July 23, 2013 // Franchising.com // DUBLIN, Ohio - The Wendy's Company (NASDAQ: WEN) today announced a system optimization initiative, as part of its brand transformation, designed to further enhance earnings quality, help optimize its restaurant portfolio and increase shareholder returns.
The Company also reported preliminary, unaudited results for the second quarter ended June 30, 2013, including an Adjusted Earnings Per Share increase of 60 percent and an Adjusted EBITDA increase of 15 percent. See "Disclosure Regarding Non-GAAP Financial Measures" below for a reconciliation of the non-GAAP measures included herein (i.e., Adjusted EBITDA and Adjusted Earnings Per Share).
The Company plans to help optimize its restaurant portfolio by concentrating its ownership geographically and reducing total system ownership from 22 percent to approximately 15 percent with the sale of about 425 Company-operated restaurants to franchise operators. The Company is targeting the end of the second quarter of 2014 for the completion of these transactions.
Wendy's® President and Chief Executive Officer Emil Brolick said the system optimization initiative is an important part of the Company's brand transformation - which includes reimaging and developing new restaurants, the new Wendy's logo, updated menu boards, innovative products and bold new packaging.
"The system optimization initiative will create a growth opportunity for both the Company and strong franchise operators by expanding participation in our Image Activation program to a larger base of franchisees," Brolick said. "We expect to generate a higher operating margin and stronger free cash flow, along with further enhancing the quality of our earnings with a more predictable revenue stream from a higher percentage of royalty and rent income. We believe system optimization will also enable us to increase our long-term earnings per share growth rate and return incremental cash to shareholders in the form of dividends and share repurchases, beginning with a 25-percent increase in our third-quarter dividend."
The Company intends to prioritize the sale of restaurants to successful, well-capitalized franchisees with a demonstrated history of operational excellence and a stated commitment to implement the Company's Image Activation restaurant development and reimaging strategy.
As part of the system optimization initiative, the Company yesterday completed the sale of 24 Wendy's restaurants in the Kansas City market to a subsidiary of NPC International, Inc., the largest franchisee in the Pizza Hut system and eighth-largest restaurant operator in the United States with more than 1,200 restaurants. NPC recently signed an agreement to acquire an additional 13 Wendy's restaurants in the Kansas City market from another franchisee. The Company has also sold five restaurants in the Kansas City market to long-time Wendy's franchisee Kirk Williams of Legacy Restaurant Group.
The Company expects to improve its financial performance as a result of the system optimization initiative. Specifically, the Company expects the following benefits to offset the annualized decreases in sales resulting from the sale of restaurants:
Due to the expected benefits from its system optimization initiative, the Company now believes it will generate a long-term Adjusted Earnings Per Share growth rate in the mid-teens, beginning in 2014, compared to its previous guidance of high single-digit to low double-digit growth.
The Company also reaffirmed its long-term Adjusted EBITDA outlook of high single-digit to low double-digit growth.
In connection with the announcement of the system optimization initiative, the Company's Board of Directors authorized a 25 percent increase in the quarterly cash dividend rate from $0.04 to $0.05 per share.
The increase will be effective with the next quarterly cash dividend, which is payable Sept. 17, 2013, to shareholders of record as of Sept. 3, 2013. During the fourth quarter of 2012, the Company's Board of Directors authorized a 100 percent increase in the quarterly cash dividend rate from $0.02 to $0.04 per share.
During the fourth quarter of 2012, the Company's Board of Directors also authorized a share repurchase program for up to $100 million of the Company's common stock through Dec. 29, 2013. The common stock repurchase program allows the Company to make repurchases as market conditions warrant and to the extent legally permissible.
The Company did not repurchase any shares during 2012 or the first half of 2013, but intends to begin repurchasing shares in the third quarter.
"The dividend increase and share repurchases are important elements of our financial management strategy," Chief Financial Officer Steve Hare said. "We are committed to continuing to deploy capital to drive the organic growth of our restaurant business, in addition to returning cash to shareholders."
The Company today reported its preliminary, unaudited results for the second quarter ended June 30, 2013. The Company plans to file its Form 10-Q, including its final financial statements for the second quarter on Aug. 7, 2013. Highlights from the second quarter include:
For 2013, the Company reiterated its outlook for Adjusted EBITDA of $350 million to $360 million and Adjusted Earnings Per Share of $0.20 to $0.22. The Company is currently trending toward the high end of both ranges due to its strong first-half 2013 Adjusted EBITDA performance of $179.4 million and Adjusted EPS of $0.11, along with the expected benefit from many of the initiatives implemented in 2012, including the expansion of its Image Activation reimaging program, the implementation of its Right Price Right Size Menu™, the reduction in the number of restaurants serving breakfast, labor efficiencies and multiple cost-reduction initiatives. The outlook for 2013 also reflects:
Estimated 2013 Adjusted Earnings Per Share excludes $20 to $25 million of anticipated pretax depreciation for existing assets that will be replaced as part of the Company's Image Activation initiative. The Company expects its total 2013 depreciation and amortization expense to increase 15 to 20 percent compared to 2012.
The Company is also currently trending toward the high end of its outlook for Company-operated restaurant margin of 14.2 to 14.5 percent, compared to 14.0 percent in 2012, due to ongoing cost control initiatives and potential favorability in its commodities forecast.
Also included in the Company's 2013 outlook is:
The Company will host a conference call today at 11 a.m. ET, with a simultaneous webcast from the investor relations section of the Company's website at www.aboutwendys.com. Hosting the call will be President and Chief Executive Officer Emil Brolick, Chief Financial Officer Steve Hare and Chief Communications Officer John Barker. The live conference call will be available at (877) 572-6014 or, for international callers, at (281) 913-8524. An archived webcast with the accompanying slides will be available on the Company's website at www.aboutwendys.com.
The Company plans to file its Form 10-Q, including its final financial statements for the second quarter on Aug. 7, 2013.
This news release contains certain statements that are not historical facts, including, most importantly, information concerning possible or assumed future results of operations of The Wendy's Company and its subsidiaries (collectively, the "Company"). Those statements, as well as statements preceded by, followed by, or that include the words "may," "believes," "plans," "expects," "anticipates," or the negation thereof, or similar expressions, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act").
All statements that address future operating, financial or business performance; strategies, initiatives or expectations; future synergies, efficiencies or overhead savings; anticipated costs or charges; future capitalization; and anticipated financial impacts of recent or pending transactions are forward-looking statements within the meaning of the Reform Act. The forward-looking statements are based on the Company's expectations at the time such statements are made, speak only as of the dates they are made and are susceptible to a number of risks, uncertainties and other factors. The Company's actual results, performance and achievements may differ materially from any future results, performance or achievements expressed in or implied by the forward-looking statements. For all forward-looking statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Reform Act.
Many important factors could affect future results and could cause those results to differ materially from those expressed in or implied by the forward-looking statements. Such factors, all of which are difficult or impossible to predict accurately, and many of which are beyond the Company's control, include, but are not limited to:
The Company's franchisees are independent third parties that the Company does not control. Numerous factors beyond the control of the Company and its franchisees may affect new restaurant openings. Accordingly, there can be no assurance that commitments under development agreements with franchisees will result in new restaurant openings. In addition, numerous factors beyond the control of the Company and its franchisees may affect franchisees' ability to reimage existing restaurants or to complete the Company's system optimization initiative in accordance with the Company's expectations. All future written and oral forward-looking statements attributable to the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to above. New risks and uncertainties arise from time to time, and it is impossible for the Company to predict these events or their impact. The Company assumes no obligation to update forward-looking statements as a result of new information, future events or developments, except as required by federal securities laws. The Company does not endorse any projections regarding future performance that may be made by third parties.
Adjusted EBITDA and Adjusted Earnings Per Share, which exclude certain expenses, net of certain benefits, detailed in the reconciliation tables that accompany this release, are used by the Company as performance measures for benchmarking against the Company's peers and competitors, and as internal measures of business operating performance. The Company believes Adjusted EBITDA and Adjusted Earnings Per Share provide a meaningful perspective of the underlying operating performance of the Company's current business. Adjusted EBITDA and Adjusted Earnings Per Share are not recognized terms under U.S. Generally Accepted Accounting Principles ("GAAP"). Because all companies do not calculate Adjusted EBITDA and Adjusted Earnings Per Share (and similarly titled financial measures) in the same way, those measures as used by other companies may not be consistent with the way the Company calculates such measures and should not be considered as alternative measures of net income or earnings per share. Because certain income statement items needed to calculate net income vary from quarter to quarter, the Company is unable to provide projections of net income or earnings per share, or a reconciliation of projected Adjusted EBITDA to projected net income or projected Adjusted Earnings Per Share to projected earnings per share. The Company's presentation of Adjusted EBITDA and Adjusted Earnings Per Share does not replace the presentation of the Company's financial results in accordance with GAAP.
The Wendy's Company is the world's third-largest quick-service hamburger company. The Wendy's system includes more than 6,500 franchise and Company-operated restaurants in the United States and 27 countries and U.S. territories worldwide. For more information, visit aboutwendys.com or wendys.com.
Media and Investor Contacts:
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