Wendy's Net Income Falls

Wendy's Net Income Falls 32%
Amid Sluggish Sales, Rising Costs
By ANDREW EDWARDS and KEVIN KINGSBURY
August 5, 2008 4:33 p.m.
Wall Street Journal
http://online.wsj.com/article/SB121796530449414349.html?mod=djkeyword

Wendy's International Inc.'s second-quarter net income fell 32% amid higher commodity costs and stagnant sales while merger partner Triarc Cos. reported a wider loss because of restructuring costs.

Wendy's results were weaker than expected and helped send shares down 2.4% after-hours to $23.62. Triarc, meanwhile, gained 4.2% to $6.

The nation's third largest hamburger chain, which in April agreed to a $2.4 billion buyout from the Arby's parent, reported net income of $19.9 million, or 22 cents a share, compared with $29.2 million, or 33 cents a share, a year earlier. Excluding charges, earnings from continuing operations fell to 30 cents from 41 cents.

Revenue slid 0.2% to $613.9 million.

The mean per-share earnings estimate of analysts polled by Thomson Financial was 37 cents on revenue of $629 million.

Gross margin fell to 45.3% from 46.7%.

Earlier this month, Wendy's U.S. said same-store sales, or sales in stores open more than one year, were up 0.1% for the quarter in company-operated restaurants and 1.1% in franchised restaurants.

Wendy's sales slide in recent months, in part from competition from a resurgent McDonald's Corp., has also been from failings of its own, including off-the-mark advertising campaigns. Chief Executive Kerrii Anderson said the company has faced pressure from escalating commodity costs, a weakened economy and a challenging competitive environment.

Wendy's accepted Triarc's bid in April after months of negotiations with a variety of bidders. The new company will be headed by Triarc Chief Executive Roland Smith. The combined company will have about 10,000 restaurants and pro forma annual sales of more than $12 billion. The deal is slated to close in September.

Triarc posted a net loss of $28 million, or 30 cents a share, compared with a year-earlier net loss of $6.9 million, or seven cents as share. The latest quarter included $79 million in restructuring charges.

Revenue increased 1.2% to $316.8 million as same-store sales fell 3.3%. Gross margin fell to 24.3% from 26.5%.

Mr. Smith noted that results were hurt by competitors' "agressive" discounting. "We believe continued competitor discounting at the current level is unsustainable given rising commodity costs and increasing profitability pressure on operators - we are already seeing reports of competitors re-evaluating the prices of their value menus," a reference to McDonald's weighing the future of its $1 value meal.

Write to Andrew Edwards at andrew.edwards@dowjones.com and Kevin Kingsbury at kevin.kingsbury@dowjones.com