Wendy's to sell 425 restaurants

Wendy's reported quarterly profit 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 towards royalty fees and rent, rather than sales at restaurants.

Wendy's, based in Dublin, Ohio, also raised its dividend by 25 per cent to five cents per share. Its stock rose 8.2 per cent to close at US$7.23 Tuesday.

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

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.

But during the quarter, Wendy's said sales edged up just 0.4 per cent at company-owned restaurants open at least a year in North America, compared with one per cent for McDonald's in the US.

VALUE MENU MARKETING

Wendy's noted 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.

Executives said that they were committed to having a "higher-end message" as the "top layer" of their marketing. But they added that value would also need to be an ongoing message, particularly given the economy.

For the year, Wendy's said it expects the sales figure to grow between two per cent and three per cent, given its expectation for stronger sales in the second half of the year.

That optimism is fuelled by the recent introduction of its Pretzel Bacon Cheeseburger, which has generated plenty of buzz online.

The company says the sale of its restaurants will reduce its ownership to 15 per cent of its locations, from 22 per cent. McDonald's owns about 10 per cent of its US locations.

Wendy's said it now expects long-term adjusted earnings-per-share growth in the mid-teens percentage range starting next year. Previously, it had forecast single-digit to double-digit growth.

Wendy's says it earned US$12.2 million, or three cents per share, in the quarter. That compares with a loss of US$5.5 million, or one cent per share, a year ago.

Not including one-time items, it earned eight cents per share, more than the six cents per share Wall Street expected.

Revenue rose to US$650.5 million, short of the US$659.5 million analysts expected.

- AP