Wendy's International, Inc. Announces 2007 First-Quarter Results
Total EBITDA from continuing operations increased 85.0% to $57.0 million;
EBITDA margins from continuing operations increased 440 basis points
Company-operated restaurant EBITDA margins increased 260 basis points to
8.6%
Company reiterates annual guidance of $330 to $340 million in EBITDA and
$1.26 to $1.32 in earnings per share for 2007
Company announces formation of special committee of independent Directors
to review strategic options to enhance shareholder value
DUBLIN, OHIO, April 25 /CNW/ - Wendy's International, Inc. (NYSE:WEN)
today announced its financial results for the first quarter 2007.
The Company completed its spinoff of Tim Hortons(R) in the third quarter
of 2006 and completed the sale of Baja Fresh(R) Mexican Grill during the
fourth quarter of 2006. During the fourth quarter of 2006, the Company also
approved the prospective sale of Cafe Express. Accordingly, the after-tax
operating results of Tim Hortons, Baja Fresh and Cafe Express now appear in
the "Discontinued Operations" line on the income statement.
First-quarter highlights
-- Total revenues were $590.2 million in the first quarter of 2007, up
2.0% compared to $578.7 million in the first quarter of 2006.
-- The Company and its franchisees opened a total of 11 new Wendy's(R)
restaurants during the quarter. The openings consisted of three
company-operated restaurants and eight franchise restaurants. Due to closings
of underperforming restaurants, the total number of systemwide Wendy's
restaurants at the end of the first quarter in 2007 was lower at 6,658,
compared to 6,673 at year-end 2006 and 6,745 at the end of the first quarter
in 2006.
-- Same-store sales were up 3.8% for U.S. company-operated restaurants
and 3.7% for U.S. franchise restaurants.
-- Earnings before interest, taxes, depreciation and amortization
(EBITDA) from continuing operations was $57.0 million in the first quarter of
2007, up 85.0% compared to $30.8 million in the first quarter of 2006. Company
EBITDA margins from continuing operations increased 440 basis points compared
to one year ago. Company EBITDA margins from continuing operations consist of
operating income plus depreciation and amortization divided by revenue. (See
"Disclosure regarding non-GAAP financial measures" below).
-- Reported company-operated restaurant EBITDA margins were 8.6% in the
first quarter of 2007, compared to 6.0% one year ago. Company-operated
restaurant EBITDA margins consist of sales from company-operated restaurants
minus cost of sales from company-operated restaurants minus company restaurant
operating costs divided by sales from company-operated restaurants. As a
result of its 2006 spinoff of Tim Hortons, the Company, in accordance with
generally accepted accounting principles (GAAP), now accounts for its 50%
share of the joint venture with Tim Hortons under the equity method of
accounting, rather than consolidating the results of the joint venture in the
Company's financial statements. Without this change, company-operated
restaurant EBITDA margins would have been 8.9% during the first quarter of
2007.
Pretax income from continuing operations was $21.8 million in the first
quarter of 2007, compared to a pretax loss from continuing operations of $7.6
million in the first quarter of 2006. The Company reported income from
continuing operations of $14.5 million and $0.15 per share in the first
quarter of 2007, compared to a loss from continuing operations of $5.9 million
and $0.05 per share in the first quarter of 2006.
"We produced significant improvement in the first quarter as we executed
our strategic plan," said Chief Executive Officer and President Kerrii
Anderson. "We continue to revitalize the Wendy's brand, improve operations and
focus on driving sales and profits. Our goal is to build on the 10 consecutive
months of positive same-store sales we have produced with innovative new
product introductions and effective menu management."
First-quarter promotional calendar
In January, Wendy's promoted its new Deluxe Value Meals, featuring a
sandwich, small order of fries and a 20-ounce cold drink at a suggested price
of $2.99. In February, Wendy's offered several limited-time sandwiches
including the bacon mushroom melt cheeseburger, Mozzarella Lovers' Bacon
Cheeseburger(R), bacon Swiss chicken sandwich and bacon Swiss cheeseburger. In
March, Wendy's turned up the heat with its new 4-Alarm Spicy Chicken sandwich.
"The positive impact from new product introductions such as our Deluxe
Value Meals and the Three-Tier Combos, as part of our menu management
strategy, helped improve our results compared to last year," Anderson said.
"We also made progress executing many other elements of our strategic plan
that we anticipate will benefit future quarters."
First-quarter results
The Company's first-quarter 2007 reported results from continuing
operations include the impact of:
-- Sales - $522.9 million in the first quarter of 2007, compared to
$513.4 million in the first quarter of 2006. The year-over-year increase is
due primarily to higher same-store sales in U.S. restaurants compared to
negative same-store sales a year ago.
-- Franchise revenues - $67.2 million in the first quarter of 2007,
compared to $65.2 million in the first quarter of 2006. The year-over-year
increase is due primarily to higher same-store sales compared to negative
same-store sales a year ago.
-- Cost of sales - $324.1 million in the first quarter of 2007, compared
to $329.7 million in the first quarter of 2006, a 2.2% improvement as a
percentage of sales. The year-over-year improvement is due to positive
same-store sales, lower commodity costs, particularly beef, as well as a
favorable change in product mix toward higher-margin products and better food
cost management.
-- Company restaurant operating costs - $152.4 million, or 29.1% of
sales, in the first quarter of 2007, compared to $149.9 million, or 29.2% of
sales, in the first quarter of 2006. The year-over-year improvement is due
primarily to leverage from positive same-store sales, partially offset by some
cost increases. The previously mentioned change in accounting for the joint
venture with Tim Hortons resulted in a 0.2% increase in company restaurant
operating costs during the first quarter of 2007.
-- Operating costs - $3.9 million in the first quarter of 2007, compared
to $19.8 million in the first quarter of 2006. The year-over-year improvement
is due primarily to $15 million in incremental pretax advertising expense for
Wendy's in the first quarter of 2006 that did not recur in 2007.
-- General and administrative expense - $50.8 million, or 8.6% of
revenue, in the first quarter of 2007, compared to $55.3 million, or 9.6% of
revenue, in the first quarter of 2006. The year-over-year improvement is due
primarily to lower salaries and benefits as a result of the elimination of 355
full-time positions in 2006, in addition to reduced consulting and
professional services expenses. Partly offsetting these reductions were higher
stock compensation expense and a higher accrual for performance-based
incentive payments, as the Company expects to pay bonuses commensurate with
improved operating results in 2007.
-- Other (income) expense - $2.3 million of expense in the first quarter
of 2007, compared to $6.6 million of income in the first quarter of 2006. The
year-over-year change is due primarily to approximately $3 million in
incremental store closure charges in the first quarter of 2007 and the absence
of approximately $4 million in asset gains on the sale of Wendy's properties
in the first quarter of 2006 that did not recur in the first quarter of 2007.
-- Interest - $6.8 million of net interest expense in the first quarter
of 2007, compared to $7.0 million of net interest expense in the first quarter
of 2006.
-- Taxes - The Company's effective tax rate was 33.5% in the first
quarter of 2007. Taxes benefited EPS in 2006, as the Company reported a net
loss.
-- Shares outstanding - A lower share count (95.7 million average shares
in the first quarter of 2007 compared to 114.7 million average shares in the
first quarter of 2006).
-- Joint venture with Tim Hortons - The previously mentioned change in
accounting for the Company's joint venture with Tim Hortons resulted in an
overall reduction to first-quarter 2007 operating income of $1.8 million
compared to the first quarter 2006.
Company announces formation of special committee of independent Directors
to review strategic options to enhance shareholder value
The Company announced today that its Board of Directors, acting
unanimously, has formed a special committee of independent directors to
investigate all strategic options for Wendy's.
These options, among other things, may include revisions to the Company's
strategic plan, changes to its capital structure, a possible sale, merger or
other business combination. The committee will be led by Chairman of the Board
James V. Pickett.
"The Company has made progress executing its strategic plan," said
Pickett. "The Board's formation of the special committee is a positive step in
Wendy's continuing efforts to further enhance value for its shareholders,
franchisees and other stakeholders."
The Company does not intend to provide periodic updates regarding the
special committee's actions, but will report specific developments as
circumstances warrant. There is no assurance that the process will result in
any changes to the Company's current plans. Certain strategic alternatives
could affect the Company's earnings guidance.
"There is no specific timeframe to complete the review and there are no
constraints on options to be explored by the committee," said Pickett. "A
number of stakeholders have offered suggestions about strategies to improve
performance and create additional value. The special committee will review
strategic options while management continues to focus on executing Wendy's
current strategic plan to revitalize the brand and improve results at every
restaurant in the system."
Company repurchased 9.0 million shares in the first quarter
During the quarter, the Company announced the conclusion of its
accelerated share repurchase (ASR) transaction. The Company repurchased 9.0
million shares in the transaction at an initial purchase price of $31.33 per
share. The repurchased shares in the ASR are subject to a future
contingent-purchase price adjustment expected to be settled in the second or
third quarter of 2007.
Including all repurchase activity to date, 4.0 million shares currently
remain under the Board of Directors' authorization, which is also the amount
remaining under the Internal Revenue Service ruling related to the tax-free
spin-off of Tim Hortons in September 2006.
Management reiterates 2007 EPS guidance of $1.26 to $1.32
As previously stated on March 20, management expects its 2007 full-year
EPS to be in a range of $1.26 to $1.32. The Company also confirmed that its
2007 full-year guidance for EBITDA remains unchanged at $330 million to $340
million. As noted above, certain strategic initiatives could affect guidance.
The Company expects rising commodity prices, driven by demand for
ethanol, will result in higher-than-expected food costs for the balance of the
year, specifically, produce and chicken.
"We are working on many initiatives to offset rising costs, as we focus
on improving margins at every restaurant in the Wendy's system," Anderson
said. "We are confident our initiatives to drive sales, reduce store-level
management labor and improve service times will result in profit growth in the
second half."
Board approves 117th consecutive dividend
The Board of Directors approved a quarterly dividend of 12.5 cents per
share, payable May 21 to shareholders of record as of May 7. The dividend
payment will represent the Company's 117th consecutive dividend.
Company to host annual meeting and first-quarter conference call
The Company's Annual Meeting of Shareholders is set for 9:00 a.m. ET
tomorrow, April 26, 2007. The meeting will be held at the Company's corporate
office in Dublin, Ohio, and will be webcast on www.wendys-invest.com.
The Company will hold a conference call and webcast to discuss the
Company's first quarter results at 1 p.m. ET tomorrow. The dial-in number is
(877) 572-6014 (U.S. and Canada) or (706) 679-4852 (International).
A simultaneous webcast of the conference call will also be available at
www.wendys-invest.com. The call will also be archived at that site.
Disclosure regarding non-GAAP financial measures
EBITDA is used by management as a performance measure for benchmarking
against its peers and competitors. The Company believes EBITDA is useful to
investors because it is frequently used by securities analysts, investors and
other interested parties to evaluate companies in the restaurant industry.
EBITDA is not a recognized term under GAAP.
The following is a reconciliation of 2007 estimated operating income
to 2007 estimated EBITDA:
2007 estimated operating income: $215 million to $225 million
2007 estimated depreciation and
amortization: $115 million
----------------------------------------------------------------------
2007 estimated EBITDA: $330 million to $340 million
The following is a reconciliation of 2007 first-quarter operating
income to 2007 first-quarter EBITDA:
2007 1Q operating income: $28.6 million
2007 1Q depreciation and amortization: $28.4 million
----------------------------------------------------------------------
2007 1Q EBITDA: $57.0 million
The following is a reconciliation of 2006 first-quarter operating loss
to 2006 first-quarter EBITDA:
2006 1Q operating loss: ($ 0.6 million)
2006 1Q depreciation and amortization: $31.4 million
----------------------------------------------------------------------
2006 1Q EBITDA: $30.8 million
Safe Harbor statement
Certain information in this news release, particularly information
regarding future economic performance and finances, and plans, expectations
and objectives of management, is forward looking. Factors set forth in our
Safe Harbor under the Private Securities Litigation Reform Act of 1995, in
addition to other possible factors not listed, could affect the Company's
actual results and cause such results to differ materially from those
expressed in forward-looking statements. Please review the Company's Safe
Harbor statement at http://www.wendys-invest.com/safeharbor.
Wendy's International, Inc. overview
Wendy's International, Inc. is one of the world's largest and most
successful restaurant operating and franchising companies. More information
about the Company is available at www.wendys-invest.com.
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
First Quarter Ended
4/1/2007 4/2/2006 $ Change % Change
--------- --------- --------- ---------
REVENUES
Sales $522,944 $513,435 $9,509 1.9%
Franchise revenues 67,220 65,243 1,977 3.0%
--------- --------- --------- ---------
TOTAL REVENUES 590,164 578,678 11,486 2.0%
--------- --------- --------- ---------
COSTS & EXPENSES
Cost of sales 324,061 329,724 (5,663) -1.7%
Company restaurant operating
costs 152,388 149,917 2,471 1.6%
Operating costs 3,935 19,811 (15,876) -80.1%
Depreciation of property &
equipment 28,052 31,109 (3,057) -9.8%
General & administrative
expenses 50,822 55,297 (4,475) -8.1%
Other expense (income), net 2,349 (6,602) 8,951 n/m
--------- --------- --------- ---------
TOTAL COSTS & EXPENSES 561,607 579,256 (17,649) -3.0%
--------- --------- --------- ---------
OPERATING INCOME (LOSS) 28,557 (578) 29,135 n/m
Interest expense (12,207) (9,033) (3,174) -35.1%
Interest income 5,416 2,033 3,383 -166.4%
--------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 21,766 (7,578) 29,344 n/m
INCOME TAXES 7,285 (1,681) 8,966 n/m
--------- --------- --------- ---------
INCOME (LOSS) from continuing
operations $14,481 (5,897) $20,378 n/m
INCOME from discontinued
operations $206 $57,129 (56,923) -99.6%
--------- --------- --------- ---------
NET INCOME $14,687 $51,232 ($36,545) -71.3%
--------- --------- --------- ---------
Diluted earnings (loss) per
common share from continuing
operations $0.15 ($0.05) $0.20 n/m
--------- --------- --------- ---------
Diluted earnings per common
share from discontinued
operations $0.00 $0.50 ($0.50) -100.0%
--------- --------- --------- ---------
Total diluted earnings per
common share $0.15 $0.45 ($0.30) -66.7%
--------- --------- --------- ---------
Diluted shares 95,706 114,722 (19,016) -16.6%
--------- --------- --------- ---------
n/m - not meaningful
Note: Due to the first quarter 2006 loss from continuing operations,
basic shares are used for earnings per share calculations.
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 1, December 31,
2007 2006
----------- ------------
(Unaudited)
(Dollars in thousands)
ASSETS
Current assets
Cash and cash equivalents $196,149 $457,614
Accounts receivable, net 74,265 84,841
Deferred income taxes 25,167 29,651
Inventories and other 28,848 30,252
Advertising fund restricted assets 53,006 36,207
Assets held for disposition 12,034 15,455
Current assets of discontinued operations 3,879 2,712
----------- ------------
393,348 656,732
----------- ------------
Property and equipment 2,039,836 2,024,715
Accumulated depreciation (814,888) (798,387)
----------- ------------
1,224,948 1,226,328
----------- ------------
Goodwill 85,384 85,353
Deferred income taxes 4,552 4,316
Intangible assets, net 3,454 3,855
Other assets 86,178 82,738
Non current assets of discontinued operations 1,075 1,025
----------- ------------
$1,798,939 $2,060,347
----------- ------------
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 1, December 31,
2007 2006
----------- ------------
(Unaudited)
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $82,743 $93,465
Accrued expenses:
Salaries and wages 31,378 47,329
Taxes 24,198 46,138
Insurance 58,232 57,353
Other 55,380 32,199
Advertising fund restricted liabilities 53,006 28,568
Current portion of long-term obligations 89,206 87,396
Current liabilities of discontinued
operations 1,590 2,218
----------- ------------
395,733 394,666
----------- ------------
Long-term obligations
Term debt 521,296 537,139
Capital leases 19,017 18,963
----------- ------------
540,313 556,102
----------- ------------
Deferred income taxes 30,123 30,220
Other long-term liabilities 87,746 66,163
Non current liabilities of discontinued
operations 1,445 1,519
Commitments and contingencies
Shareholders' equity
Preferred stock, Authorized: 250,000 shares
Common stock, $.10 stated value per share,
Authorized: 200,000,000 shares,
Issued: 129,730,000 and 129,548,000
shares, respectively 12,973 12,955
Capital in excess of stated value 1,095,963 1,089,825
Retained earnings 1,247,955 1,241,489
Accumulated other comprehensive income
(expense):
Cumulative translation adjustments and
other 10,146 9,100
Pension liability (21,776) (22,546)
----------- ------------
2,345,261 2,330,823
Treasury stock, at cost:
42,844,000 and 33,844,000 shares,
respectively (1,601,682) (1,319,146)
----------- ------------
743,579 1,011,677
----------- ------------
$1,798,939 $2,060,347
----------- ------------
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
SYSTEMWIDE RESTAURANTS
Increase/ Increase/
As of As of (Decrease) As of (Decrease)
April 1, April 1, From Prior December 31, From Prior
2007 2006 Quarter 2006 Year
----------------------------------------------------
Wendy's
------------------
U.S.
Company 1,308 1,313 (5) 1,317 (9)
Franchise 4,641 4,704 (63) 4,638 3
----------------------------------------------------
5,949 6,017 (68) 5,955 (6)
Canada
Company 145 150 (5) 146 (1)
Franchise 231 230 1 231 0
----------------------------------------------------
376 380 (4) 377 (1)
Other
International
Company 2 5 (3) 2 0
Franchise 331 343 (12) 339 (8)
----------------------------------------------------
333 348 (15) 341 (8)
Total Wendy's
Company 1,455 1,468 (13) 1,465 (10)
Franchise 5,203 5,277 (74) 5,208 (5)
----------------------------------------------------
6,658 6,745 (87) 6,673 (15)
----------------------------------------------------
WENDY'S INTERNATIONAL, INC.
Income Statement Definitions
Sales Includes sales from company operated
restaurants. Also included are sales of
kids' meal toys and the sales to
franchisees from Wendy's bun baking
facilities.
Franchise Revenues Consists primarily of royalties, rental
income, gains from the sales of properties
to franchisees and franchise fees.
Franchise fees include charges for various
costs and expenses related to establishing
a franchisee's business.
Cost of Sales Includes food, paper and labor costs for
restaurants. Also included are the cost of
kids' meal toys and cost of goods sold to
franchisees from Wendy's bun baking
facilities.
Company Restaurant Consists of all costs necessary to manage
Operating Costs and operate restaurants, except cost of
sales and depreciation. These include
advertising, insurance, maintenance, rent,
etc., as well as support costs for
personnel directly related to restaurant
operations.
Operating Costs Includes rent expense related to properties
leased to franchisees and costs to operate
and maintain Wendy's bun baking facilities.
General and Costs that cannot be directly related to
Administrative Expenses generating revenue.
Other Income and Expense Includes expenses (income) that are not
directly derived from the Company's primary
businesses. This includes income from the
Company's investments in joint ventures and
other minority investments. Expenses
include store closures, other asset write-
offs, restructuring costs and sales of
properties to non-franchisees.
Income from Discontinued Reflects net income from Tim Hortons Inc.,
Operations Baja Fresh and Cafe Express.
For further information: Wendy's International, Inc. Investor Contacts:
John Barker, 614-764-3044 or john_barker@wendys.com David Poplar, 614-764-3547
or david_poplar@wendys.com or Media Contact: Denny Lynch, 614-764-3553 or
denny_lynch@wendys.com
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