Wendy’s/Arby’s Group Reports 1st Quarter 2010 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 first quarter ended April 4, 2010.

“At Wendy’s, we are very pleased with our overall progress. We are making significant improvements in restaurant operations and customer service, our product development pipeline is strong, and we are connecting with customers through improved marketing”

Roland Smith, President and Chief Executive Officer of Wendy’s/Arby’s Group, said: “We achieved 14.7% growth in adjusted EBITDA¹ in the first quarter, primarily as a result of positive same-store sales at Wendy’s^® and a 430-basis point increase in Wendy’s company-operated restaurant margin. Wendy’s continued building on its ‘Real’ brand positioning and generated its best quarterly same-store sales results in a year, while Arby’s^® focused on a turnaround plan to re-energize the brand.”

Consolidated First Quarter 2010 Summary

• First quarter 2010 adjusted EBITDA, excluding pre-tax integration-related costs and a non-recurring charge totaling $7.8 million, was $92.1 million, and increased 14.7% as compared to first quarter 2009 adjusted EBITDA of $80.3 million, excluding pre-tax integration-related costs of $7.8 million.
• Consolidated revenues were $837.4 million in the first quarter of 2010 as compared to first quarter 2009 revenues of $864.0 million.
• First quarter 2010 net loss was $3.4 million, or $0.01 per share, including after-tax special charges of $12.0 million, or $0.03 per share. First quarter 2009 net loss was $10.9 million, or $0.02 per share, including after-tax special charges of $15.0 million, or $0.03 per share.

Wendy’s First Quarter 2010 Brand Summary

For the first quarter 2010, Wendy’s total revenue was $584.7 million, an increase of $6.5 million compared to revenue of $578.2 million in the first quarter a year ago, including favorable foreign exchange translation.

• Wendy’s North America systemwide same-store sales increased 0.8%.
• Wendy’s North America company-operated same-store sales increased 0.2% and Wendy’s North America franchise same-store sales increased 1.0%.
• Wendy’s company-operated restaurant margin was 15.4%, compared to 11.1% in the first quarter 2009, an increase of 430 basis points. The improvement was due to lower commodity costs, operational improvements in labor and controllable costs, lower advertising costs and a focus on premium and higher margin products.

“At Wendy’s, we are very pleased with our overall progress. We are making significant improvements in restaurant operations and customer service, our product development pipeline is strong, and we are connecting with customers through improved marketing,” said Smith. “For the quarter, we produced positive sales despite severe winter weather in February. Wendy’s same-store sales were among the strongest in the quick-service restaurant (QSR) industry. We successfully balanced our premium products with an effective value strategy, as we featured our Premium Fish Fillet Sandwich and Bacon & Blue hamburger, along with our 99-cents Spicy Chicken Nuggets. We also continued driving significant improvements in restaurant operations and improved our company-operated restaurant margin to 15.4%. In April, we focused on offering customers real value and quality with our $2.99 Deluxe Value Meals and North America company-operated same-store sales were -0.5%, excluding the negative impact of the Mother’s Day shift into fiscal April 2010. We are promoting our premium Spicy Chipotle Boneless Wings in May and we are excited about our new product and promotional lineup for the summer.”

Arby’s First Quarter 2010 Brand Summary

For the first quarter 2010, Arby’s total revenue was $252.7 million, compared to $285.7 million in the first quarter a year ago, a decrease of $33.0 million, which was primarily due to a decline in same-store sales.

• Arby’s North America systemwide same-store sales decreased 11.5%.
• Arby’s North America company-operated same-store sales declined 11.6% and North America franchise same-store sales declined 11.4%.
• Arby’s company-operated restaurant margin was 10.8% in the first quarter 2010, compared to 14.2% in the first quarter 2009. The year-over-year difference was due to sales deleveraging offset in part by slightly favorable commodity costs as well as lower marketing costs as compared to the Roastburger® sandwich launch in 2009.

“Since I assumed the role of interim president for Arby’s in late January, we have implemented a turnaround plan to begin re-energizing the brand,” said Smith. “While we are not pleased with first quarter results, we made progress on establishing a value strategy, increased national media, improved advertising and initiated a significant remodeling program. Our systemwide launch of Arby’s $1 Value Menu in April, combined with national television advertising, is an important step to rebuild sales. Our April North America company-operated same-store sales were -8.4%, an encouraging improvement versus the first quarter of 2010, and more importantly, customer traffic growth for April was +4% versus a year ago.

“We plan to introduce two new products during the second quarter – a new premium Steakhouse Sub and Prime Cut™ chicken – and we will continue to emphasize our everyday $1 Value Menu,” Smith said.

“We are excited about completing the search for a new President for Arby’s,” said Smith. “Hala Moddelmog, who will join the Company on May 20, 2010, is an accomplished leader with proven restaurant and business experience. During the time Hala was President of Church’s Chicken, she led the chain to eight consecutive years of positive same-store sales. I am confident that she will successfully lead the turnaround of the Arby’s brand.”

Formation of Strategic Sourcing Group Co-op, LLC

Strategic Sourcing Group Co-op, LLC, (“SSG”) which is responsible for sourcing certain non-perishable goods, equipment and services for both Wendy’s and Arby’s restaurants, was formed as a result of an initiative by Wendy’s/Arby’s Group, Quality Supply Chain Co-op, which is Wendy’s purchasing cooperative, and ARCOP Inc., which is Arby’s purchasing cooperative.

The Company recorded a pre-tax $4.9 million charge in the first quarter 2010 related to a commitment to fund operating expenses of the purchasing cooperative over a 24-month period. The Company will benefit from the purchasing efficiencies realized by company-owned restaurants and lower general and administrative (G&A) expenses due to the transfer of strategic sourcing employees to the co-op.

Stock Repurchase Program

Since the Board of Directors authorized a stock repurchase program in 2009, the Company has repurchased approximately 40 million common stock shares for $190.2 million as of May 7, 2010, at an average price of $4.76 per share. At the close of business on May 7, 2010, the Company had approximately 430 million shares of common stock outstanding.

The Company has a total of $250 million authorized for common stock repurchases, of which $59.8 million remains available as of May 7, 2010. The current common stock repurchase program will remain in effect through January 2, 2011, and will allow the Company to make repurchases as market conditions warrant.

First Quarter 2010 Special Expense Charges

For the first quarter 2010, the Company recorded net pre-tax special charges of approximately $19.4 million ($12.0 million after tax), including integration-related expenses, impairment charges and expenses for SSG.

Company Reiterates Full-Year 2010 Financial Outlook

The Company also reiterated its 2010 outlook, which includes the following expectations:

• Adjusted EBITDA growth in the low to mid single-digits, excluding the effect of the 53^rd week in 2009 and an incremental expense for Wendy’s breakfast program in 2010 to expand into additional markets.
• Positive same-store sales at Wendy’s.
• Negative same-store sales at Arby’s but improving on a year-over-year basis.
• Capital expenditures of approximately $165 million in 2010, up from approximately $102 million in 2009, which includes investments in 12 new company-owned Wendy’s restaurants and 100 remodels of company-owned restaurants at each brand (200 total remodels).

Debt Refinancing

In order to address our medium-term debt maturities and to take advantage of the current favorable credit and interest rate environment, the Company is in the process of arranging a new $650 million senior secured credit facility, which would include a $150 million revolving credit facility and a $500 million term loan. The proceeds from the new term loan would be used to retire the existing senior secured credit facility as well as the existing 6.25% senior notes due 2011, and pay related expenses of the transaction. The new facility is anticipated to reduce annual interest expense and the Company expects to close the new facility by the end of May. The closing of the new facility is subject to market conditions and there can be no assurance that the Company will be able to complete the transaction.

About Wendy's/Arby's Group, Inc.

Wendy’s/Arby’s Group, Inc. is the third largest quick-service restaurant company in the United States and includes Wendy’s International, Inc., the franchisor of the Wendy’s restaurant system, and Arby’s Restaurant Group, Inc., the franchisor of the Arby’s restaurant system. The combined restaurant systems include more than 10,000 restaurants in the U.S. and 24 countries and U.S. territories worldwide.

Wendy’s/Arby’s Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
First Quarters Ended April 4, 2010 and March 29, 2009
(In Thousands Except Per Share Amounts)			First Quarter
(Unaudited)			2010				2009
Revenues:
Sales			$	748,197			$	773,243
Franchise revenues				89,250				90,741
				837,447				863,984
Costs and expenses:
Cost of sales				641,422				675,942
General and administrative				110,482				109,878
Depreciation and amortization				46,326				51,662
Impairment of other long-lived assets				11,601				6,880
Facilities relocation and corporate restructuring				-				4,161
Other operating expense, net				1,283				1,527
				811,114				850,050
Operating profit				26,333				13,934
Interest expense				(36,278	)			(22,149	)
Investment income (expense), net				130				(1,794	)
Other than temporary losses on investments				-				(3,127	)
Other income (expense), net				1,278				(2,597	)
Loss before income tax benefit				(8,537	)			(15,733	)
Benefit from income taxes				5,137				4,809
Net loss			$	(3,400	)		$	(10,924	)
Basic and diluted net loss per share			$	(0.01	)		$	(0.02	)
Weighted average number of shares used to calculate basic and diluted net loss per share				443,326				469,237
			April 4, 2010				Jan. 3, 2010
Balance Sheet Data:			(Unaudited)				(Audited)
Cash and cash equivalents			$	507,284			$	591,719
Total assets				4,868,478				4,975,416
Long-term debt				1,501,853				1,500,784
Total stockholders’ equity				2,261,246				2,336,339

Wendy’s/Arby’s Group, Inc. and Subsidiaries
Calculation and Comparison of EBITDA and a Reconciliation of EBITDA to Net Loss
(In Thousands)	First Quarter
(Unaudited)	2010				2009
EBITDA	$	84,260			$	72,476
Depreciation and amortization		(46,326	)			(51,662	)
Impairment of other long-lived assets		(11,601	)			(6,880	)
Operating profit		26,333				13,934
Interest expense		(36,278	)			(22,149	)
Investment income (expense), net		130				(1,794	)
Other than temporary losses on investments		-				(3,127	)
Other income (expense), net		1,278				(2,597	)
Loss before income tax benefit		(8,537	)			(15,733	)
Benefit from income taxes		5,137				4,809
Net loss	$	(3,400	)		$	(10,924	)

Reconciliation of EBITDA to Adjusted EBITDA
(In Thousands)	First Quarter
(Unaudited)	2010				2009
EBITDA	$	84,260			$	72,476
Plus: Integration costs in general and administrative (G&A)		2,894				3,653
SSG purchasing cooperative expenses in G&A		4,900				-
Facilities relocation and corporate restructuring		-				4,161
Adjusted EBITDA	$	92,054			$	80,290
Adjusted EBITDA Growth %		14.7	%

Wendy’s/Arby’s Group, Inc. and Subsidiaries
Selected Brand Financial Highlights
Wendy’s (Unaudited)			First Quarter
			2010				2009
North America systemwide same-store sales				0.8	%			1.0	%
(In Thousands)
Revenues:
Sales			$	512,747			$	507,003
Franchise revenues				71,967				71,238
			$	584,714			$	578,241
Restaurant margin %				15.4	%			11.1	%

Restaurant count:		Company-operated			Franchised			Systemwide
As of January 3, 2010		1,391			5,150			6,541
Opened		-			11			11
Closed		(1	)		(11	)		(12	)
As of April 4, 2010		1,390			5,150			6,540

Arby’s (Unaudited)		First Quarter
		2010				2009
North America systemwide same-store sales			-11.5	%			-8.7	%
(In Thousands)
Revenues:
Sales		$	235,450			$	266,240
Franchise revenues			17,283				19,503
		$	252,733			$	285,743
Restaurant margin %			10.8	%			14.2	%

Restaurant count:		Company-operated			Franchised			Systemwide
As of January 3, 2010		1,169			2,549			3,718
Opened		-			9			9
Closed		(3	)		(25	)		(28	)
(Sold)/Acquired		(11	)		11			-
As of April 4, 2010		1,155			2,544			3,699

 

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