Wendy's tops expectations, selling restaurants

Wendy's reported a quarterly profit Tuesday above Wall Street expectations and said it's selling 425 of its restaurants to franchisees, a move that's expected to help boost its profit margins.

The move isn't unusual; fast-food companies often own only a small percentage of their restaurants. This helps keep their operating costs in check and gives them a more stable stream of income that's tilted toward royalty fees and rent, rather than sales at restaurants.

Wendy's Co., based in Dublin, Ohio, also raised its dividend by 25 percent to 5 cents per share. Its stock rose 8.23 percent to $7.23.

CEO Emil Brolick said the sale of the restaurants will also help expand adoption of the company's new restaurant designs, because Wendy's plans to sell the restaurants to "well-capitalized" franchisees willing to pay for the remodeling.

The sleeker new look is part of Wendy's push to try to distance itself from the greasy, cheap image of traditional fast-food chains. By cleaning up its stores and offering more premium burgers and sandwiches, Wendy's is hoping to align itself more with places such as Panera Bread or Chipotle, which have the ability to charge higher prices for their food.

Second-quarter net income came in at $12.2 million, or 3 cents a share, compared with a year-earlier loss of $5.5 million, or 1 cent. Revenue rose to $650.5 million from $645.9 million.

Excluding debt retirement costs and other one-time expenses, earnings were 8 cents per share, topping analysts' average forecast by 2 cents, according to Thomson Reuters I/B/E/S.

But during the quarter, Wendy's said, sales edged up just 0.4 percent at company-owned restaurants open at least a year in North America, compared with 1 percent for McDonald's in the United States.

Wendy's said that part of the reason was increased marketing for its value menu. The company had previously noted that it was losing share in the value category, given the focus rivals have put on their value menus.

For the year, Wendy's said it expects the sales figure to grow between 2 percent and 3 percent, given its expectation for stronger sales in the second half of the year. That optimism is fueled by the recent introduction of its Pretzel Bacon Cheeseburger, which has generated plenty of buzz online. With Reuters