Wendy's Completes System Optimization Initiative
Announces Sale of 104 Company-Owned Restaurants in Four U.S. Markets; Company Expects to Generate Higher Operating Margin, Stronger Free Cash Flow, and Enhanced Quality of Earnings
March 25, 2014 // Franchising.com // DUBLIN, OHIO – The Wendy's Company (NASDAQ:WEN) today announced the completion of its System Optimization initiative, launched in July 2013, with the sale of 104 restaurants in four U.S. markets – Phoenix, Los Angeles/Palm Springs, Hawaii and Albuquerque. The buyers are strong, highly capable franchisees, who are committed to restaurant growth and reimaging along with delivering 'A Cut Above' customer service.
In total, Wendy's® has sold 418 Company-operated restaurants concentrated in 13 U.S. markets, primarily in the West, as part of a strategy to geographically align its restaurant ownership for efficiencies, while generating a more predictable revenue stream.
Wendy's has received total proceeds from System Optimization of approximately $235 million, including $138 million in 2013. The latest transactions include the sale of:
- 40 Phoenix area restaurants to Arizona Restaurant Company, LLC, led by veteran Wendy's franchisee Richard Holland and John Peters, who previously served as Wendy's Senior Vice President of North America Operations. In addition to the Phoenix market, Holland operates 73 Wendy's restaurants elsewhere in Arizona and seven other states.
- 32 Los Angeles/Palm Springs area restaurants to Cotti Foods California, Inc., along with seven restaurants in Hawaii to Cotti Foods Hawaii, Inc. Both entities are headed by President and CEO Peter Capriotti II, whose organization is based in Rancho Santa Margarita, Calif. and specializes in operating quick-service restaurants.
- 25 Albuquerque area restaurants to JAAB Restaurant Holdings, LLC, led by partners Andres Garcia, Jhonny Mercado, Murshed (Ben) Mansoor and Angelo Freites. In addition to the Albuquerque market, Garcia, Mercado and Freites also operate JAA Restaurant Holdings, LLC with 36 Wendy's restaurants in Florida, along with restaurants in Panama.
"We are proud of our team that has diligently worked to complete the sale – faster than our original plan -- of the 13 total markets to excellent franchise organizations that are fully committed to building the Wendy's brand through restaurant reimaging, new development and other growth initiatives," said Wendy's President and Chief Executive Officer Emil Brolick.
"This is an important step for the future of our business. It's another example of the Brand Transformation under way at Wendy's, with breakthrough new products; innovative marketing; operations, restaurant team and customer service initiatives; and the continued acceleration of our 'Image Activation' restaurant reimaging program," Brolick added.
In total, the purchase agreements for the 13 markets include commitments to reimage about 180 restaurants in Wendy's contemporary Image Activation restaurant design, as well as development plans for about 100 new restaurants.
As a result of System Optimization, the Company expects to generate a higher operating margin and stronger free cash flow, along with further enhancing the quality of its earnings with a more predictable revenue stream from a higher percentage of royalty and rental income.
With the completion of the System Optimization initiative, the Company will now operate about 1,000 restaurants in the United States and Canada, comprising approximately 15% of Wendy's restaurant system.
About The Wendy's Company
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 28 countries and U.S. territories worldwide. For more information, visit aboutwendys.com or wendys.com.
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").
In addition, 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 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:
(1) changes in the quick-service restaurant industry, such as consumer trends toward value-oriented products and promotions or toward consuming fewer meals away from home;
(2) prevailing economic, market and business conditions affecting the Company, including competition from other food service providers, high unemployment and decreased consumer spending levels;
(3) the ability to effectively manage the acquisition and disposition of restaurants;
(4) cost and availability of capital;
(5) cost fluctuations associated with food, supplies, energy, fuel, distribution or labor;
(6) the financial condition of the Company's franchisees;
(7) food safety events, including instances of food-borne illness involving the Company or its supply chain;
(8) conditions beyond the Company's control such as weather, natural disasters, disease outbreaks, epidemics or pandemics impacting the Company's customers or food supplies, or acts of war or terrorism;
(9) the effects of negative publicity that can occur from increased use of social media;
(10) the availability of suitable locations and terms for the development of new restaurants;
(11) risks associated with the Image Activation program;
(12) adoption of new, or changes in, laws, regulations or accounting policies and practices;
(13) changes in debt, equity and securities markets;
(14) goodwill and long-lived asset impairments;
(15) changes in interest rates;
(16) expenses and liabilities for taxes related to periods up to the date of sale of Arby's as a result of the indemnification provisions of the Arby's Purchase and Sale Agreement;
(17) the difficulty in predicting the ultimate costs associated with the sale of restaurants under the Company's system optimization initiative, employee termination costs, the timing of payments made and received, the results of negotiations with landlords, the impact of the sale of restaurants on ongoing operations, any tax impact from the sale of restaurants, and the future benefits to the Company's earnings, restaurant operating margin, cash flow and depreciation; and
(18) other factors cited in the Company's news releases, public statements and/or filings with the Securities and Exchange Commission (the SEC), including those identified in the "Risk Factors" sections of the Company's Forms 10-K and 10-Q.
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.