In last month's "Burger Biz Brief," I highlighted several fronts that Wendy's
Total revenues were roughly flat against the year-ago period, with sales dragged down by weak comparable same-store sales results from the company's Wendy's and Baja Fresh Mexican operations. The only division that displayed strength was Tim Horton's, where revenues increased by a very stout 18.2% for the quarter. Still, this marked the first time in 18 years that the Wendy's corporation posted negative full-year comps.
The company's lackluster sales were about as tasty as a soggy bun, but not all was lost. It did reduce its total expenses by 15.1% year over year, and that was despite record-high beef costs. The unit offering the healthiest margins was Tim Horton's, with operating income as a percentage of net revenues at 17.7%, substantially higher than the 11.6% from Wendy's.
So where does the company go from here? As I discussed in the aforementioned burger story, Wendy's has been repurchasing shares, paying off debt, selling off underperforming units, and transforming some company-owned restaurants into franchises. A tax-free spin-off of its Tim Horton's concept, set to be completed later this year, is another positive. Wendy's will maintain 82% to 85% ownership in the new IPO, according to the company's earnings conference call.
In engaging on these fronts, Wendy's intends to focus on three areas in particular that are critical to higher performance: increasing same-store sales, improving margins, and reducing costs. It intends to meet those goals by getting rid of underperforming restaurants that are suffering from lagging comps, higher costs, and weaker margins. In the fourth quarter alone, in fact, the company already closed an additional 42 units.
Another way Wendy's can address the performance problem is by transforming some of its existing company-owned restaurants into better-performing franchise concepts. Currently, 22% of its restaurants are company-owned, and management has established a goal to get this percentage down to 15% to 18%.
Wendy's may always remain in second place to giant McDonald's
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Fool contributor Jeremy MacNealy does not own shares of any companies mentioned.