Wendy’s International, Inc. (NYSE: WEN) announced today financial results for the second quarter of 2001. The Company’s quarter ended on July 1. The Company also announced July sales results at Wendy’s® and Tim Hortons®.
- Second Quarter Overview
- Systemwide sales grew 8.5% to $2.1 billion.
- The Company and its franchisees opened 101 new restaurants in the quarter, including 64 Wendy’s and 37 Tim Hortons.
- Total revenues increased 7.2% to a record $610 million.
- Same-store sales grew 2.8% at Wendy’s U.S. company restaurants, on top of a 2.8% increase during the same period in 2000. Same-store sales at Tim Hortons restaurants in Canada grew 7.1% on top of an 8.7% increase a year ago while same-store sales at Tim Hortons restaurants in the U.S. grew 5.6% vs. 11.8% a year ago.
- Wendy’s domestic operating margin was 16.1%, compared to 17.3% in the same quarter a year ago. Wendy’s restaurants experienced higher costs for beef, utilities and labor.
- Pretax income was $88.9 million, up 10% compared to a year ago.
- Net income was $56.0 million, up 11% compared to a year ago, and diluted earnings per share were $0.47, a 9% increase over $0.43 per share a year ago. The EPS results include $0.02 per share in asset gains in the second quarter both this year and a year ago.
- The Company purchased 450,000 shares of Wendy’s common stock in the quarter for $10.4 million. Year to date, the Company has purchased a total of 1.15 million shares for $25.3 million. Since initiating a share repurchase program in 1998, the Company has bought a total of 23 million shares for $517 million.
Chairman and Chief Executive Officer Jack Schuessler said: “We delivered a very good performance for the quarter driven by new restaurant openings, solid sales growth at Wendy’s and outstanding sales at Tim Hortons. Our ongoing focus on restaurant operations, overall quality and superior products continues to attract customers and produce good results. It’s encouraging to grow our net income at a rate higher than 10% in a period when we faced commodity cost increases and utility cost pressures.
“Our Wendy’s business in North America is solid and we have excellent promotional products planned for the rest of the year. The Mozzarella Chicken Supreme(TM) sandwich is our promotional product for August, with national advertising beginning today,” Schuessler added. “Tim Hortons continues to perform better than expected, which is important since the business represents about one-third of our pretax income. Tim Hortons will be promoting its popular Timbits® in August.”
Company expects 11-13% growth for the year 2001
Management confirmed its July announcement that it expects to produce net income and EPS growth in the 11-13% range for the full year 2001, which would produce EPS in the $1.70 to $1.73 range.
“We think the second half of 2001 will be on plan with ongoing sales growth at Wendy’s and Tim Hortons, some moderation in utility costs and continued moderation of crew labor rate increases,” said Executive Vice President and Chief Financial Officer Kerrii Anderson. “Our new restaurant development program is on track for more than 500 units systemwide for the year and we expect continued improvement in our International Wendy’s business.”
Management’s long-term EPS growth goal remains in the 12-15% range.
Wendy’s and Tim Hortons positive sales trends continue in July
At Wendy’s company operated restaurants in the United States, same-store sales during the July period increased about 2.5%, on top of a 1.6% increase during the same period a year ago. At Tim Hortons in Canada, same-store sales in July increased in the 7 to 8% range, on top of a 9.5% increase during the same period a year ago. The Company’s July sales period ends on August 5.
Quarterly dividend approved
The Board of Directors approved a quarterly dividend of 6 cents per share, payable on August 27 to shareholders of record as of August 13. It will be the Company’s 94th consecutive dividend payment to shareholders.
2001 Analyst Meeting at Tim Hortons
Management is planning to host its 2001 Analyst and Investor Meeting on September 24-25, in Toronto, Canada. The meeting will feature presentations about Tim Hortons, a tour of the chain’s research and development facility in Oakville, Ontario, and several restaurant visits.
Wendy’s International, Inc. is one of the world’s largest restaurant operating and franchising companies, with $7.7 billion in 2000 systemwide sales and two quality brands — Wendy’s and Tim Hortons. Wendy’s Old Fashioned Hamburgers® was founded in 1969 by Dave Thomas and is the third largest quick-service hamburger chain in the world with more than 5,800 restaurants in the United States, Canada and international markets. Tim Hortons was founded in 1964 by Tim Horton and Ron Joyce and is the largest coffee and fresh baked goods chain in Canada. There are more than 2,000 Tim Hortons restaurants of which more than 1,900 are in Canada.
WENDY’S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data – Unaudited)
Second Quarter Year-to-Date
07/01/2001 07/02/2000 07/01/2001 07/02/2000
Retail sales $491,464 $458,308 $941,067 $880,633
Franchise revenues 118,146 110,169 224,081 206,416
609,610 568,477 1,165,148 1,087,049
COSTS & EXPENSES
Cost of sales 311,063 288,047 599,565 555,634
operating costs 102,401 95,253 200,810 186,469
Operating costs 20,821 20,534 41,850 39,335
General & administrative
expenses 53,329 51,733 107,090 102,731
Depreciation & amortization
of property & equipment 29,372 26,609 58,078 52,446
Other (income) expense (794) 768 (1,325) 3,966
Interest, net 4,506 4,446 8,742 7,902
520,698 487,390 1,014,810 948,483
INCOME BEFORE INCOME TAXES 88,912 81,087 150,338 138,566
INCOME TAXES 32,898 30,409 55,625 51,963
NET INCOME $56,014 $50,678 $94,713 $86,603
Basic earnings per common share $0.49 $0.45 $0.83 $0.75
Diluted earnings per common share $0.47 $0.43 $0.80 $0.73
Basic shares 113,849 113,712 114,095 115,055
Diluted shares 122,590 121,791 112,853 123,030
WENDY’S INTERNATIONAL, INC.
Safe Harbor Under the Private Securities Litigation Reform Act of 1995
The Private Securities Litigation Reform Act of 1995 (the “Act”) provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information, so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the statement. Wendy’s International, Inc. (the “Company”) desires to take advantage of the “safe harbor” provisions of the Act.
Certain information in this news release, particularly information regarding future economic performance and finances, and plans, expectations and objectives of management, is forward looking. The following factors, 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:
Competition. The quick-service restaurant industry is intensely competitive with respect to price, service, location, personnel and type and quality of food. The Company and its franchisees compete with international, regional and local organizations primarily through the quality, variety and value perception of food products offered. The number and location of units, quality and speed of service, attractiveness of facilities, effectiveness of advertising and marketing programs, and new product development by the Company and its competitors are also important factors. The Company anticipates that intense competition will continue to focus on pricing. Certain of the Company’s competitors have substantially larger marketing budgets.
Economic, Market and Other Conditions. The quick-service restaurant industry is affected by changes in international, national, regional, and local economic conditions, consumer preferences and spending patterns, demographic trends, consumer perceptions of food safety, weather, traffic patterns and the type, number and location of competing restaurants. Factors such as inflation, food costs, labor and benefit costs, legal claims, and the availability of management and hourly employees also affect restaurant operations and administrative expenses. The ability of the Company and its franchisees to finance new restaurant development, improvements and additions to existing restaurants, and the acquisition of restaurants from, and sale of restaurants to franchisees is affected by economic conditions, including interest rates and other government policies impacting land and construction costs and the cost and availability of borrowed funds.
Importance of Locations. The success of Company and franchised restaurants is dependent in substantial part on location. There can be no assurance that current locations will continue to be attractive, as demographic patterns change. It is possible the neighborhood or economic conditions where restaurants are located could decline in the future, thus resulting in potentially reduced sales in those locations.
Government Regulation. The Company and its franchisees are subject to various federal, state, and local laws affecting their business. The development and operation of restaurants depend to a significant extent on the selection and acquisition of suitable sites, which are subject to zoning, land use, environmental, traffic, and other regulations. Restaurant operations are also subject to licensing and regulation by state and local departments relating to health, sanitation and safety standards, federal and state labor laws (including applicable minimum wage requirements, overtime, working and safety conditions, and citizenship requirements), federal and state laws which prohibit discrimination and other laws regulating the design and operation of facilities, such as the Americans with Disabilities Act of 1990. Changes in these laws and regulations, particularly increases in applicable minimum wages, may adversely affect financial results. The operation of the Company’s franchisee system is also subject to regulation enacted by a number of states and rules promulgated by the Federal Trade Commission. The Company cannot predict the effect on its operations, particularly on its relationship with franchisees, of the future enactment of additional legislation regulating the franchise relationship.
Growth Plans. The Company plans to increase the number of systemwide Wendy’s and Tim Hortons restaurants open or under construction. There can be no assurance that the Company or its franchisees will be able to achieve growth objectives or that new restaurants opened or acquired will be profitable.
The opening and success of restaurants depends on various factors, including the identification and availability of suitable and economically viable locations, sales levels at existing restaurants, the negotiation of acceptable lease or purchase terms for new locations, permitting and regulatory compliance, the ability to meet construction schedules, the financial and other development capabilities of franchisees, the ability of the Company to hire and train qualified management personnel, and general economic and business conditions.
International Operations. The Company’s business outside of the United States is subject to a number of additional factors, including international economic and political conditions, differing cultures and consumer preferences, currency regulations and fluctuations, diverse government regulations and tax systems, uncertain or differing interpretations of rights and obligations in connection with international franchise agreements and the collection of royalties from international franchisees, the availability and cost of land and construction costs, and the availability of experienced management, appropriate franchisees, and joint venture partners. Although the Company believes it has developed the support structure required for international growth, there is no assurance that such growth will occur or that international operations will be profitable.
Disposition of Restaurants. The disposition of company operated restaurants to new or existing franchisees is part of the Company’s strategy to develop the overall health of the system by acquiring restaurants from, and disposing of restaurants to, franchisees where prudent. The realization of gains from future dispositions of restaurants depends in part on the ability of the Company to complete disposition transactions on acceptable terms.
Transactions to Improve Return on Investment. The sale of real estate previously leased to franchisees is generally part of the program to improve the Company’s return on invested capital. There are various reasons why the program might be unsuccessful, including changes in economic, credit market, real estate market or other conditions, and the ability of the Company to complete sale transactions on acceptable terms and at or near the prices estimated as attainable by the Company.
Joint Venture to Manufacture and Distribute Par-Baked Products for Tim Hortons Restaurants. The success of the joint venture to manufacture and distribute par-baked products for Tim Hortons restaurants could be affected by a number of factors, including many of the factors set forth above. In addition, the ability of the joint venture to acquire real estate and construct and equip a manufacturing plant on acceptable terms, the realization of expected levels of production efficiencies, and actual product distribution costs and costs incurred to equip Tim Hortons restaurants for par-baked products occurring within expected ranges, could affect actual results.
Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date thereof. The Company undertakes no obligation to publicly release any revisions to the forward-looking statements contained in this release, or to update them to reflect events or circumstances occurring after the date of this release, or to reflect the occurrence of unanticipated events.