Wendy's/Arby's Group, Inc. Reports 2nd Quarter 2009 Results

Wendy's/Arby's Group, Inc. (NYSE: WEN), the third largest quick-service restaurant company in the United States, today reported results for the second quarter ended June 28, 2009. These results include the effect of the September 29, 2008 merger between Triarc Companies, Inc. ('Triarc') and Wendy's International, Inc. The results for the 2008 second quarter and year-to-date periods only include results for Triarc, except where presented on a pro-forma basis.

Second-Quarter and Year-to-Date Highlights

• Wendy's(R) North America systemwide same-store sales were approximately flat (a decrease of 0.4%). Wendy's company-operated restaurant margin improved 370 basis points compared to the second quarter a year ago.

• Arby's(R) North America systemwide same-store sales decreased 6.9% and reflected an improved trend from the first quarter of 2009. Arby's company-operated restaurant margin decreased 100 basis points compared to the second quarter a year ago.

• Consolidated revenues were $913 million in the second quarter and $1.8 billion year-to-date.

• Second quarter 2009 adjusted earnings before interest, taxes, depreciation and amortization ('EBITDA')1, excluding pre-tax integration-related costs of $7.3 million, was $117.2 million, and increased 13.2% as compared to pro-forma 2008 second quarter adjusted EBITDA of $103.5 million.

• Year-to-date adjusted EBITDA, excluding pre-tax integration-related costs of $15.1 million, was $197.5 million, and increased 10.6% as compared to pro-forma 2008 year-to-date adjusted EBITDA of $178.5 million.

• Second quarter 2009 net income was $14.9 million, or $0.03 per share, including after-tax special charges of $12.4 million, or $0.03 per share. Year-to-date net income was $4.0 million, or $0.01 per share, including after-tax special charges of $27.4 million, or $0.06 per share.

Roland Smith, President and Chief Executive Officer of Wendy's/Arby's Group, stated: 'We were pleased with our strong adjusted EBITDA growth for the quarter of 13.2%. We produced significant margin improvement of 370 basis points at Wendy's and Arby's continued to show improvement despite aggressive competitive discounting. We remain on track with our key profit drivers to deliver $100 million in restaurant margin improvement at Wendy's and $60 million in general and administrative ('G&A') savings by the end of 2011 as we continue to effectively manage costs and achieve efficiencies.'

Smith added: 'Beyond our key profit drivers, we see significant future revenue opportunities for our company, including international expansion, dual branding development and breakfast, which can substantially enhance shareholder value.'

Wendy's Brand Highlights

For the second quarter, Wendy's sales were $539.1 million from company-operated restaurants and franchise revenues were $76.1 million. Total revenue was $615.2 million compared to pro-forma revenue of $632.2 million in the second quarter a year ago, which was a year-over-year decrease of $17.0 million primarily due to the effect of foreign exchange rates, lower same-store sales due to the reduction in the number of company-operated restaurants serving breakfast and fewer restaurants.

• Wendy's North America company-operated same-store sales decreased 1.2%, which included the effect of approximately 300 fewer Wendy's restaurants serving breakfast compared to a year ago. Excluding the impact of fewer restaurants serving breakfast, company-operated same-store sales would have increased approximately 0.6% in the second quarter of 2009.

• Wendy's North America franchise same-store sales decreased 0.1%. Franchise sales were less impacted by changes in the number of restaurants serving breakfast.

• Wendy's company-operated restaurant margin was 15.9% for the second quarter, compared to 12.2% in the second quarter of 2008, reflecting 370 basis points of improvement. The year-over-year improvement was due primarily to the benefit of price increases taken in the second half of 2008, and improvements in food, labor and controllable costs. Commodity costs for Wendy's in the second quarter of 2009 decreased from the first quarter of 2009 but were relatively flat as compared to a year ago.

• Wendy's ended the second quarter of 2009 with 6,608 restaurants, a net decrease of 17 units from the end of the second quarter a year ago.

'We are driving operational improvements at Wendy's and now expect to exceed our goal of 160 to 180 basis points of margin improvement for 2009,' said Smith. 'We expect lower commodity costs in the third and fourth quarters compared to a year-ago and the first half of 2009, but less of a benefit from pricing.

'From a revenue perspective, our recent product launch of Boneless Wings produced an all-time record sales week at the end of June at Wendy's company-operated restaurants and our July same-store sales were up approximately 2.0% at Wendy's company stores. Excluding the impact of fewer Wendy's restaurants serving breakfast compared to a year ago, July same-store sales would have been up approximately 3.4%,' said Smith.

'Our product pipeline at Wendy's is the strongest it has been in years. In October, we will introduce a premium cheeseburger that we believe will further enhance Wendy's brand positioning as the best-tasting and highest quality hamburger in the quick-service restaurant industry,' said Smith. 'Also, we selected a new lead advertising firm last week, The Kaplan Thaler Group, to work closely with our brand leadership team to strengthen our advertising, drive marketing innovation and support our growth plans. Kaplan Thaler is an outstanding agency and we look forward to their initial campaign in the fourth quarter.'

In a recent Zagat survey, Wendy's was ranked the #1 Mega Chain in three distinct categories, including Best Food, Facilities and Top Overall. In the August edition of Consumer Reports magazine, Wendy's French fries were ranked as the best among the three largest quick-service restaurant hamburger brands.

Click here for photos and advertising of Wendy's Boneless Wings, Coffee Toffee Twisted Frosty(TM) and Frosty(TM)-cino: www.wendysarbys.com/about/our-brands/wendysrestaurant.

Arby's Brand Highlights

For the second quarter, Arby's sales were $277.1 million from company-operated restaurants and franchise revenues were $20.4 million. Total revenue was $297.5 million compared to $313.0 million in the second quarter a year ago, a decrease of $15.5 million, which was primarily due to decreases in same-store sales.

• Arby's North America company-operated same-store sales declined 5.8% and North America franchise same-store sales declined 7.4%.

• Arby's company-operated restaurant margin was 14.9% in the second quarter of 2009, compared to 15.9% in the second quarter of 2008. The year-over-year difference was due primarily to sales deleveraging, partially offset by price increases. Arby's restaurant margin at company-operated restaurants improved from 14.2% in the first quarter of 2009.

• Arby's ended the second quarter with 3,745 restaurants, a net increase of 26 units from the end of the second quarter of 2008.

'Arby's continued to be impacted by competitive value promotions and aggressive discounting in the sandwich category,' Smith said. 'While still negative during the second quarter, Arby's same-store sales continued to improve from the fourth quarter of 2008 and early 2009 due in part to the promotion of our new line of Roastburger(TM) sandwiches. Restaurant margins also improved in the second quarter compared to the first quarter of 2009.

'In July, we offered our new BBQ Bacon Cheddar Roastburger as a $5 combo meal, which includes a sandwich, small fries and a beverage. We have continued to see sequential improvement in quarterly same-store sales at Arby's company operated restaurants and our July same-store sales decreased approximately 4.7%,' said Smith. 'In October, we will introduce a new everyday value offering, which includes a choice of five full-size sandwiches with small fries and a beverage for $5. We expect the combination of our premium products and more affordable options will further improve Arby's sales trends in the third and fourth quarters.'

Click here for photos and advertising of Arby's Roastburger line, new Roasted Chicken sandwich, and other products: www.wendysarbys.com/about/our-brands/arbysrestaurant.

Special Expense Items

For the second quarter of 2009, the Company recorded net pre-tax special expense items of approximately $20.0 million ($12.4 million after tax), including integration-related expenses, impairment charges and investment-related expenses. Year-to-date net pre-tax special items were $45.9 million ($27.4 million after tax), including integration-related expenses, impairment charges, depreciation adjustments, asset write-offs and investment-related expenses.

Notes Offering

On June 23, 2009, the Company's subsidiary, Wendy's/Arby's Restaurants, LLC, completed its offering of $565 million in 10% senior unsecured notes (the 'Notes') due 2016 with gross proceeds of $551.1 million. The Notes were made available in a private placement. Wendy's/Arby's Restaurants, LLC used a portion of the proceeds to prepay approximately $132.5 million in borrowings outstanding under its existing senior secured term loan and to pay accrued interest with respect to such borrowings. The Company plans to use the remaining net proceeds to fund key strategic growth initiatives and stock repurchases as market conditions warrant, as well as to provide enhanced financial flexibility.

Board Authorized a $50 Million Stock Repurchase Program

The Board authorized a $50 million common stock repurchase program. The stock repurchase program will remain in effect through January 2, 2011 and will allow the Company to make repurchases as market conditions warrant. At the close of business on July 31, 2009, the Company had approximately 470,939,552 shares of common stock outstanding.

Restaurant Development

The Company now anticipates that Wendy's and Arby's net system restaurants as of the end of 2009 will decline by approximately 15 to 20 units, and 50 to 60 units, respectively. The unit decline is primarily a result of fewer franchise openings than anticipated and more franchise closings due to weak economic conditions and difficult credit markets.

During the second quarter, the Company announced two agreements with new franchisees to develop restaurants outside of North America. The Company currently operates its international franchise business in 23 markets outside the U.S. and Canada. All Wendy's and Arby's restaurants outside North America are franchised.

New agreements were signed between Wendy's International, Inc. and Kopitiam Group, to build and operate more than 35 Wendy's restaurants in Singapore, and between Wendy's/Arby's International, Inc. and Al Jammaz Group to build 135 dual-branded Wendy's and Arby's restaurants in nine countries in the Middle East and North Africa over the next decade. The agreement with Al Jammaz Group marks the first agreement with an international franchisee to build dual-branded restaurants since the formation of Wendy's/Arby's Group in September 2008.

In addition, the Company is developing dual-branded Wendy's and Arby's restaurants in the U.S. with three company-operated locations planned for the metro Atlanta market. The dual-branded units will include retrofitting one Wendy's and one Arby's restaurant, along with building a new dual-branded restaurant.

'We continue to see future growth opportunities at both brands including international development and dual- branded restaurants,' Smith said. 'We believe dual-branded units can generate higher sales volumes and better return on investment, making this development alternative particularly compelling to international franchisees as well as providing a development opportunity in high cost real estate markets in the U.S.'

Financial Outlook

The Company continues to expect to achieve average annual adjusted EBITDA growth in the mid-teens through 2011. The Company remains on track with its key profit initiatives targeting a total of $160 million in annualized incremental EBITDA by the end of 2011. These targeted improvements include $100 million from improving Wendy's company-operated restaurant margin by 500 basis points and $60 million from achieving synergies and overhead reductions.

Logos, product and company names mentioned are the property of their respective owners.

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