Wendy's Plays Old Maid

Just like that, Wendy's (NYSE: WEN  ) is alone again, naturally. After successfully spinning off its Tim Hortons (NYSE: THI  ) chain earlier this year, the country's third-largest burger chain has now found a buyer for its struggling Baja Fresh concept.

The company will be getting $31 million for its once-promising chain, which specializes in serving up freshly made Mexican eats. I recommend the chicken tortilla soup with sliced avocado. It's thick and hearty and nothing at all like what Baja Fresh turned out to be in Wendy's hands.

A couple of years ago, it seemed as if Chipotle Mexican Grill (NYSE: CMG  ) , CKE Restaurants' (NYSE: CKR  ) La Salsa, and Baja Fresh would rule this niche -- a step up from fast-food grub, yet a cheaper quick-service alternative to casual dining. It didn't happen. La Salsa's growth has stalled as it holds firm to about 100 units over the past few years, while Baja Fresh has stagnated at the 300 mark. In that time, Chipotle has been able to expand quickly, scoring the surging comps that Baja Fresh hasn't been able to muster.

That's gotta hurt. Less than three years ago, Baja Fresh and Chipotle were roughly the same size. Today, Chipotle is valued by the market as a $1.8 billion company, and Wendy's has to grovel to get just $31 million for Baja Fresh.

Is Wendy's making a mistake? Was there a turnaround play in the making there? Could it have incorporated some of the Baja Fresh elements into its Wendy's chain to help diversify its offerings, or would it have diluted the Wendy's brand? The questions are moot, because Wendy's is really selling the company to make a statement. It's going to focus on Wendy's -- and only Wendy's.

The company is definitely doing that. Even though unit growth is projected to be nonexistent over the next three years, Wendy's is working on initiatives to grow the earnings power of each existing unit. It has been testing a breakfast menu in 120 different locations, which it plans to roll out nationwide come early next year.

Adios to Baja Fresh. Good morning, Wendy's.

For more on the Wendy's saga:

What delicious investing opportunities made David and Tom Gardner's menu of savory superstar stocks? Find out with a free 30-day trial toMotley Fool Stock Advisor.

Longtime Fool contributor Rick Munarriz really is a fan of the soup at Baja Fresh. Then again, he's also a good hour away from the nearest Chipotle. He does not own shares in any of the companies mentioned in this story. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.The Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 516365, ~/Articles/ArticleHandler.aspx, 10/28/2016 10:37:14 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,193.34 23.66 0.13%
S&P 500 2,134.51 1.47 0.07%
NASD 5,212.56 -3.41 -0.07%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/28/2016 10:21 AM
WEN $10.88 Up +0.16 +1.49%
Wendy's CAPS Rating: ***
CKR.DL2 $12.55 Down +0.00 +0.00%
CKE Restaurants, I… CAPS Rating: ***
CMG $371.48 Up +2.89 +0.78%
Chipotle Mexican G… CAPS Rating: ****