Wendy’s/Arby’s Group, Inc. (NYSE: WEN), the third largest quick-service restaurant company in the United States, has reported results for the first quarter ended April 3, 2011.
Roland Smith, President and Chief Executive Officer of Wendy’s/Arby’s Group, stated: “First quarter adjusted EBITDA was in-line with our expectations. Wendy’s generated positive systemwide same-store sales in the U.S., offset by softness in Canada. Arby’s continued to build sales momentum and posted strong systemwide same-store sales growth in North America.
“In the first quarter, we continued to invest in our business as we position the Wendy’s brand for 10% to 15% average annual EBITDA growth in 2012 and beyond. To that point, we are focused on Wendy’s ‘Real’ brand positioning and our superior food quality. Later this year we will introduce completely new, core menu items including Dave’s Hot ‘n Juicy cheeseburgers and a line of premium chicken sandwiches. Our ‘Real’ brand positioning also includes an ongoing commitment to the salad category with innovative products like our Berry Almond Chicken Salad we will introduce this summer. Breakfast is also a major initiative for Wendy’s and we expect to be serving our new breakfast in approximately 1,000 restaurants by the end of the year. Customer acceptance of our new breakfast menu is very encouraging and we’re pleased that sales volumes are meeting expectations and growing. Investing in breakfast and other new Wendy’s menu items is a great use of our capital. We expect these investments to generate long-term organic growth and leverage our existing store base,” said Smith.
“At Arby’s, we continued to make progress with regards to our strategic alternatives process,” said Smith. “In the first quarter, top-line performance was very strong with North America systemwide same-store sales of 5.5%. Sales were driven by our everyday dollar value menu, the introduction of our ‘Good Mood Food’ brand positioning and the successful launch of our new Angus Three Cheese and Bacon Sandwich.”
Consolidated First Quarter 2011 Summary
- Consolidated revenues were $847.8 million and increased 1.2% as compared to first quarter 2010 revenues of $837.4 million.
- Adjusted EBITDA was $83.5 million, excluding net special charges totaling $0.1 million, and decreased 9.3% as compared to first quarter 2010 adjusted EBITDA of $92.1 million, excluding net special charges totaling $7.8 million.
- Net loss was $1.4 million, or $0.00 per share, including net after-tax special charges of $6.0 million, or $0.01 per share. First quarter 2010 net loss was $3.4 million, or $0.01 loss per share, including after-tax special charges of $12.0 million, or $0.03 per share.
Company Expects 2011 Full-Year Pro Forma Adjusted EBITDA of $330-340 Million
Although the Company has reaffirmed its same-store sales outlook for the year, it has revised its 2011 expectations for pro forma adjusted EBITDA to $330 million to $340 million. This is due to significantly higher commodity cost expectations, which are now anticipated to increase 5% to 6% for the year. This pro forma outlook assumes a sale of Arby’s and related general and administrative expense reductions occurred as of the beginning of fiscal 2011. Pro forma adjusted EBITDA for the first quarter of 2011 was $75.0 million.
The Company’s 2011 outlook includes the following expectations:
- Same-store sales growth of 1% to 3% at Wendy’s North America company-operated restaurants.
- Flat to slightly negative Wendy’s company-operated restaurant margin due to higher commodity costs, offset partially by anticipated price increases. The previous restaurant margin expectation was 30 to 60 basis points of improvement.
- Capital expenditures for the Wendy’s brand of approximately $145 million.
- Wendy’s North America unit development of approximately 20 company stores and 45 franchise stores, plus approximately 50 international franchise stores.
“We expect to generate strong sales growth at Wendy’s for the remainder of the year driven by exciting new product introductions, including hamburgers, chicken and salads, in addition to strategic price increases,” said Smith. “Margins will be negatively impacted by increases in commodity costs primarily driven by unprecedented beef prices that are affecting the restaurant industry. We have reaffirmed our same-store sales outlook and expect to offset some of these commodity increases with prudent price increases, while protecting transactions and market share,” said Smith.
“Although we have revised our outlook for the year to reflect higher expected commodity costs, we continue to make significant strategic progress improving our core menu offerings including breakfast. We are also pleased with our progress developing Wendy’s international business, which represents a significant opportunity. The Arby’s turnaround is progressing nicely and we plan to resume our stock buyback program after the conclusion of the strategic alternatives process, subject to market conditions. As we’ve said before, 2011 is a transition year and we are confident that the investments we are making will position Wendy’s for 10% to 15% average annual EBITDA growth in 2012 and beyond,” concluded Smith.
Preliminary April Same-Store Sales
- Wendy’s preliminary April North America company-operated same-store sales were up 0.5% and the Company anticipates continued improvement in sales trends for the remainder of the year.
- Arby’s preliminary April North America company-operated same-store sales were up 4.4%.
Wendy’s First Quarter 2011 Brand Summary
Wendy’s total revenue was $582.5 million compared to revenue of $584.7 million in the first quarter a year ago, a year-over-year decrease of $2.2 million due primarily to the decline in company same-store sales.
- Wendy’s North America systemwide same-store sales were flat and were negatively impacted in Canada, where the brand has 367 restaurants, due to the effect of higher sales taxes in two Canadian provinces. Wendy’s U.S. systemwide same-store sales increased 0.3%.
- Wendy’s North America company-operated same-store sales decreased 0.9% and Wendy’s North America franchise same-store sales increased 0.3%.
- Wendy’s company-operated restaurant margin was 13.4% compared to 15.4% in the first quarter 2010, a decrease of 200 basis points. The year-over-year difference was primarily due to higher commodity costs (80 basis points) and incremental advertising to introduce Wendy’s new breakfast in additional markets (110 basis points).
Arby’s First Quarter 2011 Brand Summary
Arby’s total revenue was $265.3 million compared to $252.7 million in the first quarter a year ago, an increase of $12.6 million, which was primarily due to the increase in company same-store sales.
- Arby’s North America systemwide same-store sales increased 5.5%.
- Arby’s North America company-operated same-store sales increased 6.8% and North America franchise same-store sales increased 4.8%.
- Arby’s company-operated restaurant margin was 10.6%, compared to 10.8% in the first quarter 2010. The year-over-year difference was due to commodity cost increases substantially offset by sales leverage.
International Growth – First Restaurant Opening in Russia This Month
Wendy’s is expanding to Russia and will open its first franchise restaurant in Moscow this month. It will be located in a mall food court at Capitoly Vernadskogo. Wendy’s second location, in the Arbat area of Moscow, is set to open this month as well. These openings are part of the development agreement announced in August 2010 with franchisee Wenrus Restaurant Group Limited, which calls for the development of 180 restaurants in the Russian Federation over the next 10 years.
Since the merger, the Company has signed six long-term development agreements covering 23 countries – this includes Singapore (35 restaurants), Middle East and North Africa (79), Turkey (100), Eastern Caribbean (24), Russian Federation (180) and Argentina (50). In addition, the Company has signed a joint venture agreement with Higa Industries Co., Ltd. to develop restaurants in Japan.
The Company currently has 350 franchise restaurants outside of North America and a total of 700 future restaurant commitments, totaling over 1,000 restaurants. Also, the Company is actively pursuing opportunities in China, Brazil and other markets around the world.
First Quarter 2011 Special Expense Charges
For the first quarter 2011, the Company recorded net after-tax special charges of $6.0 million, including impairment of long-lived assets, Arby’s strategic alternatives costs and a reversal of SSG purchasing cooperative expenses.
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 26 other countries and U.S. territories worldwide.