Wendy's/Arby's Group, Inc. Reports 4th Quarter and 2008 Results
Wendy's North America systemwide same-store sales increased 3.7% and Arby's North America systemwide same-store sales declined 8.5%.
Company On Track with Key Profit Initiatives: $100 million Improvement in Wendy's Restaurant Margin and $60 million in G&A Reductions by the End of 2011
Wendy's 4th Quarter Systemwide Same-Store Sales Increased 3.7% as Brand Launched Initiatives to Improve Value Positioning, Upgrade Advertising and Re-Establish Restaurant Operations Excellence
Arby's Introducing New Roastburger Line of Premium Sandwiches to Drive Sales
Management Provides Financial Outlook
Wendy's/Arby's Group, Inc. (NYSE: WEN), the parent company of Wendy's International, Inc. (Wendy's) and Arby's Restaurant Group, Inc. (Arby's), which are the franchisors of the Wendy's(R) and Arby's(R) restaurant systems, today reported financial results for the fourth quarter and year ended December 28, 2008. These results include the effect of the merger between Triarc Companies, Inc. (Triarc) and Wendy's, which was completed on September 29, 2008. In connection with the merger, Wendy's became a wholly owned subsidiary of Triarc and Triarc changed its name to Wendy's/Arby's Group, Inc.
Fourth-Quarter Results
• Wendy's North America systemwide same-store sales increased 3.7% and Arby's North America systemwide same-store sales declined 8.5%.
• Consolidated revenues were $896.5 million.
• Net loss was $393.2 million, resulting from after-tax special items totaling $417.9 million, the special items included a non-cash goodwill impairment charge at Arby's.
• Adjusted Earnings Before Interest Taxes Depreciation and Amortization (EBITDA), excluding pre-tax special items, was $74.4 million.
Company's Key Profit Initiatives On Track
In October, the Company launched key profit initiatives targeting a total of $160 million in annual incremental EBITDA by the end of 2011 and is on track to achieve its goals. These targeted improvements include $60 million from achieving synergies and overhead reductions, and $100 million from improving margins at Wendy's company-operated restaurants by 500 basis points.
• General and administrative (G&A) cost savings from synergies and overhead reductions exceeded $25 million as of the end of 2008 on an annualized basis. The Company is targeting additional annualized savings of approximately $10-15 million by the end of 2009 toward the $60 million target.
• The Company is targeting a 160- to 180-basis point restaurant margin increase at Wendy's for 2009, from expected improvements in food, labor and restaurant operating expenses.
Management Provides Financial Outlook
• Open 10 new Wendy's company and 5 new Arby's company restaurants in 2009.
• Reduce capital expenditures to approximately $140 million in 2009, which is more than $60 million less than the combined capital spending of Wendy's and Arby's in 2008 primarily due to lower new restaurant development.
• Combine Wendy's and Arby's revolver and term-loan borrowings under a single credit agreement.
• Deliver average annual EBITDA growth in the mid-teens through 2011.
Roland Smith, President and Chief Executive Officer of Wendy's/Arby's Group, stated: 'During the fourth quarter, our initial period of ownership of the Wendy's brand, we produced strong same-store sales despite an extremely tough competitive and economic environment. We also launched initiatives at Wendy's targeting future transaction improvement and margin growth. During the brief time since the merger was completed, the Wendy's brand is already producing more effective marketing, improving restaurant operations and rebuilding the new product pipeline.
'The Arby's brand experienced same-store sales declines in the quarter as our sandwich competitors continued to discount at unprecedented levels,' said Smith. 'Arby's long-established marketing strategy has been to provide premium quality, hand-carved sandwiches with fresh ingredients as the foundation for our premium brand positioning of 'Something Different, Something Better'. Our introduction this month of the unique, new Roastburger(TM) line is aimed at attracting core roast beef customers more often and growing sales.
'From a profit growth perspective, we are on track with our merger integration process, including progress toward our target of $100 million of improvement in Wendy's restaurant margins and $60 million in G&A cost reductions by the end of 2011,' said Smith. 'These are the critical elements in the initial phase of the Company's growth strategy to create value for stockholders. With solid momentum in the Wendy's brand, initiatives under way to improve the Arby's brand and our key profit drivers on track, we believe that we can deliver an average annual EBITDA growth rate in the mid- teens through 2011.'
Wendy's Brand Highlights
For the fourth quarter, Wendy's sales were $530.8 million from company-operated restaurants and other retail sales, and franchise revenues were $74.6 million. Wendy's North America company-operated same-store sales increased 3.6% despite approximately 300 fewer restaurants serving breakfast (excluding the impact of fewer restaurants serving breakfast, same-store sales would have been up 4.3% in the quarter). Wendy's North America franchise same-store sales increased 3.8%. Wendy's restaurant margin for the 2008 fourth quarter was 11.7%, reflecting significant food cost inflation, partially offset by progress on reducing labor and certain controllable costs.
Wendy's ended the year with 1,406 company-operated restaurants, down eight restaurants from a year ago, and franchised restaurants declined by seven to 5,224. This restaurant count included opening 15 new company-operated restaurants and 82 new franchise restaurants.
'Since our new management team assumed leadership of Wendy's, same-store sales have improved as we focused on revitalizing the brand,' Smith said. 'We launched our Value Trio of high quality sandwiches at 99 cents with more compelling advertising that connected with consumers. Additionally, our focus on restaurant operations is beginning to produce improvements in speed of service, order accuracy, customer courtesy and restaurant cleanliness. We believe improved restaurant operations and service will drive incremental sales.
'In the first quarter of 2009, we expect positive same-store sales at Wendy's. We will continue to emphasize value and high quality products like our Premium Fish Fillet sandwich made from North Pacific Cod, as we re-establish Wendy's as the product quality and innovation leader. Our product pipeline includes new chicken and hamburger menu items that we plan to launch this year,' Smith said. 'While we have reduced the number of restaurants serving breakfast to three key markets as we retool our breakfast program, we believe this growth segment of the quick-service restaurant business represents a major opportunity for the Wendy's brand. We plan to expand to additional markets with a significantly improved breakfast strategy and products as we prepare for a national rollout.'
Click here for photos and advertising of Wendy's products: www.wendysarbys.com/about/our-brands/wendysrestaurant.
Arby's Brand Highlights
For the fourth quarter, Arby's sales decreased to $270.9 million for company-operated restaurants and franchise revenues decreased to $20.2 million. Arby's North America company-operated same-store sales declined 10.6% and North America franchise same-store sales were down 7.6%. Arby's restaurant margin was 14.6% in the quarter, compared to 20.7% in the year-ago period, due primarily to sales deleverage and food cost inflation.
For the full-year 2008, Arby's sales increased 1.6% to $1.1 billion for company-operated restaurants and franchise revenues decreased 1.3% to $85.9 million. Arby's North America company-operated same-store sales declined 5.8% and North America franchise same-store sales were down 3.6%. Arby's ended the year with 1,176 company-operated restaurants, an increase of 70 restaurants from a year ago, and franchised restaurants declined by two restaurants to 2,580 (which included the Company's acquisition of 45 restaurants from franchisees). Arby's opened 40 new company-operated restaurants and 87 new franchise restaurants during the year. Arby's full-year restaurant margin was 16.1% in 2008 compared to 19.7% in 2007.
'Arby's experienced a difficult quarter as fast-food consumers shifted spending to value meals and deeply discounted sandwiches. Our sandwich category competitors continued to focus on $5 price points, which are below Arby's average check of about $7.50,' Smith said. 'This week we are launching a strategy to reconnect with our core customers and leverage our roast beef category leadership with a great line of Roastburger sandwiches, which combine our signature, oven-roasted, thinly sliced roast beef with a variety of fresh toppings. Customer response to the Roastburger has been encouraging in our test markets and we anticipate improving sales trends following the launch. The Roastburger launch is a cornerstone of a new brand strategy for Arby's focused on increasing frequency of visits by our core customers. We are also introducing roasted chicken, swirl shakes and iced fruit teas this year. In addition, we are testing value-priced products and introducing new operations initiatives to improve customer service.'
Click here for photos and advertising of Arby's products: www.wendysarbys.com/about/our-brands/arbysrestaurant.
Special Items and Goodwill
For the fourth quarter of 2008, pre-tax special items totaled $501.7 million ($417.9 million after-tax or $0.89 per share), primarily related to non-cash charges consisting of an impairment of the goodwill of Arby's company-owned store operations and an allowance for doubtful collectability for a promissory note received in connection with the Company's sale of Deerfield & Company LLC in 2007.
During 2008, pre-tax special items totaled $597.8 million ($503.6 million after-tax or $3.23 per Class A common share and $1.23 per Class B common share) primarily related to non-cash impairment of goodwill for Arby's company-owned store operations and losses on equity investments.
Steve Hare, Senior Vice President and Chief Financial Officer of Wendy's/Arby's Group, stated: 'Management is required by accounting standards to assess the impairment of goodwill and other long-lived assets on at least an annual basis. As a result of the deteriorating economy and adverse stock market conditions, combined with recent negative trends in operating performance at Arby's, we determined that goodwill related to the Arby's company-owned store operations business unit was impaired and recorded a non-cash charge of $460.1 million during the fourth quarter of 2008.'
Financing Update
To maintain financial covenant compliance in 2009 and enhance its overall financial flexibility, the Company has begun a process with lending groups for Wendy's and Arby's to combine its revolver and term loan borrowings under a single amended credit agreement. Such an agreement would utilize Wendy's and Arby's combined results and more moderately leveraged balance sheet (2008 ratio of long-term debt/pro forma adjusted EBITDA was below 3x) to determine covenant compliance, and would enhance the Company's ability to manage and deploy cash. While there can be no assurance that the Company will complete this amendment, management expects to complete this process in advance of filing its 2008 Form 10-K with the Securities and Exchange Commission.
Wendy's 4th Quarter Systemwide Same-Store Sales Increased 3.7% as Brand Launched Initiatives to Improve Value Positioning, Upgrade Advertising and Re-Establish Restaurant Operations Excellence
Arby's Introducing New Roastburger Line of Premium Sandwiches to Drive Sales
Management Provides Financial Outlook
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Wendy's/Arby's Group, Inc. (NYSE: WEN), the parent company of Wendy's International, Inc. (Wendy's) and Arby's Restaurant Group, Inc. (Arby's), which are the franchisors of the Wendy's(R) and Arby's(R) restaurant systems, today reported financial results for the fourth quarter and year ended December 28, 2008. These results include the effect of the merger between Triarc Companies, Inc. (Triarc) and Wendy's, which was completed on September 29, 2008. In connection with the merger, Wendy's became a wholly owned subsidiary of Triarc and Triarc changed its name to Wendy's/Arby's Group, Inc.
Fourth-Quarter Results
• Wendy's North America systemwide same-store sales increased 3.7% and Arby's North America systemwide same-store sales declined 8.5%.
• Consolidated revenues were $896.5 million.
• Net loss was $393.2 million, resulting from after-tax special items totaling $417.9 million, the special items included a non-cash goodwill impairment charge at Arby's.
• Adjusted Earnings Before Interest Taxes Depreciation and Amortization (EBITDA), excluding pre-tax special items, was $74.4 million.
Company's Key Profit Initiatives On Track
In October, the Company launched key profit initiatives targeting a total of $160 million in annual incremental EBITDA by the end of 2011 and is on track to achieve its goals. These targeted improvements include $60 million from achieving synergies and overhead reductions, and $100 million from improving margins at Wendy's company-operated restaurants by 500 basis points.
• General and administrative (G&A) cost savings from synergies and overhead reductions exceeded $25 million as of the end of 2008 on an annualized basis. The Company is targeting additional annualized savings of approximately $10-15 million by the end of 2009 toward the $60 million target.
• The Company is targeting a 160- to 180-basis point restaurant margin increase at Wendy's for 2009, from expected improvements in food, labor and restaurant operating expenses.
Management Provides Financial Outlook
• Open 10 new Wendy's company and 5 new Arby's company restaurants in 2009.
• Reduce capital expenditures to approximately $140 million in 2009, which is more than $60 million less than the combined capital spending of Wendy's and Arby's in 2008 primarily due to lower new restaurant development.
• Combine Wendy's and Arby's revolver and term-loan borrowings under a single credit agreement.
• Deliver average annual EBITDA growth in the mid-teens through 2011.
Roland Smith, President and Chief Executive Officer of Wendy's/Arby's Group, stated: 'During the fourth quarter, our initial period of ownership of the Wendy's brand, we produced strong same-store sales despite an extremely tough competitive and economic environment. We also launched initiatives at Wendy's targeting future transaction improvement and margin growth. During the brief time since the merger was completed, the Wendy's brand is already producing more effective marketing, improving restaurant operations and rebuilding the new product pipeline.
'The Arby's brand experienced same-store sales declines in the quarter as our sandwich competitors continued to discount at unprecedented levels,' said Smith. 'Arby's long-established marketing strategy has been to provide premium quality, hand-carved sandwiches with fresh ingredients as the foundation for our premium brand positioning of 'Something Different, Something Better'. Our introduction this month of the unique, new Roastburger(TM) line is aimed at attracting core roast beef customers more often and growing sales.
'From a profit growth perspective, we are on track with our merger integration process, including progress toward our target of $100 million of improvement in Wendy's restaurant margins and $60 million in G&A cost reductions by the end of 2011,' said Smith. 'These are the critical elements in the initial phase of the Company's growth strategy to create value for stockholders. With solid momentum in the Wendy's brand, initiatives under way to improve the Arby's brand and our key profit drivers on track, we believe that we can deliver an average annual EBITDA growth rate in the mid- teens through 2011.'
Wendy's Brand Highlights
For the fourth quarter, Wendy's sales were $530.8 million from company-operated restaurants and other retail sales, and franchise revenues were $74.6 million. Wendy's North America company-operated same-store sales increased 3.6% despite approximately 300 fewer restaurants serving breakfast (excluding the impact of fewer restaurants serving breakfast, same-store sales would have been up 4.3% in the quarter). Wendy's North America franchise same-store sales increased 3.8%. Wendy's restaurant margin for the 2008 fourth quarter was 11.7%, reflecting significant food cost inflation, partially offset by progress on reducing labor and certain controllable costs.
Wendy's ended the year with 1,406 company-operated restaurants, down eight restaurants from a year ago, and franchised restaurants declined by seven to 5,224. This restaurant count included opening 15 new company-operated restaurants and 82 new franchise restaurants.
'Since our new management team assumed leadership of Wendy's, same-store sales have improved as we focused on revitalizing the brand,' Smith said. 'We launched our Value Trio of high quality sandwiches at 99 cents with more compelling advertising that connected with consumers. Additionally, our focus on restaurant operations is beginning to produce improvements in speed of service, order accuracy, customer courtesy and restaurant cleanliness. We believe improved restaurant operations and service will drive incremental sales.
'In the first quarter of 2009, we expect positive same-store sales at Wendy's. We will continue to emphasize value and high quality products like our Premium Fish Fillet sandwich made from North Pacific Cod, as we re-establish Wendy's as the product quality and innovation leader. Our product pipeline includes new chicken and hamburger menu items that we plan to launch this year,' Smith said. 'While we have reduced the number of restaurants serving breakfast to three key markets as we retool our breakfast program, we believe this growth segment of the quick-service restaurant business represents a major opportunity for the Wendy's brand. We plan to expand to additional markets with a significantly improved breakfast strategy and products as we prepare for a national rollout.'
Click here for photos and advertising of Wendy's products: www.wendysarbys.com/about/our-brands/wendysrestaurant.
Arby's Brand Highlights
For the fourth quarter, Arby's sales decreased to $270.9 million for company-operated restaurants and franchise revenues decreased to $20.2 million. Arby's North America company-operated same-store sales declined 10.6% and North America franchise same-store sales were down 7.6%. Arby's restaurant margin was 14.6% in the quarter, compared to 20.7% in the year-ago period, due primarily to sales deleverage and food cost inflation.
For the full-year 2008, Arby's sales increased 1.6% to $1.1 billion for company-operated restaurants and franchise revenues decreased 1.3% to $85.9 million. Arby's North America company-operated same-store sales declined 5.8% and North America franchise same-store sales were down 3.6%. Arby's ended the year with 1,176 company-operated restaurants, an increase of 70 restaurants from a year ago, and franchised restaurants declined by two restaurants to 2,580 (which included the Company's acquisition of 45 restaurants from franchisees). Arby's opened 40 new company-operated restaurants and 87 new franchise restaurants during the year. Arby's full-year restaurant margin was 16.1% in 2008 compared to 19.7% in 2007.
'Arby's experienced a difficult quarter as fast-food consumers shifted spending to value meals and deeply discounted sandwiches. Our sandwich category competitors continued to focus on $5 price points, which are below Arby's average check of about $7.50,' Smith said. 'This week we are launching a strategy to reconnect with our core customers and leverage our roast beef category leadership with a great line of Roastburger sandwiches, which combine our signature, oven-roasted, thinly sliced roast beef with a variety of fresh toppings. Customer response to the Roastburger has been encouraging in our test markets and we anticipate improving sales trends following the launch. The Roastburger launch is a cornerstone of a new brand strategy for Arby's focused on increasing frequency of visits by our core customers. We are also introducing roasted chicken, swirl shakes and iced fruit teas this year. In addition, we are testing value-priced products and introducing new operations initiatives to improve customer service.'
Click here for photos and advertising of Arby's products: www.wendysarbys.com/about/our-brands/arbysrestaurant.
Special Items and Goodwill
For the fourth quarter of 2008, pre-tax special items totaled $501.7 million ($417.9 million after-tax or $0.89 per share), primarily related to non-cash charges consisting of an impairment of the goodwill of Arby's company-owned store operations and an allowance for doubtful collectability for a promissory note received in connection with the Company's sale of Deerfield & Company LLC in 2007.
During 2008, pre-tax special items totaled $597.8 million ($503.6 million after-tax or $3.23 per Class A common share and $1.23 per Class B common share) primarily related to non-cash impairment of goodwill for Arby's company-owned store operations and losses on equity investments.
Steve Hare, Senior Vice President and Chief Financial Officer of Wendy's/Arby's Group, stated: 'Management is required by accounting standards to assess the impairment of goodwill and other long-lived assets on at least an annual basis. As a result of the deteriorating economy and adverse stock market conditions, combined with recent negative trends in operating performance at Arby's, we determined that goodwill related to the Arby's company-owned store operations business unit was impaired and recorded a non-cash charge of $460.1 million during the fourth quarter of 2008.'
Financing Update
To maintain financial covenant compliance in 2009 and enhance its overall financial flexibility, the Company has begun a process with lending groups for Wendy's and Arby's to combine its revolver and term loan borrowings under a single amended credit agreement. Such an agreement would utilize Wendy's and Arby's combined results and more moderately leveraged balance sheet (2008 ratio of long-term debt/pro forma adjusted EBITDA was below 3x) to determine covenant compliance, and would enhance the Company's ability to manage and deploy cash. While there can be no assurance that the Company will complete this amendment, management expects to complete this process in advance of filing its 2008 Form 10-K with the Securities and Exchange Commission.
