Wendy's/Arby's Group Inc. has reported results for the third quarter ended Sept. 27, with same-store sales at Arby's North America continuing to be impacted by the challenging economic environment. Results for the quarter include the effect of the Sept. 29, 2008, merger between Triarc and Wendy's. The results for the 2008 third quarter and year-to-date periods only include results for Triarc, except where presented on a pro-forma basis.
Arby's North America systemwide same-store sales were down 9.0 percent, while Wendy's North America systemwide comps were down 0.1 percent.
Total revenues for the quarter were $903.2 million, compared to $310.4 million in the same period last year for Triarc. Year-to-date revenues were $2.7 billion, compared to $9.9 million last year for Triarc.
Net income for the quarter was $14.7 million, compared to a net loss of $12.1 million in the same period last year for Triarc. Year-to-date net income was $18.7 million, compared to a net loss of $86.5 million for Triarc last year.
Wendy's brand highlights
For third quarter, Wendy's North America company-operated same-store sales were up 0.1 percent, excluding the effect of approximately 300 fewer Wendy's restaurants serving breakfast, compared to the third quarter of 2008. Including the effect of breakfast removal, company-operated same-store sales were down 1.4 percent compared to the same period last year.
Wendy's North America franchise same-store sales were up 0.4 percent. Franchise sales were not materially impacted by changes in the number of restaurants serving breakfast.
Total revenue for Wendy's was down 1.8 percent at $613.5 million, compared to pro-forma revenue of $624.7 million in the same period last year. Revenue was impacted by lower company same-store sales resulting from the reduction in the number of company-operated restaurants serving breakfast as well as the negative effect of foreign exchange rates and fewer overall restaurants.
Wendy's had 6,608 restaurants at the end of the third quarter, reflecting a net decrease of 17 units from the end of the third quarter a year ago.
"Excluding the impact of breakfast, Wendy's same-store sales were positive during the quarter, which we believe was among the best results in the restaurant industry, and we continued to drive outstanding margin improvement," said Roland Smith, president and CEO of Wendy's/Arby's Group. "We benefited from lower commodity costs in the third quarter and expect that trend to continue in the fourth quarter."
Arby's brand highlights
For the third quarter, Arby's North America company-operated comps were down 6.5 percent, and North America franchise same-store sales were down 10.2 percent. Sales at company-operated restaurants benefited from more aggressive discounting than franchise restaurants during the quarter.
Total revenue was down 6.7 percent at $289.7 million, compared to $310.4 million in the same period last year, primarily due to lower same-store sales.
Arby's had 3,739 restaurants at the end of the third quarter, a net increase of four units from the end of the third quarter last year.
In October, the company launched the first phase of Arby's everyday value strategy with the introduction of the $5.01 combo offering. "The offer has already generated substantial sales mix, and it provides a platform to build transactions through increased frequency," Smith said. The company believes the strategy will allow the brand to "compete more effectively against the aggressive promotions and discounting in the sandwich category."
The second phase of the everyday value strategy includes expanding the number of markets offering the new $1 value menu, which has successfully driven traffic and sales in test markets, Smith said.
"While October same-store sales have further softened, reflecting weaker industry trends, we believe our sales will improve as we begin to benefit from our everyday value strategy," he said. "Longer-term, we believe that our strategy to balance our premium products with more affordable options will rejuvenate sales and return margins to higher levels."
Stock repurchase authorization
The company purchased 10.3 million of shares of common stock as of Oct. 26 for $49.1 million at an average per share price of $4.77. At the close of business on Oct. 30, the company had approximately 463,003,000 shares of common stock outstanding. On Nov. 3, the board authorized an additional $50 million for a total of $100 million authorized common stock repurchases. The authorization will remain in effect through Jan. 2, 2011, and will allow the company to make repurchases as market conditions warrant.
International development
The company recently announced hiring industry veteran Andy Skehan as senior vice president of Wendy's/Arby's International to lead plans for international development. The company believes there is the potential for more than 8,000 restaurants outside of North America and plans to capitalize on this important growth opportunity, according to a news release.
Wendy's supply chain co-op
During the fourth quarter, Wendy's and its franchisees entered into an agreement to establish a national supply chain cooperative (co-op) for the Wendy's brand. The co-op will manage food and related product purchases and distribution services for the Wendy's system in the United States and Canada. The co-op is expected to begin operations in January 2010. The company has committed to fund approximately $15.5 million for the co-op, which will be recorded as a charge in fourth quarter 2009 and paid over an 18-month period. After an initial startup period, ongoing operations of the co-op will be funded by all members of the co-op including franchisees.
"The creation of the Quality Supply Chain Co-op (QSCC) will represent the successful culmination of an effort by the company and our franchisees to organize an improved supply chain system," said chief financial officer Steve Hare. "We look forward to the long-term benefits of optimizing the supply chain, while providing increased transparency to our franchisees. In the future, the company will work with QSCC and Arby's purchasing co-op (ARCOP) to further leverage the buying power of both Wendy's and Arby's on non-brand specific products and services."
Conference call
Management will host a conference call with slides to discuss its financial results today at noon Eastern time. Hosting the call will be Smith, Steve Hare, senior vice president and chief financial officer; and John Barker, senior vice president and chief communications officer.
The conference call can be accessed live over the phone by dialing (877) 572-6014 or for international callers by dialing (281) 913-8524; and the slides can be accessed from the investor relations page of the company's Web site. A replay will be available two hours after the call and can be accessed by dialing (800) 642-1687, or for international callers by dialing (706) 645-9291; the conference ID for the replay is 36103226. The replay will be available until midnight Eastern time Nov. 19.
The call and slides also will be webcast live from the investor relations page of the company's Web site. The webcast and accompanying slides will be archived on the company's Web site.
