During a Q3 earnings call Thursday, Wendy’s executives revealed it would be closing down 140 poorly performing restaurants this year while looking to open a similar number of new ones in more profitable locations.
Wendy’s President and CEO Kirk Tanner said the company, having opened 64 new restaurants during the third quarter, was well on track to meet its goal of opening between 250 to 300 new restaurants globally for the full year.
“Our enhanced U.S. incentive programs rolled out in July are resonating with franchisees,” Tanner said, adding that the new development incentives Wendy’s rolled out in September, sparked numerous restaurant development and renewal negotiations in Canada and Latin American countries.
During a Q&A with investors, Wendy’s Chief Financial Officer Gunther Plosch specified that the fast food chain’s plan to close an additional 140 stores this year is not location-specific. Rather, they are underperforming locations with an average volume unit of $1.1 million, well below the system average.
“When you think about strengthening our system, you look at a brand that’s 55 years old and some of those restaurants are just out of date,” Tanner said. “It’s not that many in the scheme of things.”
Wendy’s currently has more than 7,000 locations worldwide, 6,000 of which are located in the U.S.
“Our focus is on building new restaurants because we know they deliver well over the average of these poor-performing restaurants,” Tanner said.
He added that the company has focused on data-driven insights to select new locations.
“These new restaurants have delivered an exceptional customer experience, enhanced by technology and improved drive-through and delivery experiences,” while also creating higher profit margins and higher employee satisfaction levels, according to Tanner.
The new locations have a reported average unit volume of $2 million or more.
Global digital sales grew almost 40 percent year over year, attributed in part to enhancements to the Wendy’s app. An additional 2 million Reward Members enrolled in Q3, bringing the total to 45 million worldwide.
“Overall, the Wendy’s system is incredibly healthy,” said Tanner, who admitted that current economic circumstances leave the fast-food chain “still in a very challenging environment … with the consumer.”
Since October 8, Wendy’s has been offering a Spongebob SqaurePants-themed menu in celebration of the iconic cartoon character’s 25th anniversary.
“We are very pleased that the initial performance has exceeded our expectations,” Tanner said, indicating that the time-limited offering may remain on the menu for another while.
Looking forward, the company said it has a “strong lineup of campaigns” launching in the upcoming weeks, including national media showcasing the chain’s iconic Spicy Chicken Sandwich, a new salted caramel Frosty flavor, the return of the customer-favorite Mushroom Bacon Cheeseburger, and the “It’s gotta be Wendy’s” slogan.
Earlier this month, Wendy’s kicked off its $1 any-size drink promotion.
Tanner mentioned an extension of the brand’s partnership with Coca-Cola now includes the Coca-Cola Freestyle platform, which offers more than 100 drink choices, as a highly profitable agreement.
“Another category where we will drive margin improvement is through breakfast sales growth, which we anticipate will continue to outpace the rest of the day,” said Tanner, adding that additional beverage options for breakfast are also upcoming.
Wendy’s net income for Q3 was $50.2 million, or 25 cents a share, down from last year’s prior period at $58 million, or 28 cents a share. Revenue rose to $566.7 million, compared to last year’s $550.6 million.
Wendy’s is expecting a 2 percent growth increase this year and aiming for 3-4 percent in the following years.