By Atossa Araxia Abrahamian
July 23 Buoyed by optimism over its new Pretzel
Bacon Cheeseburger, shares of Wendy's Co rose to their
highest in more than five years on Tuesday after the company
announced the sale of hundreds of restaurants to franchisees and
posted a higher-than-expected quarterly profit.
Wendy's also offered investors a strong sales and profit
outlook, and raised its quarterly dividend by a penny to 5 cents
a share. Its shares rose 11 percent in mid-day trade.
The sale of 425 company-operated stores to franchisees will
cut costs, analysts say, and the proceeds will reassure
investors that the burger chain can finance a long-term image
overhaul. By the end of 2014, Wendy's will own 15 percent of its
restaurants, down from 22 percent prior to the sales.
On the negative side, system-wide sales at established North
American restaurants increased by 0.4 percent, well short of the
1.1 percent gain expected by analysts polled by Consensus Metrix
The company said the miss was partly because some
restaurants stopped serving breakfast in 2012.
Wendy's expects sales in established outlets to increase by
2 to 3 percent by the end of the year.
Analysts at Janney see the Pretzel Bacon Cheeseburger
introduced this summer as a big driver in the expected gains.
Wendy's new burger is the latest in a string of extravagant
innovations at U.S. fast-food restaurants. It is designed to
attract younger consumers, who are less inclined to count the
burger's 680 calories than their parents.
"We believe this key menu item will lead to some meaningful
acceleration in Wendy's same-store sales that the Street does
not currently anticipate," wrote Janney analysts Mark Kalinowski
and Amy Babington.
Second-quarter net income came in at $12.2 million, or 3
cents a share, compared with a year-earlier loss of $5.5
million, or 1 cent.
Revenue rose to $650.5 million from $645.9 million.
Excluding debt retirement costs and other one-time expenses,
earnings were 8 cents per share, topping analysts' average
forecast by 2 cents, according to Thomson Reuters I/B/E/S.
Wendy's said it expected a long-term growth rate in the
mid-teens for adjusted earnings starting in 2014, based on the
profitability of its remaining restaurants, a more focused
market, and cash from the sales.
The restaurants the company is selling off also tend to be
locations with lower operating margins in the Western states,
said CFO Steve Hare during an investor call. Selling them will
allow the company to collect rent and royalties as well as work
with about 100 new franchisees on rebranding efforts, the
The chain reaffirmed its prior forecast for full-year
adjusted profit of 20 cents to 22 cents per share.
In topping analysts' expectations, Wendy's outshone its main
competitor McDonald's Corp, which reported
lower-than-expected quarterly profit on Monday, and sees little
change in same-restaurant sales in July.
The McDonald's slowdown presents a special opportunity for
Wendy's as it prepares to roll out a marketing campaign with a
redesigned logo, restaurant renovations and a "Right Price,
Right Size" menu.
The new, simplified logo retains the image of a smiling,
red-headed girl but uses a more modern font for "Wendy's" and
removes the wording "Old Fashioned Hamburgers."
For Wendy's, the Pretzel Bacon Cheeseburger was a
well-timed hit, coming as part of a wave of high-calorie menu
offerings from the fast-food industry.
In June, Dunkin Donuts introduced a Glazed Donut
Breakfast Sandwich, which consists of a fried egg with bacon
inside a split glazed donut. A Dunkin Donuts spokeswoman said
the sandwich is no longer being promoted, but is available upon
request. McDonald's serves a late-night breakfast in some
regions. And Burger King Worldwide recently debuted a
bacon ice-cream sundae.
Wendy's has not said whether it intends to keep the
seasonal burger on as a permanent menu item.
R.J. Hottovy, an analyst at Morningstar, said the
pretzel-burger may end up a mere flash in the pan.
"There's always something else coming from other
competitors" he said. "In the long term, it won't give anyone a
run for their money."