By Julie Jargon And Ezequiel Minaya
Wendy's Co. reported revenue that fell less than expected in the
second quarter as the fast-food chain continues to unload
company-owned restaurants.
Like many other restaurant chains, including McDonald's Corp.
and Burger King, a unit of Restaurant Brands International Inc.,
Wendy's has sought a more stable cash flow and higher profits by
selling off its company-owned restaurants to franchisees.
Wendy's said Wednesday that its plan to reduce ownership of
company-operated restaurants to about 5% of the overall total
remains on schedule. In 2017, the first full year after it expects
to complete its restaurant sales, 80% of Wendy's earnings will come
from franchisees' royalty and rental fees.
Revenue fell 3.2% to $489.5 million in the quarter ended June 28
because of the ownership of 141 fewer company-operated restaurants
in the period.
Chief Executive Emil Brolick told investors that franchisees are
experiencing wage pressure in markets where lawmakers have passed
minimum-wage increases and that "there's a war on talent" in
certain places, which has forced franchisees to raise wages in some
cities.
In places like New York, where the state's fast-food wage board
last month recommended raising the minimum wage for the industry to
$15 an hour by 2021, Mr. Brolick said, franchisees are likely to
reduce staff, cut workers' hours and make other cost reductions. He
said raising menu prices isn't likely to be enough to offset the
wage increases.
In the quarter, Wendy's posted a profit of $40.2 million, or 11
cents a share, compared with a year-earlier profit of $29 million,
or 8 cents a share. Excluding certain items, earnings were 8 cents
a share, down from 9 cents a share a year earlier. Analysts had
expected earnings on a per-share basis of 9 cents on revenue of
$486 million.
In North America, same-restaurant sales increased 2.2%, beating
analysts' expectations of a 1.6% increase. For the year, the
company said it now expects higher adjusted earnings but slowing
same-restaurant sales.
Wendy's shares were up 1.8% at $10.47 in midmorning trading.
Wendy's has been struggling to identity the right price points
to attract cost-conscious consumers. Mr. Brolick said the company
is seeing a shift in consumers seeking bundled meals in the $4 to
$6 range and that the company is currently testing some value
promotions that it expects to pay off in the fourth quarter. "We
know that our 'Right Price, Right Size' menu alone is not a
sufficient value proposition to consistently attract the
contemporary value-seeking consumer," Mr. Brolick said.
Mr. Brolick also announced that the Dublin, Ohio, company
planned to repurchase $165 million in stock, in addition to the
$850 million of shares recently acquired.
Wendy's is projecting adjusted earnings before interest, taxes,
depreciation and amortization of between $385 million and $390
million, up from its previous range of $375 million to $385
million. However, it sees sales at restaurants opened at least 15
months rising 2% to 2.5%, below its earlier outlook for growth of
2.5% to 3%.
Write to Julie Jargon at julie.jargon@wsj.com and Ezequiel
Minaya at ezequiel.minaya@wsj.com
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