Wendy's profit comes in above expectations, announces sale of restaurants to franchisees

NEW YORK — Wendy's reported a 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 toward royalty fees and rent, rather sales at restaurants.

Wendy's, based in Dublin, Ohio, also raised its dividend by 25 percent to 5 cents per share. Its stock rose 8.2 percent to close at $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-capitalized" franchisees willing to pay for the remodeling.

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 percent at company-owned restaurants open at least a year in North America, compared with 1 percent for McDonald's in the U.S.

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 2 percent and 3 percent, given its expectation for stronger sales in the second half of the year. That optimism is fueled 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 percent of its locations, from 22 percent. McDonald's owns about 10 percent of its U.S. 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 $12.2 million, or 3 cents per share. That compares with a loss of $5.5 million, or 1 cent per share, a year ago.

Not including one-time items, it earned 8 cents per share, more than the 6 cents per share Wall Street expected.

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