Wendy's 2014 Annual Report Download - page 42

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The decrease in sales in 2013 was primarily due to the impact of Wendy’s company-owned restaurants closed or
sold, including under our system optimization initiative, during the fourth quarter of 2012 and thereafter, which
resulted in a reduction in sales of $116.1 million. This decrease in sales was partially offset by incremental sales of
$74.2 million from locations opened or acquired during that same time period. Sales during 2013 increased due to an
increase in our average per customer check amount, in part offset by a decrease in customer count. Our average per
customer check amount increased primarily due to a benefit from strategic price increases on our menu items and
changes in the composition of our sales. Sales during 2013 were negatively impacted by temporary closures of
restaurants being remodeled under our Image Activation program. Sales were also negatively impacted by $7.2 million
due to changes in Canadian foreign currency rates relative to the U.S. dollar.
Franchise Revenues
Change
2014 2013
Royalty revenues ............................................... $22.8 $ 3.3
Rental income ................................................ 41.4 5.6
Franchise fees ................................................. 5.0 5.8
$69.2 $14.7
The increase in franchise revenues during 2014 was primarily due to increases in rental income and initial
franchise fees resulting primarily from sales of company-owned restaurants to franchisees under our system
optimization initiative. In addition, royalty revenue increased due to a net increase in the number of franchise
restaurants in operation during 2014 compared to 2013. Royalty revenue was also positively impacted by a 1.9%
increase in franchise same-restaurant sales. We believe franchise same-restaurant sales were lower than
company-owned same-restaurant sales due to fewer franchise Image Activation restaurants in operation during 2014.
The increase in franchise revenues during 2013 was due to an increase in franchise restaurant same-restaurant
sales of 1.8% which we believe was primarily impacted by the same factors described above for company-owned
restaurants. Franchise revenues were also positively impacted by initial franchise fees and rental income recognized as
a result of our system optimization initiative.
Cost of Sales
Change
2014 2013
Food and paper .................................................. (0.1)% (0.4)%
Restaurant labor ................................................. (0.7)% (0.4)%
Occupancy, advertising and other operating costs ........................ 0.3% (0.5)%
(0.5)% (1.3)%
The decrease in cost of sales, as a percent of sales, during 2014 was due to benefits from strategic price increases
on our menu items and changes in the composition of our sales. As a percent of sales, this decrease in cost was
partially offset by increased commodity costs, primarily from higher beef prices and the impact of a decrease in
customer count on certain fixed operating costs.
The decrease in cost of sales, as a percent of sales, during 2013 was primarily due to benefits from (1) strategic
price increases on our menu items, (2) changes in the composition of our sales, (3) a decrease in breakfast advertising
expenses and (4) the favorable impact of new beverage contracts. As a percent of sales, these decreases in costs were
partially offset by increased commodity costs.
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