February 5, 2008

Wendy's, sans big charges, falls short

COLUMBUS, Ohio - Wendy's International Inc. said Monday that fourth-quarter earnings more than quadrupled from a year ago, when it took major charges for discontinued operations, and restaurants reported better margins despite high commodity prices.

Wendy's fell just short of Wall Street expectations, however, and warned that it faces strong economic headwinds as it considers putting itself up for sale.

The nation's No. 3 burger chain said it made $14.1 million, or 16 cents per share, for the quarter ended Dec. 30, compared with $3 million, or 3 cents a share, for the year-ago period when it recorded charges from the spin off of the Tim Hortons chain and the sale of Baja Fresh Mexican Grill.

Discounting one-time charges including $6.5 million used to fund a committee studying options for the company, including a possible sale, Wendy's would have made 21 cents a share.

Sales fell slightly in the quarter to $596.0 million from $596.4 million a year ago.

While Wendy's beat the $592 million in revenue expected from analysts surveyed by Thomson Financial, it fell 2 cents shy of analyst's per-share expectations.

Wendy's shares fell 5 percent, or $1.25, to $23.93 Monday. Shares traded just above the 52-week low of $22.48 after trading as high as $44.22 last summer.

Executives on Monday would not discuss progress by the committee studying company options.

Kerrii Anderson, Wendy's president and chief executive, acknowledged shareholder frustration over the length of the process and the scarcity of information about the committee's work.

"Our management continues to focus on what we can control: The business and our plans to improve it," she said.

Anderson said operations did improve in the last quarter, but she and other executives expressed concern about the effects of the weak economy and higher prices for beef, chicken, grain, fuel and paper.

Wendy's plans to offset commodity prices by increasing menu prices and cutting costs, Chief Financial Officer Jay Fitzsimmons said.

Margins at U.S. company-owned stores rose to 10.1 percent in the quarter in spite of commodity costs, the company said.

Wendy's reported last month that sales at stores opened at least a year — considered a key indicator of a retailer's strength — fell 0.8 percent at U.S. company restaurants in the fourth quarter, compared with a 3.1 percent increase in the fourth quarter of 2006. At franchise restaurants, same-store sales were up 0.2 percent for the quarter, compared with a 2.7 percent increase the year before.

Wendy's announced last week it was scrapping its eight-month-old advertising campaign that featured men wearing a red wig with braided pigtails in favor of ads with the company's familiar Wendy logo.

Anderson credited the campaign with generating attention, but said it also turned some people off.

The new campaign is more in line with what the company stands for and Anderson said, "we can't be something that we're not."

For the year, Wendy's reported a profit of $87.9 million, or 97 cents a share, compared with profits $94.3 million, or 82 cents per share, in 2006. Sales were flat at $2.4 billion.

Discounting charges or gains, Wendy's made $108 million, or $1.20, in 2007 compared with $72 million, or 62 cents a share, in 2006.

Same-store sales rose 0.9 percent for company stores in 2007 and 1.9 percent for franchise stores compared with a 0.8 percent increase in U.S. company stores and a 0.6 percent increase at U.S. franchise stores in 2006.

Billionaire investor Nelson Peltz, who controls 9.8 percent of Wendy's stock along with his allies, submitted an offer to buy Wendy's in November, but the proposed price is lower than the $37 to $41 a share that he previously said it was worth.

Wendy's, based in the Columbus suburb of Dublin, operates about 6,600 restaurants in the United States and abroad. It trails McDonald's Corp. and Burger King Holdings Inc. in the burger business.

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