Wendy's (WEN) shares were surging Tuesday after the hamburger seller said it would focus even more on franchising, a move that will serve to lower certain costs while boosting its rent and royalty revenue.

The news meant its scheduled earnings report, which was positive for the second quarter and upbeat regarding future profits, took a bit of a back seat to word that it's hoping to better manage its expenses and income. To help do so, it will sell approximately 425 company-owned restaurants, after which it will own about 15% of the Wendy's outlets, down from 22% currently. Wendy's is aiming to complete the sales by around the middle of next year.

Recently, its shares were up 11.7% to $7.46 in heavy trading. Less than an hour into the session, volume already had exceeded the average total for a normal full day. Even before the advance, Wendy's stock had gained 42% this year, according to Yahoo! Finance data. Worth noting is that the climb may be getting an added charge from short positions being closed. With 14% of its float sold short at the end of June, Wendy's has attracted greater selling interest than most of its fast-food peers, though Burger King (BKW) is close.

Recent makeover

Dublin, Ohio-based Wendy's has been undergoing a makeover that includes updating its restaurants and its menu to try and differentiate itself in an extremely competitive industry, one which is seeing customers get more discerning. On the marketing side, it recently altered its logo and retooled its ad campaign. In a press release, the company said the sale has started, beginning with 24 units in the Kansas City area going to a division of large restaurant operator NPC International on Monday. The company has also sold five restaurants in the Kansas City market to a long-time franchise owner.

Franchising is popular for chains in that it decreases the corporate expenses associated with owning and operating locations, while creating predictable cash flow via the franchised units. McDonald's (MCD), which is much larger than Wendy's, franchises about 81% of its more than 34,000 restaurants around the world, whereas in 2006 it franchised about 72%. Burger King has a large-scale sale underway, and ultimately it expects to own very few of its restaurants.

At the end of last year, the Wendy's system had 6,560 restaurants, with 1,427 owned by the company. The sales from the restaurants being shed will of course be gone. However, Wendy's says its franchise plan will lower annualized general and administrative expenses, improve margins at company-operated restaurants by allowing it to focus on more-profitable stores, provide higher rent and royalty revenue and reduce depreciation expenses.