The Wendy’s Company 2012 First Quarter Same-store Sales Increase 0.8 Percent

The Wendy’s Company (NASDAQ: WEN) today reported its results for the first quarter ended April 1, 2012.

“Competing in this dynamic industry requires us to make refinements to our tactics to optimize how we bring the Wendy’s brand to life”

Highlights from the first quarter included the following:

• Consolidated revenues were $593.2 million in the first quarter of 2012, compared to $582.5 million in the first quarter of 2011.


• Wendy’s^® North America Company-operated restaurants generated a same-store sales increase of 0.8 percent in the first quarter of 2012. This is the fourth consecutive quarter of positive same-store sales. Franchise same-store sales in North America increased 0.7 percent during the quarter.


• Company-operated restaurant margin was 11.8 percent in the first quarter of 2012, compared to 13.4 percent in the first quarter of 2011. The margin decline was due primarily to the impact from higher commodity costs – especially for fresh beef – and the impact from unfavorable product mix. Sales and margins during the first quarter were negatively affected by the promotion of the “W” cheeseburger.


• Adjusted EBITDA from continuing operations was $63.9 million in the first quarter of 2012, compared to first quarter 2011 Adjusted EBITDA from continuing operations of $73.7 million. See “Disclosure Regarding Non-GAAP Financial Measures” below for a reconciliation of the non-GAAP measures (i.e., Adjusted EBITDA from continuing operations and Adjusted Earnings Per Share from continuing operations).


• Income from continuing operations attributable to The Wendy’s Company was $12.4 million in the first quarter of 2012, compared to a loss from continuing operations of $0.3 million in the first quarter of 2011.


• Adjusted Earnings Per Share from continuing operations were $0.01 in the first quarter of 2012, compared to $0.02 in the first quarter of 2011.


• Earnings per share were $0.03 in the first quarter of 2012, compared to $0.00 in the first quarter of 2011.

Based on these results, the Company has revised its 2012 outlook for Adjusted EBITDA from continuing operations to a range of $320 million to $335 million.

President and Chief Executive Officer Emil Brolick said: “We produced our fourth consecutive quarter of positive same-store sales, but it was not enough to offset restaurant-level margin pressure, especially the impact from higher fresh beef costs. We are allocating substantial resources toward restaurant development, marketing, product innovation and customer service initiatives that we believe will ultimately accelerate sales growth, enhance the quality of our store base and grow our worldwide presence over time. This is a transition year for our new management team, and we are making progress on our long-term ‘Recipe to Win’ plan, as we invest in our strategic growth initiatives.”

Image Activation Initiative and New Restaurant Development on Track

One of the pillars of Wendy’s “Recipe to Win” strategy is its Image Activation program, which elevates the customer experience with innovative exterior and interior designs for new units and reimages. In 2011, Wendy’s reimaged 10 Company-operated restaurants, and the unit sales increases of these locations in North America continue to exceed expectations.

In 2012, Wendy’s plans to reimage approximately 50 additional Company-operated restaurants and open 20 new Company-operated restaurants, with plans for significantly more Company and franchise reimages in 2013 and beyond.

The Company intends to use its strong balance sheet and cash flow to fund reimages and new restaurant growth in 2012 and beyond, and is also actively developing third-party industry financing sources for franchisees.

New Premium Products and Focused Marketing Initiatives

The Company continues to focus on its “A Cut Above” brand positioning with exciting new products. In early April, Wendy’s introduced its new Spicy Guacamole Chicken Club sandwich, supported by a new advertising campaign featuring the tag line “Now That’s Better™.” At the end of April, the Company introduced three new premium Signature Sides, including Chili Cheese Fries, Baked Sweet Potatoes and Macaroni and Cheese.

In late April, the Company also utilized direct mail as another media layer to increase brand awareness and to drive trial of core products, including entrée salads, premium chicken sandwiches, Dave’s Hot ‘N Juicy™ cheeseburgers and Frosty™ desserts.

The Company recently announced that Craig Bahner joined Wendy’s as Chief Marketing Officer after a 20-year career in brand management at The Procter & Gamble Company. Bahner will focus on delivering Wendy’s “A Cut Above” brand positioning to consumers and systematically improving the brand’s overall marketing efficiency.

“Competing in this dynamic industry requires us to make refinements to our tactics to optimize how we bring the Wendy’s brand to life,” Brolick said. “Given the breadth of competitive activity, increased discounting and evolving consumer behavior, we have refined our marketing strategies to build our brand, sales and profits. This year will be one in which we will invest in talented people, product development and our Image Activation program to create a platform for long-term, sustainable growth.”

New Credit Facility and Refinancing

In April, the Company’s indirect wholly owned subsidiary, Wendy’s International, Inc., completed marketing of a new $1,325 million senior secured credit facility. The new credit facility will consist of a $200 million revolving credit facility to mature in 2017, and a $1,125 million term loan to mature in 2019.

Wendy’s International expects to use the proceeds from the proposed credit facility to refinance the existing senior secured credit facility of Wendy’s Restaurants, LLC, a wholly owned subsidiary of the Company and the direct parent company of Wendy’s International, including the repayment of the existing term loan; to finance the redemption or repurchase of Wendy’s Restaurants’ outstanding 10 percent Senior Notes due 2016; and for general corporate purposes, including payment of financing costs and other expenses in connection with the proposed credit facility and the related transactions.

The Company expects to increase its liquidity, extend its debt maturities and realize ongoing annual interest savings of approximately $25 million, as a result of the proposed refinancing.

On April 17, Wendy’s Restaurants commenced a tender offer to purchase for cash any and all of its outstanding 10 percent Senior Notes due 2016. The tender offer is scheduled to expire at the end of the day on May 14, with final settlement expected on or about May 15. Subject to market conditions and other factors, Wendy’s Restaurants currently intends to redeem on July 16 any Senior Notes that remain outstanding following consummation of the tender offer.

Wendy’s Restaurants may amend, extend or terminate the tender offer at its sole discretion, subject to applicable law.

Domestic and International Restaurant Portfolio Development

The Wendy’s system opened 12 new restaurants and closed 25 restaurants during the first quarter, for a net decrease of 13 restaurants, bringing the total number of worldwide restaurants to 6,581 at the end of the first quarter. As previously stated, the Company is targeting the purchase of restaurants from selected franchisees and will operate those restaurants or sell them to new or existing franchisees, with the ultimate goal of accelerating the Image Activation program.

As part of its international growth strategy, Wendy’s recently announced an agreement with The Wissol Group to develop 25 restaurants in Georgia and the Republic of Azerbaijan over the next 10 years. Wissol, which is one of the largest business groups in Georgia, expects to open its first Wendy’s location in Tbilisi in 2013.

At the end of the first quarter, Wendy’s had 354 restaurants outside of North America and a total of more than 1,000 open or under development agreements. The Company continues to target more than 8,000 locations outside of North America.

Company Lowers Outlook for 2012 Adjusted EBITDA

The Company has revised its 2012 outlook for Adjusted EBITDA from continuing operations to a range of $320 million to $335 million. The lower outlook for 2012 Adjusted EBITDA primarily reflects softer-than-expected sales and Company-operated restaurant margin in the first quarter.

The outlook for Adjusted EBITDA from continuing operations excludes items such as anticipated debt extinguishment costs, as well as relocation costs and other expenses from the consolidation of the Atlanta restaurant support center with the Dublin, Ohio restaurant support center.

The Company continues to target an average annual Adjusted EBITDA growth rate in the high-single-digit to low-double-digit range beginning in 2013.

Other First Quarter Information

The Company has revised its reporting methodology for same-store sales to more accurately reflect comparable sales performance, including the impact of its new and reimaged restaurants. Using the new methodology, the Company calculates Wendy’s same-store sales beginning after new restaurants have been open for at least 15 continuous months and after reimaged restaurants have been reopened for three continuous months.

The calculation of same-store sales previously began after a restaurant had been open for at least 15 continuous months and as of the beginning of the previous fiscal year. Under the previous methodology, the Company would have reported a first-quarter 2012 same-store sales increase of 0.5 percent instead of an increase of 0.8 percent. Same-store sales exclude the impact of currency translation. The new methodology has virtually no impact on previously reported same-store sales results prior to 2012.

Disclosure Regarding Non-GAAP Financial Measures

Adjusted EBITDA from continuing operations and Adjusted Earnings Per Share from continuing operations, which exclude certain expenses, net of certain benefits, detailed in the reconciliation tables that accompany this release, are used by the Company as performance measures for benchmarking against the Company’s peers and competitors, and as internal measures of business operating performance. The Company believes Adjusted EBITDA from continuing operations and Adjusted Earnings Per Share from continuing operations provide a meaningful perspective of the underlying operating performance of the Company’s current business. Adjusted EBITDA from continuing operations and Adjusted Earnings Per Share from continuing operations are not recognized terms under U.S. Generally Accepted Accounting Principles (“GAAP”).

Because all companies do not calculate Adjusted EBITDA from continuing operations, Adjusted Earnings Per Share from continuing operations and similarly titled financial measures in the same way, those measures as used by other companies may not be consistent with the way the Company calculates such measures and should not be considered as alternative measures of income from continuing operations or earnings per share.

Because certain income statement items needed to calculate income from continuing operations vary from quarter to quarter, the Company is unable to provide projections of income from continuing operations or earnings per share, or a reconciliation of projected Adjusted EBITDA from continuing operations to projected income from continuing operations or projected Adjusted Earnings Per Share from continuing operations to projected earnings per share.

The Company’s presentation of Adjusted EBITDA from continuing operations and Adjusted Earnings Per Share from continuing operations does not replace the presentation of the Company’s financial results in accordance with GAAP.

About The Wendy’s Company

The Wendy's Company is the world's third-largest quick-service hamburger company. The Wendy's system includes more than 6,500 franchise and Company restaurants in the United States and 27 countries and U.S. territories worldwide.