Wendy's 2014 Annual Report Download - page 35

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Key Business Measures
We track our results of operations and manage our business using the following key business measures:
• Same-Restaurant Sales
We report Wendy’s same-restaurant sales commencing after new restaurants have been open for at least 15
continuous months and after remodeled restaurants have been reopened for three continuous months.
This methodology is consistent with the metric used by our management for internal reporting and
analysis. The table summarizing the results of operations below provides the same-restaurant sales percent
changes. Same-restaurant sales exclude the impact of currency translation.
• Restaurant Margin
We define restaurant margin as sales from company-owned restaurants less cost of sales divided by sales
from company- owned restaurants. Cost of sales includes food and paper, restaurant labor and occupancy,
advertising and other operating costs. Sales and cost of sales exclude amounts related to the bakery.
Restaurant margin is influenced by factors such as restaurant openings and closures, price increases, the
effectiveness of our advertising and marketing initiatives, featured products, product mix, the level of our
fixed and semi-variable costs and fluctuations in food and labor costs.
• Systemwide Sales
Systemwide sales is a non-GAAP financial measure, which includes sales by both company-owned
restaurants and North America franchised restaurants. Franchised restaurants’ sales are reported by our
franchisees and represent their revenues from sales at franchised Wendy’s restaurants in North America.
The Company’s consolidated financial statements do not include sales by franchised restaurants to their
customers. The Company believes systemwide sales data is useful in assessing consumer demand for the
Company’s products, the overall success of the Wendy’s brand and, ultimately, the performance of the
Company. The Company’s royalty revenues are computed as percentages of sales made by Wendy’s
franchisees. As a result, sales by Wendy’s franchisees have a direct effect on the Company’s royalty
revenues and therefore on the Company’s profitability.
• North America Restaurant Average Unit Volumes
We calculate North America company-owned restaurant average unit volumes by summing the average
weekly sales of all company-owned restaurants in North America which reported sales during the week.
North America franchised restaurant average unit volumes is a non-GAAP financial measure, which
includes sales by franchised restaurants, which are reported by our franchisees and represent their revenues
from sales at franchised Wendy’s restaurants in North America. The Company’s consolidated financial
statements do not include sales by franchised restaurants to their customers. The Company believes North
America franchised restaurant average unit volumes is useful information for the same reasons described
above for “Systemwide Sales.” We calculate North America franchised restaurant average unit volumes by
summing the average weekly sales of all franchised restaurants in North America which reported sales
during the week.
System Optimization Initiative
In July 2013, the Company announced a system optimization initiative, as part of its brand transformation,
which included a plan to sell approximately 425 U.S. company-owned restaurants to franchisees. The Company
completed this plan during the first quarter of 2014 with the sale of 174 U.S. company-owned restaurants to
franchisees, bringing the aggregate total to 418 during 2013 and 2014. This initiative also included the consolidation
of regional and divisional territories which was substantially completed by the end of the second quarter of 2014.
In August 2014, the Company announced a plan to sell all of its company-owned restaurants in Canada to
franchisees as part of its ongoing system optimization initiative, which it now anticipates completing by the end of the
second quarter of 2015. During the second half of 2014, the Company completed the sale of 29 Canadian restaurants
and classified its remaining Canadian restaurants’ assets that will be sold as held for sale.
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