Fast-food purveyor Wendy's plans to accelerate the shuttering of 140 poorly performing locations this year as it becomes the latest U.S. restaurant chain to trim its fleet to improve profitability in a still-challenging economic environment.
The Dublin, Ohio-based company said Thursday it was stepping up the closing of low-volume eateries in less attractive markets. Those closures were previously expected to take place over the next two years.
The chain's scheduled openings this year are expected to offset the closings, leaving it with flat restaurant growth, according to Wendy's President and CEO Kirk Tanner. The company had been anticipating 2% growth in the number of its restaurants. It now has roughly 6,000 U.S. locations.
The additional closings and stepped-up schedule follow a "robust review of individual restaurants to ensure they meet our expectations for sales, have the profitability to fuel growth and deliver the Wendy's brand experience for customers," Tanner said.
"Following this review, I have made the strategic decision to close additional restaurants this year that are outdated and located in underperforming trade areas," he said during a third-quarter earnings call. "These restaurants have [average unit volumes] of approximately $1.1 million and operating margins well below the system average."
Growth still expected
Restaurant chains and retailers alike this year have closed hundreds of locations, stung by still-financially struggling consumers cutting back on nondiscretionary spending, higher labor costs and inflation. In October, Denny's announced it would close up to 150 underperforming locations by 2025. TGI Fridays shuttered roughly 50 of its U.S. restaurants in the past week. Most recently, an Applebee's Neighborhood Grill + Bar franchisee shut down eight Kansas and Missouri restaurants and filed for bankruptcy protection.
"We're still in a very challenging environment, I would say, with the consumer," Tanner said.
Over time the closed Wendy's restaurants will be replaced by new restaurants at better locations with improved sales and profits, according to Tanner.
"We anticipate that total closures in 2024, including additional closures in the fourth quarter, will be offset by new restaurant openings this year, leaving our net unit growth approximately flat compared to the prior year," he said. "By the end of 2024, we will have opened more than 500 new restaurants over the last few years and have the confidence we will deliver an elevated growth in 2025 and the years to come."
Targeting stores with poor margins
The restaurants slated to be closed have under-average margins for the business and are "just in locations that don't build our brands," according to Tanner. New Wendy's are averaging over $2 million in annual sales volume, he said. The company expects restaurant-unit growth to resume increasing in 2025 to an annual rate of 3% to 4%.
Thursday's announced closings "would have happened in 2025, 2026 and 2027" anyway, according to Wendy's Chief Financial Officer Gunther Plosch.
In the quarter, same-U.S. restaurant sales were up 0.2% compared with 2.2% a year ago.