Wendy’s International, Inc. announces 2006 first-quarter results
Revenues increased 4.2% to $931.5 million
Net income was $51.2 million and $0.44 per share
CONTACT:
DUBLIN, Ohio (April 27, 2006) – Wendy’s International, Inc. (NYSE: WEN) today announced its financial results for the first quarter 2006.
First-quarter results
- Total revenues increased 4.2% to $931.5 million.
- The Company’s first-quarter pretax income was $58.4 million compared to $79.5 million in 2005. Net income was $51.2 million compared to $51.3 million in 2005. Reported diluted earnings per share (EPS) were $0.44 compared to $0.45 in 2005.
The 2006 first-quarter results include the impact of:
- Strong sales at Tim Hortons®, both in Canada and the U.S.
- Lower-than-expected sales at Wendy’s® and Baja Fresh® Mexican Grill.
- A total of 57 new system-wide restaurants opened in the quarter, compared to 77 in the same period a year ago.
- $15 million in incremental pretax advertising expense. The Company expects the remaining $10 million of this previously announced $25 million total pretax expenditure to impact second-quarter results. The incremental advertising expense will impact the operating costs line on the income statement.
- A lower year-over-year first-quarter effective tax rate, which resulted primarily from two items:
- The deferred tax reversal of previously accrued Canadian withholding taxes, which decreased first-quarter income tax expense by approximately $5.0 million.
- Permanent book and tax differences relating to certain hedge transactions, which decreased first-quarter income tax expense by approximately $3.8 million.
The Company does not expect to realize benefits of a similar nature in subsequent periods.
- Stronger Canadian currency ($1.15 vs. $1.23 in 2005), which benefited pretax income by approximately $4.2 million compared to 2005.
- The loss of approximately $4 million in rental income due to the sale of Wendy’s properties during 2005.
- The loss of 17.25% of the net income contribution from Tim Hortons for one week following its initial public offering (IPO) in late March, resulting in a year-over-year reduction of approximately $700,000 of pretax income.
- Lower costs for fresh ground beef, which averaged $1.38 per pound during the first quarter of 2006, versus $1.42 per pound a year ago. This benefited pretax income by approximately $700,000 compared to 2005. The Company expects to pay $1.425 per pound in the second quarter of 2006, versus $1.52 per pound a year ago.
- General and administrative (G&A) expenses were $82.5 million, or 8.9% of revenue, compared to $75.8 million, or 8.5% of revenue, in the first quarter of 2005. G&A includes the impact of higher consulting fees and certain IPO costs, partially offset by a reduction in the accrual for performance-based incentive compensation.
- Other income was $8.6 million, an increase of $4.6 million compared to $4.0 million in the first quarter of 2005, primarily reflecting net gains on Wendy’s properties sold during 2006.
Company provides update of Wendy’s Combo Plan to increase sales, reduce costs and improve store-level margins
“We are optimistic about initiatives we have in place to increase sales during the second quarter,” said Kerrii Anderson, interim Chief Executive Officer and President. “We are also making significant progress on other aspects of Wendy’s Combo Plan, including new product introductions and cost reductions throughout the organization.”
Wendy’s promoted its Spicy Chicken sandwich and launched three new Garden Sensations® salads in March. This month, Wendy’s introduced its Frescata™ line of deli sandwiches with national advertising. The Frescata line includes Black Forest Ham & Swiss Cheese, Roasted Turkey with Basil Pesto, Roasted Turkey & Swiss Cheese and the Frescata Club. Each is made with premium meats and freshly baked artisan bread.
“Frescata is our most exciting product launch in many years, and we are already seeing a favorable response from consumers,” Anderson said. “The high-quality ingredients and proprietary, par-baked bread distinguish the Frescata sandwich line from competitive offerings.”
During the second quarter, the Company plans to re-energize its Late Night business with national media support, launch its new 3-Tier Combo program and promote its Wendy's Kids’ Meal® Choices program, featuring two nutritious new Kids’ Meal sandwiches, Turkey & Cheese and Ham & Cheese.
The Company this week announced it has named Dave Near to the newly created position of Chief Operations Officer of the Wendy’s brand. Near will be responsible for Wendy’s U.S., Canadian and International restaurant operations – both franchised and company. Near has been a Wendy’s franchisee since 1995, operating 29 stores in the Austin, Texas market with average unit volumes of nearly $1.5 million, which is higher than the system average of $1.3 million. He will report to Anderson. Near begins his new position on May 1 and will work out of the Company’s Dublin, Ohio headquarters.
Company announces progress on “Next Chapter” initiatives, now targeting $100 million in overhead cost reduction while strengthening service to restaurants and franchisees
The Company announced on February 6 its “Next Chapter” initiative to improve processes throughout the organization, generate new efficiencies and identify cost reductions. The goal is to significantly improve the operational and financial performance of the Wendy’s brand.
“Our mission is to serve our customers fresh, delicious food made with the highest quality ingredients – quickly, accurately and with a smile,” said Wendy’s Chairman Jim Pickett. “At the same time, we will focus even greater attention on improving restaurant operations and increasing store-level profitability for franchisees and the Company.”
Following extensive analysis and validation, the Company has increased its target for overhead cost reduction to approximately $100 million, up from the previously announced range of $40 million to $60 million. The Company plans to begin implementing elements of the cost reduction program in the second half of 2006 and achieve the $100 million run rate benefit beginning in 2007.
The Company is focusing on significantly improving restaurant operations by better utilizing resources to enhance its service to franchisees and customers while reducing costs. The cost reductions will primarily come from corporate and field overhead.
Company completes Tim Hortons IPO
The Company successfully completed the initial public offering of 17.25% of Tim Hortons Inc., with trading commencing on the Toronto Stock Exchange and New York Stock Exchange on March 24. The Company maintains an 82.75% ownership in Tim Hortons and has announced that it intends to spin off the remaining ownership position by December 31, 2006.
Board approves 113th consecutive dividend
The Board of Directors approved a quarterly dividend of $0.17 per share, payable on May 22 to shareholders of record as of May 8. The dividend will be the Company’s 113th consecutive dividend.
First Quarter conference call and webcast scheduled for today, April 27
Company management will host a conference call, along with executive management of Tim Hortons, at 2:00 p.m. (Eastern) today, April 27 to discuss first quarter results. Investors and the public may participate in the conference call in either one of the following ways:
- Phone Call: The dial-in number is 877-572-6014 (U.S. and Canada) or 706-679-4852 (International). No need to register in advance.
- Simultaneous Web Cast: Available at www.wendys-invest.com. The call will also be archived at that site.
First-Quarter Same-Store Sales Summary*
|
1Q 2006 |
1Q 2005 |
Wendy’s U.S. Company |
-4.8% |
-2.2% |
Wendy’s U.S. Franchise |
-5.2% |
-1.0% |
Tim Hortons Canada |
8.7% |
5.8% |
Tim Hortons U.S. |
9.8% |
7.7% |
Baja Fresh System |
-3.7% |
-6.1% |
* Easter was in March a year ago, but was in April this year.
First-Quarter New Restaurant Openings
|
1Q 2006 |
1Q 2005 |
Wendy’s |
29 |
45 |
Tim Hortons |
27 |
23 |
Baja Fresh |
1 |
9 |
TOTAL |
57 |
77 |
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 restaurant operating and franchising companies with more than 9,900 total restaurants and five quality brands, including Wendy's Old Fashioned Hamburgers®, Tim Hortons, Baja Fresh Mexican Grill, Cafe Express™ and Pasta Pomodoro®. 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
4/2/2006 4/3/2005 $ Change % Change
--------- --------- --------- ---------
REVENUES
Retail sales $753,747 $724,547 $29,200 4.0%
Franchise revenues 177,773 169,626 8,147 4.8%
--------- --------- --------- ---------
TOTAL REVENUES 931,520 894,173 37,347 4.2%
--------- --------- --------- ---------
COSTS & EXPENSES
Cost of sales 505,808 477,915 27,893 5.8%
Company restaurant operating
costs 175,713 169,670 6,043 3.6%
Operating costs 60,351 36,182 24,169 66.8%
Depreciation of property &
equipment 48,932 48,718 214 0.4%
General & administrative
expenses 82,484 75,844 6,640 8.8%
Other income (8,580) (3,968) (4,612) -116.2%
--------- --------- --------- ---------
TOTAL COSTS & EXPENSES 864,708 804,361 60,347 7.5%
--------- --------- --------- ---------
OPERATING INCOME 66,812 89,812 (23,000) -25.6%
Interest expense (12,599) (11,534) (1,065) -9.2%
Interest income 4,138 1,189 2,949 248.0%
--------- --------- --------- ---------
PRETAX INCOME 58,351 79,467 (21,116) -26.6%
INCOME TAXES 6,654 28,211 21,557 n/m
THI minority interest 465 0 (465) n/m
--------- --------- --------- ---------
NET INCOME $51,232 $51,256 ($24) 0.0%
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted earnings per common
share $0.44 $0.45 ($0.01) -2.2%
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted shares 116,397 114,596 1,801 1.6%
--------- --------- --------- ---------
--------- --------- --------- ---------
n/m -- Not meaningful
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 2, January 1,
2006 2006
----------- -----------
(Unaudited)
(Dollars in thousands)
ASSETS
Current assets
Cash and cash equivalents $1,307,426 $393,241
Accounts receivable, net 142,204 138,999
Notes receivable, net 12,282 11,746
Deferred income taxes 29,903 29,043
Inventories and other 72,292 62,868
Advertising fund restricted assets 74,022 53,866
Assets held for disposition 13,552 66,803
----------- -----------
1,651,681 756,566
----------- -----------
Property and equipment 3,491,647 3,421,354
Accumulated depreciation (1,137,891) (1,095,466)
----------- -----------
2,353,756 2,325,888
----------- -----------
Notes receivable, net 17,147 14,796
Goodwill 128,667 128,808
Deferred income taxes 6,738 6,623
Intangible assets, net 41,123 41,757
Other assets 162,220 165,880
----------- -----------
$4,361,332 $3,440,318
----------- -----------
----------- -----------
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 2, January 1,
2006 2006
----------- -----------
(Unaudited)
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $147,842 $188,481
Accrued expenses:
Salaries and wages 36,208 51,184
Taxes 59,579 116,920
Insurance 59,502 58,147
Other 89,486 90,263
Advertising fund restricted liabilities 86,903 68,929
Current portion of long-term obligations 9,388 9,428
----------- -----------
488,908 583,352
----------- -----------
Long-term obligations
Term debt 990,817 559,097
Capital leases 57,435 56,736
----------- -----------
1,048,252 615,833
----------- -----------
Deferred income taxes 69,803 78,206
Other long-term liabilities 105,023 104,338
Commitments and contingencies
Minority interest in THI 170,026 0
Shareholders' equity
Preferred stock, Authorized: 250,000 shares
Common stock, $.10 stated value per share,
Authorized: 200,000,000 shares,
Issued: 126,984,000 and 125,490,000 shares,
respectively 12,698 12,549
Capital in excess of stated value 977,197 367,810
Retained earnings 1,889,332 1,858,743
Accumulated other comprehensive income
(expense):
Cumulative translation adjustments and other 115,921 115,252
Pension liability (1,096) (1,096)
----------- -----------
2,994,052 2,353,258
Treasury stock, at cost:
11,431,000 and 7,681,000 shares,
respectively (514,732) (294,669)
----------- -----------
2,479,320 2,058,589
----------- -----------
$4,361,332 $3,440,318
----------- -----------
----------- -----------
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
REVENUES BY SEGMENT
(in thousands): Increase (Decrease)
First Quarter Ended From Prior Year
--------------------------------- --------------------
April 2, % of April 3, % of
2006 Total 2005 Total Dollars Percentage
--------- ------ --------- ------ --------- ----------
Retail Sales
---------------
Wendy's $499,231 66.2% $514,034 70.9% ($14,803) -2.9%
Tim Hortons 208,200 27.6% 162,144 22.4% 46,056 28.4%
Developing
Brands(a) 46,316 6.2% 48,369 6.7% (2,053) -4.2%
--------- --------- ---------
$753,747 100.0% $724,547 100.0% $29,200 4.0%
--------- --------- ---------
--------- --------- ---------
Franchise
Revenues
---------------
Wendy's $65,242 36.7% $74,833 44.1% ($9,591) -12.8%
Tim Hortons 110,823 62.3% 92,745 54.7% 18,078 19.5%
Developing
Brands(a) 1,708 1.0% 2,048 1.2% (340) -16.6%
--------- --------- ---------
$177,773 100.0% $169,626 100.0% $8,147 4.8%
--------- --------- ---------
--------- --------- ---------
Total Revenues
---------------
Wendy's $564,473 60.6% $588,867 65.9% ($24,394) -4.1%
Tim Hortons 319,023 34.2% 254,889 28.5% 64,134 25.2%
Developing
Brands(a) 48,024 5.2% 50,417 5.6% (2,393) -4.7%
--------- --------- ---------
$931,520 100.0% $894,173 100.0% $37,347 4.2%
--------- --------- ---------
--------- --------- ---------
(a) Developing Brands includes Baja Fresh and Cafe Express.
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
OPERATING INCOME BY SEGMENT
(in thousands):
First Quarter Ended Change
---------------------------------- ---------------------
April 2, % of April 3, % of
2006 Revenues 2005 Revenues Dollars Percentage
-------- -------- -------- -------- --------- ----------
Operating
Income
(Loss)
--------------
Wendy's $11,782 2.1% $43,938 7.5% ($32,156) -73.2%
Tim Hortons 75,954 23.8% 62,544 24.5% 13,410 21.4%
Developing
Brands(a) (4,466) -9.3% (3,455) -6.9% (1,011) -29.3%
-------- -------- ---------
Segment
operating
income 83,270 8.9% 103,027 11.5% (19,757) -19.2%
Corporate
charges(b) (16,458) -1.8% (13,215) -1.5% (3,243) -24.5%
-------- -------- ---------
Operating
income $66,812 7.2% $89,812 10.0% ($23,000) -25.6%
-------- -------- ---------
-------- -------- ---------
(a) Developing Brands includes Baja Fresh and Cafe Express.
(b) Corporate charges include certain overhead costs which are not
allocated to individual segments.
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
RATIOS
As of As of
April 2, 2006 January 1, 2006
--------------------------------------
Long Term Debt to Equity 42% 30%
Debt to Total Capitalization 30% 23%
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
SYSTEMWIDE RESTAURANTS
Increase/ Increase/
As of As of (Decrease) As of (Decrease)
April 2, January 1, From Prior April 3, From Prior
2006 2006 Quarter 2005 Year
------------------------------------------------------
Wendy's
---------------
U.S.
Company 1,313 1,345 (32) 1,332 (19)
Franchise 4,704 4,673 31 4,628 76
------------------------------------------------------
6,017 6,018 (1) 5,960 57
Canada
Company 150 152 (2) 154 (4)
Franchise 230 225 5 230 0
------------------------------------------------------
380 377 3 384 (4)
Other
International
Company 5 5 0 5 0
Franchise 343 346 (3) 350 (7)
------------------------------------------------------
348 351 (3) 355 (7)
Total Wendy's
Company 1,468 1,502 (34) 1,491 (23)
Franchise 5,277 5,244 33 5,208 69
------------------------------------------------------
6,745 6,746 (1) 6,699 46
------------------------------------------------------
------------------------------------------------------
Tim Hortons
---------------
U.S.
Company 63 62 1 67 (4)
Franchise 229 226 3 193 36
------------------------------------------------------
292 288 4 260 32
Canada
Company 35 33 2 33 2
Franchise 2,576 2,564 12 2,445 131
------------------------------------------------------
2,611 2,597 14 2,478 133
Total Tim
Hortons
Company 98 95 3 100 (2)
Franchise 2,805 2,790 15 2,638 167
------------------------------------------------------
2,903 2,885 18 2,738 165
------------------------------------------------------
------------------------------------------------------
Baja Fresh
---------------
U.S.
Company 143 142 1 146 (3)
Franchise 156 157 (1) 154 2
------------------------------------------------------
Total Baja
Fresh 299 299 0 300 (1)
------------------------------------------------------
------------------------------------------------------
Cafe Express
---------------
U.S.
Company 19 19 0 19 0
------------------------------------------------------
Total Cafe
Express 19 19 0 19 0
------------------------------------------------------
------------------------------------------------------
Total System
---------------
Company 1,728 1,758 (30) 1,756 (28)
Franchise 8,238 8,191 47 8,000 238
------------------------------------------------------
9,966 9,949 17 9,756 210
------------------------------------------------------
------------------------------------------------------
WENDY'S INTERNATIONAL, INC.
Income Statement Definitions
Retail Sales Includes sales from company operated restaurants.
Also included are the sales to franchisees from
Wendy's bun baking facilities, and sales to
franchisees from Tim Hortons' coffee roaster and
distribution warehouses.
Franchise Consists primarily of royalties, rental income and
Revenues franchise fees. Franchise fees include charges for
various costs and expenses related to establishing
a franchisee's business, and include initial
equipment packages for the Hortons' franchises.
Cost of Sales Includes food, paper and labor costs for
restaurants. Also included are the cost of goods
sold to franchisees from Wendy's bun baking
facilities, and Tim Hortons' coffee roaster and
distribution warehouses.
Company Restaurant Consists of all costs necessary to manage and
Operating Costs 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 cost of equipment sold to
franchisees as part of the initiation of the
franchise business. Training and other costs
necessary to ensure a successful Hortons'
franchise opening and costs to operate and
maintain the Tim Hortons' distribution warehouses,
Tim Hortons' coffee roaster and Wendy's bun baking
facilities are also included in operating costs.
General and Costs that cannot be directly related to generating
Administrative revenue.
Expenses
Other Income and Includes expenses (income) that are not directly
Expense 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 and
other asset write-offs.
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