Wendy's FY2016 results show impact of optimization efforts

Wendy's wrapped up its 16th straight quarter of same-store sales growth, according to a company press release about the fiscal year and its final quarter, both ending, Jan. 1, 2017.  Wendy's North America same-store sales increased 0.8 percent in the final quarter with an increase of 1.6 percent for the year. The company's board also authorized an 8 percent increase in the quarterly dividend and $150 million share repurchase program. 

"As we look to 2017 and beyond, we are poised for strong global growth," President and Chief Executive Officer Todd Penegor said in a news release. "We believe we can grow the Wendy's system by approximately 1,000 restaurants and $2 billion in sales by 2020, resulting in a global system of about 7,500 restaurants generating $12 billion in sales. Importantly, this growth will be achieved in a profitable manner for both the Company and franchisees, which will help carry the momentum beyond 2020."

Other Q4 preliminary results include:

  • Company-operated restaurant margin dropped 40 basis points to 18.8 percent year-over-year, attributed to higher other operating costs and labor rates, partly offset by lower commodity costs and positive results from Wendy's image activation program.
  • Operating profit dropped 31.9 percent to $79.2 million as a result of lower, but partially offset year-over-year system optimization gains. 
  • Income from continuing operations dropped significantly from $88.7 million last year to $28.9 million this year, which was attributed to decreased investment income as well as net and system optimization gains, partly offset by lower income taxes.
  • Adjusted EBITDA from continuing operations fell 15.3 percent to $91.1 million, while adjusted EBITDA margin grew 620 basis points to 29.4 percent, attributed to good results from system optimization.
  • Reported diluted earnings per share dropped from 32 cents last year Q4 to 11 cents this year. Adjusted earnings per share from continuing operations were $0.08, compared to $0.12 in the fourth quarter of 2015.
  • Revenues decreased 33.3 percent from same quarter last year to $309.9 million, attributed mostly to 522 fewer company-operated stores at the end of this year as opposed to last year. 
  • Franchise royalty income was down 5.1 percent to $95.7 million year-over-year in Q4, attributed to decreased fees from fewer stores after sale of restaurants through the optimization initiative.
  • Q4 franchise rental income grew 54.2 percent to $40.7 million, attributed again to the optimization initiative.

Preliminary full-year results include: 

  • Increase of 1.6 percent in North America same-stores sales.
  • Revenues dropped 23.3 percent to $1,435.4 million due mostly to ownership of 627 fewer company-operated restaurants.
  • Franchise royalty revenues grew 7.8 percent to $371.5 million due to system optimization initiative and higher same-store sales at franchised restaurants.
  • Company-operated margin grew 140 basis points to 19.1 percent as the result of lower commodity costs and results of the image activation program. 
  • Operating profit grew 14.7 percent to $314.8 million due to a year-over-year depreciation and amortization expense decrease, along with lower G&A expenses and reorganization and realignment costs.
  • Income from continuing operations dropped 7.4 percent to $129.6 million due to partially offset, but still decreased investment income.
  • Adjusted EBITDA from continuing operations fell to $391.9 million compared to $392.4 million in 2015
  • Reported diluted earnings per share were $0.49 in 2016, compared to $0.49 in 2015.

"We are very proud that we were able to hold adjusted EBITDA flat year-over year despite selling a significant number of company-operated restaurants during 2016," Chief Financial Officer Gunther Plosch said in the release. "We look forward to realizing the positive benefits of our brand transformation in 2017 and beyond, with higher franchise revenues driving a higher quality of earnings."


Topics: Business Strategy and Profitability, Financial News

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