Take Off That Ridiculous Red Wig, Wendy's

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I'm not a fan of the "Red Wig" marketing campaign that Wendy's (NYSE: WEN) is trying to pass off as a winner. The ads are annoying. They don't succeed in getting a favorable message out. They're ultimately too much of a "me too" attempt to try to nab a piece of the pop-culture pie after Burger King (NYSE: BKC) worked its goofy-grinning mascot to death last year and McDonald's (NYSE: MCD) has spent decades on that ketchup-and-mustard-colored clown.

I'll tell you what I am a fan of, though: the third-largest burger chain's latest quarterly report. Earnings from continuing operations more than doubled to $0.44 a share before charges.

Sure, the per-share figure is inflated as a result of a "Dutch auction" buyback late last year and an aggressive share repurchase here in 2007. Shares outstanding have been reduced by 25% over the past year. Then again, that's another positive development at Wendy's.

The report isn't perfect, of course. Net revenue of $631.1 million is essentially flat with last year's showing. I'm sure that some Wendy's bull will break out "revenue per share growth" as some offbeat metric to color this as a positive, but there are really two factors in this zero-sum growth game. On the positive front, Wendy's has now clocked in with five consecutive quarters of same-store sales gains. The problem is that more Wendy's restaurants are closing than the number of new units being opened.

That's not so nice. Over the past year, the company has gone from an empire of 6,741 eateries to just 6,633 units. The company euphemistically calls it a closure of "underperforming restaurants," but when you lose a net total of 42 company-owned and 66 franchisee-owned locations over the past year, I'm sure that those affected would refer to this as an underperforming restaurant concept problem.

Thankfully, the streak of positive comps are the perfect counterargument to the closures. The chain is still resonating with diners. The company is always tweaking its menu to keep the concept fresh. Healthier margins prove that the markups and product mix are working.

That's important because it's all going to rest on the shoulders below those red braids now that the company has sold off its struggling Baja Fresh concept and spun off the healthy Tim Hortons (NYSE: THI) chain.

With the company on the bidding block, strong performance is the surest way to smoke out higher bids. Arby's parent Triarc (NYSE: TRY) has been in the spotlight as a likely suitor, but let's not dismiss the pool of private equity firms or even smaller burger chains like Jack in the Box (NYSE: JBX) or CKE Restaurants (Nasdaq: CKR) that would be transformed into juggernauts overnight with Wendy's on their side.

I just hope that the eventual owner axes the red wigs. Wendy's sees a successful ad campaign, with a 25% recall rate. Me? I see red.