The Wendy’s Company reported preliminary unaudited results for the fourth quarter and full year ended January 1. The company plans to file its audited financial results on or before March 2.

“We have now recorded 16 consecutive quarters of positive same-restaurant sales and total new restaurant openings have accelerated in both North America and International with nearly 150 new restaurants opened globally in 2016,” President and Chief Executive Officer Todd Penegor says. “As a result of our brand transformation efforts and with the support from our franchise partners, the Wendy’s system has never been stronger.”

“As we look to 2017 and beyond, we are poised for strong global growth,” Penegor says. “We believe we can grow the Wendy’s system by approximately 1,000 restaurants and $2 billion in sales by 2020, resulting in a global system of about 7,500 restaurants generating $12 billion in sales. Importantly, this growth will be achieved in a profitable manner for both the Company and franchisees, which will help carry the momentum beyond 2020.”

Preliminary fourth quarter and full year 2016 results

A summary of the company’s preliminary fourth quarter and full year 2016 results is provided below. The fourth quarter and full year 2015 results include the favorable impact of a 53rd operating week, which affects all comparisons to 2015. Due to the May 2015 sale of its bakery business, the company has presented its bakery results as discontinued operations for all periods presented in its consolidated financial statements.

Preliminary fourth quarter summary

Same-restaurant sales increased 0.8 percent at North America system restaurants in the fourth quarter of 2016, or 5.6 percent on a two-year basis.

Revenues were $309.9 million in the fourth quarter of 2016, compared to $464.4 million in the fourth quarter of 2015. The 33.3 percent decrease resulted primarily from the ownership of 522 fewer company-operated restaurants at the end of the 2016 fourth quarter compared to the beginning of the 2015 fourth quarter.

Franchise royalty revenue and fees were $95.7 million in the fourth quarter of 2016, compared to $100.8 million in the fourth quarter of 2015. The 5.1 percent decrease primarily resulted from a decrease in franchise fees resulting from a year-over-year reduction in the number of restaurants sold through the company’s system optimization initiative.

Franchise rental income was $40.7 million in the fourth quarter of 2016, compared to $26.4 million in the fourth quarter of 2015. The 54.2 percent increase resulted primarily from the company’s system optimization initiative.

Company-operated restaurant margin was 18.8 percent in the fourth quarter of 2016, compared to 19.2 percent in the fourth quarter of 2015. The 40 basis-point decrease was primarily the result of higher other operating costs and increased labor rates, partly offset by lower commodity costs and the favorable impact from the company’s Image Activation program.

General and administrative expense was $61.2 million in the fourth quarter of 2016, compared to $72.4 million in the fourth quarter of 2015. The 15.5 percent decrease resulted primarily from cost savings related to the company’s system optimization initiative, as well as lower incentive compensation.

Operating profit was $79.2 million in the fourth quarter of 2016, compared to $116.3 million in the fourth quarter of 2015. The 31.9 percent decrease resulted primarily from a year-over-year decrease in System optimization gains, net, partly offset by a year-over-year decrease in Impairment of long-lived assets, in addition to the items discussed above.

Interest expense was $29.3 million in the fourth quarter of 2016, compared to $28.2 million in the fourth quarter of 2015.

Income from continuing operations was $28.9 million in the fourth quarter of 2016, compared to $88.7 million in the fourth quarter of 2015. The decrease resulted from the year-over-year decrease in Investment income, net and System Optimization gains, net, partly offset by a year-over-year decrease in income taxes.

Net income was $28.9 million in the fourth quarter of 2016, compared to $85.9 million in the fourth quarter of 2015.

Preliminary full year 2016 summary

Same-restaurant sales increased 1.6 percent at North America system restaurants in 2016, or 4.9 percent on a two-year basis.

Revenues were $1,435.4 million in 2016, compared to $1,870.3 million in 2015. The 23.3 percent decrease resulted primarily from the ownership of 627 fewer company-operated restaurants at the end of the 2016 compared to the beginning of 2015.

Franchise royalty revenue and fees were $371.5 million in 2016, compared to $344.5 million in 2015. The 7.8 percent increase primarily resulted from the company’s system optimization initiative, in addition to higher same restaurant sales at franchised restaurants.

Franchise rental income was $143.1 million in 2016, compared to $87.0 million in 2015. The 64.5 percent increase resulted primarily from the company’s system optimization initiative.

Company-operated restaurant margin was 19.1 percent in 2016, compared to 17.7 percent in 2015. The 140 basis-point increase was primarily the result of lower commodity costs and the favorable impact from the company’s Image Activation program, partly offset by higher other operating costs and increased labor rates.

General and administrative expense was $245.9 million in 2016, compared to $256.6 million in 2015. The 4.2 percent decrease resulted primarily from cost savings related to the company’s system optimization initiative, as well as lower incentive compensation, partly offset by higher professional fees and legal fees related to the unusual payment card activity.

Operating profit was $314.8 million in 2016, compared to $274.5 million in 2015. The 14.7 percent increase resulted primarily from a year-over-year decrease in Depreciation and amortization expense, General and administrative expense and Reorganization and realignment costs.

Interest expense was $114.8 million in 2016, compared to $86.1 million in 2015. The 33.3 percent increase resulted primarily from higher total debt levels related to the company’s debt restructuring completed in the second quarter of 2015.

Income from continuing operations was $129.6 million in 2016, compared to $140 million in 2015. The 7.4 percent decrease resulted from the year-over-year decrease in Investment income, net, partly offset by a year-over-year decrease in Depreciation and amortization expense, General and administrative expense, Reorganization and realignment costs and income taxes.

Net income was $129.6 million in 2016, compared to $161.1 million in 2015.

“We are very proud that we were able to hold adjusted EBITDA flat year-over year despite selling a significant number of company-operated restaurants during 2016,” Chief Financial Officer Gunther Plosch says. “We look forward to realizing the positive benefits of our brand transformation in 2017 and beyond, with higher franchise revenues driving a higher quality of earnings.”

Third phase of system optimization now complete

The company has completed its plan to reduce its company-operated restaurant ownership to approximately 5 percent of the total system. The company sold a total of 310 restaurants to franchisees during 2016, which is in addition to the 227 restaurants that were sold in the second half of 2015. In total, the third phase of system optimization generated pretax proceeds and fees of $435 million.

“Our system is stronger following the completion of the third phase of our system optimization initiative,” Penegor says. “All markets were awarded to strong operators who have demonstrated a commitment to restaurant reimaging and opening new restaurants which will be imperative to our future growth.”

“Going forward, we will continue to strategically buy and sell restaurants in order to further strengthen our franchisee base, drive new restaurant development and accelerate Image Activation,” Penegor says. “By also facilitating franchisee-to-franchisee restaurant transfers [‘Buy and Flips’] we ensure that we are putting restaurants in the hands of well capitalized franchisees that are committed to long-term growth. During 2016 we facilitated 144 Buy and Flips and expect to complete around 400 in 2017, which includes approximately 50 Buy and Flips that were originally scheduled to close in late 2016.”

Global Image Activation and new restaurant openings momentum continues

The company and its franchisees reimaged 521 North America system restaurants and built 99 new North America restaurants and 50 new International restaurants in 2016. Global net new restaurant openings totaled 58 in 2016. At the end of 2016, approximately 32 percent of the global system features our new image.

Board authorizes increase in quarterly dividend rate and new share repurchase program

In 2016, the company repurchased 29.5 million shares for $335.0 million at an average price of $11.34 per share. The number of shares outstanding at the end of the fourth quarter of 2016 was approximately 246.6 million.

The company announced that its Board of Directors has authorized an increase of 0.5 cents per share in its quarterly dividend rate. The company’s new quarterly dividend rate of 7 cents per share will be effective with its next dividend payment on March 15, 2017 to shareholders of record as of March 1, 2017. This increase is in addition to the 0.5 cents per share increase that was authorized in the fourth quarter of 2016.

The company also announced today that its Board of Directors authorized a new share repurchase program for up to $150 million of the company’s common stock through March 4, 2018. The Company intends to repurchase shares with existing cash on its balance sheet and cash flow from operations.

Company issues 2017 outlook

This release includes forward-looking guidance for certain non-GAAP financial measures, including adjusted EBITDA, adjusted earnings per share and adjusted tax rate. The Company excludes certain expenses and benefits from adjusted EBITDA, adjusted earnings per share and adjusted tax rate, such as impairment of long-lived assets, reorganization and realignment costs and system optimization gains, net.  Due to the uncertainty and variability of the nature and amount of those expenses and benefits, the Company is unable without unreasonable effort to provide projections of net income, earnings per share or reported tax rate or a reconciliation of projected adjusted EBITDA, adjusted earnings per share or adjusted tax rate to projected net income, earnings per share or reported tax rate.

During 2017, the company expects:

Adjusted EBITDA of approximately $396 to $404 million, an increase of approximately 1 to 3 percent compared to 2016.

Adjusted earnings per share of approximately $0.45 to $0.47, an increase of approximately 13 percent to 18 percent compared to 2016.

Same-restaurant sales growth of approximately 2 to 3 percent for the North America system.

Flat Company-operated restaurant margin compared to 2016.

Flat commodity costs compared to 2016.

Labor inflation of approximately 4 percent.

General and administrative expense of approximately $210 to $220 million.

Interest expense of approximately $115 million.

Depreciation and amortization expense of approximately $120 million, including accelerated depreciation of approximately $2 million.

Cash flows from operations of approximately $240 to $275 million.

Capital expenditures of approximately $80 to $90 million.

Free cash flow (cash flows from operations minus capital expenditures) of approximately $160 to $185 million.

An adjusted tax rate of approximately 32 to 34 percent.

“After achieving solid results in 2016, we are pleased to turn the page with a strong outlook for 2017,” Plosch says. “This will be the final year of transition after completing the third phase of system optimization. Our ability to grow earnings and cash flow despite owning fewer Company-operated restaurants is compelling. We look forward to focusing on our core business model and driving growth even further.”

Company announces updated 2020 goals

The company now expects to achieve the following goals by the end of 2020:

Global restaurant sales (in constant currency and excluding Venezuela) of ~$12 billion.

Global restaurant count of ~7,500.

Global Image Activation of at least 70 percent.

Adjusted EBITDA Margin of 38 to 40 percent.

Free Cash Flow of ~$275 million (capital expenditures of ~$65 million).

“All of the updated 2020 goals revolve around growth, both in North America and International,” Penegor says. “We must build upon our current operating momentum by growing our customer base, expanding brand access, enhancing restaurant level profitability and implementing a more efficient cost structure.”

“In order to achieve our 2020 adjusted EBITDA margin and free cash flow commitments, G&A and capital spending efficiency will improve,” Penegor says. “In that spirit, we plan to accelerate our G&A savings efforts and expect that we will be able to reduce G&A to approximately 1.5 percent of global restaurant sales by 2020. We are still in the planning stages and will provide a more detailed update on how we expect to achieve these savings on or before our first-quarter earnings call in May.”