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 to Motley 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 the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. T he Fool has a disclosure policy.
