Wendy's Profits by Trimming Chain

Wendy's executives discussed the company's strategy and its quarterly results in a conference call with financial analysts on Thursday. The company reported income from continuing operations of $29.3 million and diluted earnings per share of 33 cents for the second quarter ended July 1, compared with $9.3 million of income and eight cents per share in the second quarter of 2006. Wendy's achieved the higher earnings on lower revenues, which dipped to $632.9 million in the second quarter, down 0.2% compared to $634.1 million in the second quarter of 2006.

The sales dip reflected a strategy the company is pursuing in closing underperforming restaurants. The total number of system-wide Wendy's restaurants at the end of the second quarter was lower at 6,661, compared to 6,673 at year-end 2006 and 6,743 at the end of the second quarter in 2006, reflecting the closings of the underperforming locations.

Nonetheless, the company is still expanding where it sees promise. The company and its franchisees opened a total of 39 new Wendy's during the second quarter, consisting of nine company-operated restaurants and 30 franchised locations.

The strategy of closing underperforming units and focusing on growth in promising markets also showed results in the Wendy's same-store sales figures for the quarter. Average same-store sales were up 0.7% for US company-operated restaurants and 0.4% for US franchise restaurants. Wendy's execs noted in the conference call that the company has now produced 13 consecutive months of positive same-store sales.

The strategy has also produced wider profit margins, Wendy's CEO and president Kerrii Anderson pointed out in the conference call. "Store operating margins continue to expand as we execute our strategic plan," Anderson said.

The company's strategy also includes shedding some brands, as it did with Tim Horton in the third quarter of 2006 and the sale of Baja Fresh Mexican Grill during the fourth quarter of 2006. During the second quarter, the company continued this strategy by entering into a definitive agreement to sell Cafe Express.