Wendys Co (NASDAQ:WEN) has staged a decision to divest its bun making business in Ohio in May. The company has also announced plans to sell 640 restaurants to the franchisees.
The company has reported profits slightly above the market expectations in 1Q2015. Its sales are well below the market expectations citing fewer stores.
Wendys is walking in the footsteps of other restaurant chains like Burger King Worldwide Inc (NYSE:BKW) and McDonald’s Corporation (NYSE:MCD) in divesting the restaurants. The company’s move is to ensure higher margins and cash flow.
According to the announced plans, Wendys will divest 380 restaurants in the year 2015 and the rest in 2016. It is an increase of 140 restaurants from its decision announced earlier.
Following the selloff, the company will own just 5% of the stores by the first half of 2016. The company is likely to raise cash between $400 million and $475 million through the sale of its restaurants.
The sale of Ohio-based bakery business will be concluded in this month. The proposed sale allows the company to reduce spending and more flexible in sourcing. The bakery business is engaged in the supply of sandwich buns to its restaurants and on a small scale to other customers.
The company has reported sales of $61.8 million from the bakery business in the year 2014.
Its overall profits for the 1Q2015 are $27.5 million, a decrease of 59.39% when compared to the last year results. The company’s profits are dropped to seven cents per share from 12 cents per share a year earlier.
Its revenues declined to $466.2 million (down 10.9%). It has beaten the market expectations of revenues of $475.6 million and earnings estimations of 5 cents per share.
The company’s restaurant sales saw an increase of 2.6% in North America and 3.4% for the franchised operations. Its margins grew by 1.6% to 14.7% in North America.
The company is likely to maintain sales growth between 2.5% and 3% this year.
