Dublin, Ohio-based restaurateur, The Wendy’s Co. (WEN - Analyst Report) recently completed the divestiture of 30 units in Austin, Texas to HAZA Foods, LLC. The company shares a longstanding relationship with HAZA Foods, which currently franchises 34 Wendy's outlets in the Texas market of which 31 are located in the greater Houston area.
In another agreement, the company completed the sale of its 19 restaurants in Sacramento, Calif. to Desmond Foods, L.P. The company’s association with Desmond Foods dates back to more than two decades. The franchisee currently manages 24 Wendy's units in the state of California with 17 units located in Fresno.
The terms of neither of the deals were disclosed. HAZA Foods and Desmond Foods’ adequate local market knowledge and strong financial position make them a perfect fit for franchising in Austin and Sacramento, respectively.
These divestments were in line with Wendy’s’ System Optimization Initiative started in July to modify its restaurant portfolio. As part of its brand revitalization initiative, the company seeks to franchise about 425 company-operated restaurants in 13 U.S. markets, of which 282 units have already been divested. The company is mainly concentrating on divesting its units located in the West. This entire process is expected to complete by the end of second-quarter 2014.
Apart from divesting restaurants, the company also plans to renovate some of its existing units based on the Image Activation format. Operators with a proven track record and conforming to the company’s reimaging program are being chosen for this transition.
The company has also been closing its underperforming restaurants to gain operational efficiency. These moves will help the company to streamline its operations while boosting its operating margin and generate more free cash flow. Moreover, this will help the company to grow through franchising, thus driving earnings and top-line expansion 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.
Other Stocks to Consider
Wendy’s holds a Zacks Rank #2 (Buy). Investors interested in the restaurant industry may consider stocks like DineEquity, Inc. (DIN - Snapshot Report), Brinker International, Inc. (EAT - Analyst Report) and Buffalo Wild Wings Inc. (BWLD - Analyst Report). While DineEquity sports a Zacks Rank #1 (Strong Buy), Brinker and Buffalo Wild Wings have the same Zacks Rank as Wendy’s.