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As per its System Optimization Initiative that began in July this year, The Wendy's Company (WEN - Analyst Report) recently announced its decision to divest 54 restaurants in Salt Lake City to a subsidiary of NPC International, Inc. which is the eighth-largest restaurant operator in the U.S. With more than 1,200 restaurants, NPC International, Inc. is the eighth-largest restaurant operator in the U.S. Currently, it owns 37 Wendy's restaurants in two states.

Under its System Optimization Initiative, the company plans to divest 425 company-operated restaurants in 13 U.S. markets, mainly in the West by the end of the fiscal second quarter of 2014. To date, the company has sold or has already signed agreements to sell 172 restaurants. These include the 54 restaurants in the current transaction with NPC International; 24 restaurants, along with two future units in the Seattle market that were sold in Oct 2013; 30 restaurants in the St. Louis market, 24 restaurants in Kansas City and 40 restaurants in other markets.

Apart from opening new restaurants, the company also intends to renovate some of its existing units as per its contemporary Image Activation restaurant design program under the System Optimization Initiative.

The company has also been closing its underperforming restaurants to gain operational efficiency. This move will help the company to streamline its operations while generating higher operating margin and free cash flow. Moreover, this will help the company to boost its top and bottom line in the form of royalty and rental income.

The positive impact of the multi-year turnaround plan, international expansion, extensive refurbishment of units and the company’s focus on franchising keeps it well positioned. The company presently has a short-term Zacks Rank #2 (Buy).

Other stocks worth considering in the restaurant industry are Bob Evans Farms, Inc. (BOBE - Snapshot Report), Burger King Worldwide, Inc. (BKW - Analyst Report) and Cracker Barrel Old Country Store, Inc. (CBRL - Snapshot Report), all with a Zacks Rank #2 (Buy).

 

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