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Wendy's reports Q3 results

The Wendy's Company reported unaudited results for the third quarter ended Sept. 27.

November 6, 2015

The Wendy's Company reported unaudited results for the third quarter ended Sept. 27, according to a company press release.

"Our strong third-quarter results demonstrate the positive impact of our transition to a predominantly franchised model, with royalties and rental income contributing a higher amount of earnings," said Emil Brolick, Wendy’s president and CEO.

"Our year-over-year restaurant operating margin increased 330 basis points from 15.5 to 18.8 percent, which is indicative of the improvements we have made in our restaurant-level economic model," Brolick added. "We have been able to increase the year-over-year earnings contribution from company-operated restaurants by 11 percent, even with the ownership of 153 fewer restaurants relative to last year. Our average unit volumes also increased more than our same-restaurant sales growth would indicate, due to the number of reimaged restaurants that were out of our comparable sales base during the quarter."

Highlights from the third quarter include:

• Same-restaurant sales increased 3.1 percent at North America system restaurants in the third quarter of 2015. Same-restaurant sales increased 3.3 percent at North America franchise-operated restaurants. Same-restaurant sales increased 1.7 percent at North America company-operated restaurants.
• On a two-year basis, third-quarter 2015 same-restaurant sales increased 3.8 percent for the North America system, 3.8 percent at North America franchise-operated restaurants and 3.7 percent at North America company-operated restaurants.
• Revenues were $464.6 million in the third quarter of 2015, compared to $496.7 million in the third quarter of 2014. The 6.5-percent decrease resulted primarily from the ownership of 153 fewer company-operated restaurants at the end of the 2015 third quarter compared to the beginning of the 2014 third quarter. Franchise revenues were $105.6 million in the third quarter of 2015 compared to $103.2 million in the third quarter of 2014. The 2.3-percent increase resulted from higher royalty revenue, franchise fees and rent income primarily as a result of the company's system optimization initiative.
• North America company-operated restaurant margin was 18.8 percent in the third quarter of 2015, compared to 15.5 percent in the third quarter of 2014. The 330 basis-point increase was the result of higher same-restaurant sales, the positive impact from the company's Image Activation reimaging program and lower commodity costs.
• General and administrative expense was $63.7 million in the third quarter of 2015, compared to $65.2 million in the third quarter of 2014. The 2.3-percent decrease resulted primarily from lower share-based compensation expense partly offset by higher incentive compensation. The decrease also reflects the positive impact of the company's system optimization initiative and resource realignment plan announced in 2014.
• Adjusted EBITDA from continuing operations was $99.7 million in the third quarter of 2015, an 11.4-percent increase compared to$89.5 million in the third quarter of 2014, despite the ownership of 153 fewer company-operated restaurants at the end of the 2015 third quarter compared to the beginning of the 2014 third quarter.
• Adjusted EBITDA margin was 21.5 percent in the third quarter of 2015 compared to 18.0 percent in the third quarter of 2014. The 350-basis-point improvement reflects the positive impact of the second phase of the company's system-optimization initiative.
• Operating profit was $55.9 million in the third quarter of 2015, compared to $44.2 million in the third quarter of 2014. The 26.5 percent increase resulted primarily from a year-over-year reduction in impairment charges and the significant increase in restaurant operating margin.
• Operating profit margin was 12.0 percent in the third quarter of 2015 compared to 8.9 percent in the third quarter of 2014, an improvement of 310 basis-points.
• Interest expense was $27.9 million in the third quarter of 2015, compared to $13.1 million in the third quarter of 2014. The increase resulted primarily from higher total debt levels related to the company's recent debt refinancing.
• Income from continuing operations was $8.3 million in the third quarter of 2015 compared to $21.1 million in the third quarter of 2014. The reduction is primarily the result of higher interest expense, along with a higher effective tax rate of 70.5 percent in the third quarter of 2015, compared to 32.8 percent in the third quarter of 2014. The higher tax rate is primarily the result of the effect of changes to valuation allowances on state net operating loss carryforwards related to the Company's system optimization initiative.
• Net income was $7.6 million in the third quarter of 2015, compared to $22.8 million in the third quarter of 2014. These results include the impact of discontinued operations.
• Reported diluted earnings per share from continuing operations were $0.03 in the third quarter of 2015 compared to $0.06 the third quarter of 2014.
• Reported diluted earnings per share were $0.03 in the third quarter of 2015, compared to $0.06 in the third quarter of 2014.
• Adjusted earnings per share from continuing operations were $0.09 in the third quarter of 2015, compared to $0.07 in the third quarter of 2014.