Wendy’s reports preliminary 2014 results
The Wendy's Company reported preliminary unaudited results for the fourth quarter and full year ended December 28, 2014. The company plans to release its audited financial results on or before February 26, 2015.
"Wendy's made significant strategic and financial progress in 2014," President and Chief Executive Officer Emil Brolick said. "Last year we set a target of 410 reimaged and new Image Activation restaurants for 2014, and we surpassed our goal with the opening or commencement of construction of 486 Systemwide reimaged and new restaurants, including franchisee adoption that exceeded our expectations with 216 reimaged and 43 new Image Activation restaurants. As of the end of 2014, the Wendy's system has opened or initiated construction on 794 cumulative reimaged and new restaurants since 2011.
"We continued to strengthen our system through the selective buying of restaurants, along with selling restaurants to franchisees with a commitment to Image Activation, high operating standards and new restaurant development. These efforts contributed to improved financial performance, highlighted by 2014 Company-operated same-restaurant sales growth of 2.3 percent, record average annual unit sales volumes of $1.59 million at North America Company-operated restaurants, and overall Adjusted EBITDA and Adjusted Earnings Per Share performance in line with our expectations.
"As we look to 2015 and beyond, we plan to continue improving the quality of our earnings by growing same-restaurant sales, expanding margins and evolving our plans for system optimization," Brolick said. "We expect that the net result will be a reduction in Company-operated restaurant ownership to approximately 5 percent of the total system by the middle of 2016. We believe this reduction in ownership will result in pretax cash proceeds of approximately $400 to $475 million and significantly reduce future capital expenditure requirements.
"As a result of our expectations for our improved free cash flow and sustainable earnings growth, along with our significant real estate ownership and the expected proceeds from the sale of Company-operated restaurants, we plan to take advantage of the current attractive capital markets environment and low interest rates to recapitalize our balance sheet, targeting a leverage ratio of five to six times net debt to 2014 Adjusted EBITDA," Brolick said. "We intend to use these proceeds to return substantial cash to shareholders during 2015.
"In addition, our success with Image Activation and our proven track record of innovation gives us the confidence that we can achieve long-term average annual Systemwide same-restaurant sales growth of approximately 2.25 to 3.0 percent beginning in 2016, along with our system goal for average annual unit sales volumes of $2.0 million by 2020."
Wendy's Company-operated restaurants generated a same-restaurant sales increase of 1.9 percent in the fourth quarter of 2014 and 5.0 percent on a two-year basis. Franchise same-restaurant sales in North America increased 1.6 percent during the quarter.
Consolidated revenues were $502.0 million in the fourth quarter of 2014, compared to $592.4 million in the fourth quarter of 2013. The 15.3 percent decrease resulted from the ownership of 412 fewer Company-operated restaurants at the end of the 2014 fourth quarter compared to the end of the 2013 third quarter, partly offset by higher same-restaurant sales, and increased rent and royalty revenue.
Operating profit was $51.7 million in the fourth quarter of 2014, compared to $28.9 million in the fourth quarter of 2013. The 78.9 percent increase resulted primarily from year-over year reductions in impairment charges and depreciation and amortization expense, partly offset by increased Facilities actions charges.
Net income attributable to The Wendy's Company was $23.3 million in the fourth quarter of 2014, compared to $33.1 million in the fourth quarter of 2013. The decrease was primarily the result of a tax rate of 40.4 percent in the fourth quarter of 2014 compared to a tax benefit of 12.4 percent in the fourth quarter of 2013.
Wendy's Company-operated restaurants generated a same-restaurant sales increase of 2.3 percent in 2014 and 4.2 percent on a two-year basis. Franchise same-restaurant sales in North America increased 1.5 percent during the year. The differential between Company-operated and franchise-operated results was primarily due to a higher percentage of Company-operated Image Activation restaurants in operation during the year. Net income attributable to The Wendy's Company was $121.4 million in 2014, compared to $45.5 million in 2013.
As part of its ongoing system optimization effort, the Company plans to sell approximately 500 additional restaurants to franchisees and reduce its ongoing Company-operated restaurant ownership to approximately 5 percent of the total system by the middle of 2016.
"We believe our system optimization initiative will drive future growth by providing opportunities for expanded restaurant ownership to strong operators who have aligned with our strategy by committing to Image Activation and opening incremental new restaurants," Brolick said. "Going forward, we intend to buy and sell restaurants opportunistically to act as a catalyst for growth by further strengthening our franchisee base, driving new restaurant development and accelerating Image Activation adoption."
The Company sold 237 Company-operated restaurants to franchisees during 2014. This includes 29 restaurants under the Company's Canadian system optimization initiative to sell approximately 130 restaurants by the end of the second quarter of 2015. These transactions generated additional restaurant reimaging commitments for the Company's Image Activation program, as well as commitments for the development of new franchise-operated restaurants.
The Company also announced the following system goals by the end of 2020:
- Average unit sales volumes of $2.0 million
- Restaurant margins of 20 percent
- A sales-to-investment ratio of 1.3 times for new restaurants
- Restaurant development growth of 1,000 new restaurants (excluding closures)
- The reimaging of 60 percent of all restaurants
Source: The Wendy’s Co.