the top line in the form of royalty and
rental income. It also helps the company to generate strong free
cash flow, thereby maintain a healthy balance sheet. Alongside,
free cash flow allows reinvestment for increasing brand
recognition and enhancing shareholder return. With the business
mix trending more toward franchised units, the company is likely
to be less affected by inflation compared to its peers.
With the completion of the System Optimization initiative, this
Zacks Rank #1 (Strong Buy) stock will now operate about 1,000
restaurants in the United States and Canada.
Last month, Wendy's posted mixed fourth-quarter results with
earnings beating the Zacks Consensus Estimate while revenues
missing the mark. Despite a sluggish sales scenario, the decent
performance on the earnings front signals that the restaurateur
is successfully transitioning itself and working on its cost
structure. Menu innovation, re-imaging of units, net domestic
unit growth and international expansion set a more bullish tone
for Wendy's in the near future.
Some other stocks worth considering in the restaurant industry
Ignite Restaurant Group, Inc.
Buffalo Wild Wings Inc.
Burger King Worldwide, Inc.
). While Ignite Restaurant holds a Zacks Rank #1, Buffalo Wild
Wings and Burger King carry a Zacks Rank #2 (Buy).