News

Wendy’s/Arby’s Q4 loss narrows; brand signs Japan deal

March 2, 2011

Wendy’s/Arby’s Group Inc. (WAG) has reported results for its fourth quarter and 2010 ended Jan. 2. Although the company posted a Q4 net loss of $10.8 million, or 3 cents per share, it was a slight improvement from its Q409 loss of $14.7 million.

Revenue dropped to $840.7 million in the fourth quarter, compared to $900.9 million the same period in 2009, which included one more week of operations.

For the year, consolidated revenues were $3.4 billion as compared to full-year 2009 revenues of $3.6 billion.
The company is currently exploring strategic alternatives for its Arby’s brand, including a potential sale. 

The results – and restructuring – affirm a strong long-term EBITDA growth target for Wendy’s of 10-15 percent. The brand is in the middle of a vast expansion that includes international markets, such as Argentina and the Philippines, as well as underpenetrated North American markets.

According to Roland Smith, president and CEO of WAG, by successfully executing these opportunities, the company intends to maximize shareholder value and achieve strong long-term earnings potential.

“We view Wendy's as one of the most attractive long-term growth stories in the quick-service restaurant industry. We are implementing a comprehensive plan to drive incremental sales at existing restaurants by introducing exciting new products, expanding dayparts and modernizing our facilities,” Smith said.

2011 Outlook

The company anticipates EBITDA will be between $345 million and $355 million in 2011, a year Smith has already described as a “transition period.” This estimate assumes a sale of Arby’s and consequent general and administrative expense reductions. Other 2011 expectations include:

• Same-store sales growth of 1 percent to 3 percent at Wendy’s North America company-operated restaurants.
• Improvement of 30 to 60 basis points in Wendy’s company-operated restaurant margin.
• 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.
• Wendy’s long-term target of 10-15 percent in average EBITDA growth beginning in 2012.

Growth plan includes Japan

In addition to signing new agreements in the Philippines and Argentina, Wendy’s is also eyeing the Japanese market for a re-launch of the brand. In December 2009, Wendy’s did not renew its agreement with its former franchisee for Japan, resulting in the closing of 71 restaurants.

The new joint venture agreement in that market is with Ernest Higa and Higa Industries Co. Ltd., a food importer and distributor.

Higa owned and operated 180 Domino’s Pizza stores in Japan before selling this business in February 2010. A pioneer of the Japanese home delivery market, Higa’s stores became known for gourmet pizza products and the use of the Internet and wireless technology to promote menu items and enhance the customer ordering experience.

Higa plans to offer signature Wendy’s products, such as its hamburgers, chili and Frosty desserts, while also introducing new products such as premium sandwiches and hamburgers with gourmet toppings.

“We’ll further differentiate our restaurants from other local restaurants by adding exciting new products all served in a contemporary atmosphere that should exceed the expectations of Japanese consumers,” Higa said.

The first Wendy’s restaurant is expected to open in Tokyo later this year with plans to rapidly expand the brand in the city and the remainder of the country in the coming years.

Since June 2009, Wendy’s/Arby’s Group subsidiaries have signed new development agreements for portions of the Middle East and North Africa, Singapore, Turkey, Russia, the Eastern Caribbean and Argentina.