News

Wendy’s/Arby’s Group’s Q1 up slightly

May 9, 2011

Arby's North America systemwide same-store sales were up 5.5 percent in the first quarter 2011 ended April 3. The momentum helped boost Wendy's/Arby's Group's (WAG) consolidated revenues up 1.2 percent to $847.8 million.

During Q1 '11, Wendy's sales remained flat.

The report was a marked improvement to WAG's Q4 results, which yielded a drop in revenue to $840.7 million.

Arby's Q1 '11 brand summary

WAG continues to search for "strategic alternatives" for the Arby's brand, including a potential sale. During the earnings call, WAG CEO Roland Smith said there are several "quality bidders" interested in the Arby's chain.

In the meantime, the chain's strong quarter came from a continued effort around its turnaround plan implemented in March 2010, as well as the everday dollar value menu, the introduction of the "Good Mood Food" tagline and the successful launch of the Angus Three Cheese and Bacon Sandwich.

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. Arby's North America systemwide same-store sales increased 5.5 percent. North America company-operated same-store sales increased 6.8 percent and North America franchise same-store sales increased 4.8 percent.

Arby's company-operated restaurant margin was 10.6 percent, compared to 10.8 percent in the first quarter 2010. The year-over-year difference was due to commodity cost increases substantially offset by sales leverage.

Wendy's Q1 '11 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 due to the effect of higher sales taxes in two Canadian provinces. Wendy's U.S. systemwide same-store sales increased 0.3 percent.

North America company-operated same-store sales decreased 0.9 percent and Wendy's North America franchise same-store sales increased 0.3 percent.

Wendy's company-operated restaurant margin was 13.4 percent compared to 15.4 percent in the first quarter 2010. The year-over-year difference was primarily due to higher commodity costs and incremental advertising to introduce Wendy's new breakfast.

"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," Smith said. "In the first quarter, we continued to invest in our business as we position the Wendy's brand for 10 percent to 15 percent 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."

Looking ahead

Smith said new items to be introduced at Wendy's later this year include Dave's Hot 'n Juicy cheeseburgers, which have been in test in some markets since late last year. Also, a line of premium chicken sandwiches will be introduced, as well a Berry Almond Chicken Salad. Breakfast will be rolled out in approximately 1,000 restaurants by year's end.

"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.

The company's 2011 outlook also includes:

• Same-store sales growth of 1 percent to 3 percent 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;
• 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.

"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," Smith said.

"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."

International growth – Russia

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 throughout the next 10 years.