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Higher Costs Bite Wendy's

Third-quarter profits are virtually flat with a year ago.

Updated from 3:05 p.m. EDT


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posted a small drop in third-quarter earnings as higher expenses offset the fast-food chain's sales growth.

The company's net income fell to $72.0 million from $72.1 million a year earlier, while earnings per share were flat at 61 cents. Analysts polled by Thomson First Call expected earnings of 64 cents a share, on average.

Earnings from continuing operations dropped to $19.4 million, or 16 cents a share, from $20 million, or 17 cents a share, a year earlier. Earnings on this basis exclude results from the spun-off

Tim Hortons


doughnut chain and Baja Fresh, which is being sold.

Wendy's wrote down the value of its Cafe Express chain in the quarter.

"We continue to seek strategic alternatives for

Café Express," said Wendy's CEO, Kerrii Anderson, on a conference call with analysts.

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Its total sales climbed 2.5% to $623.8 million from $608.8 million, while same-store sales at U.S. restaurants rose 4.1%.

The company's bottom line was hurt by a jump in general and administrative expense, which rose to 10.2% of revenue from 8.6% last year. The increase was due to costs for consultants, research development associated with testing a breakfast menu, and higher compensation. Wendy's said it spent $1 million on its breakfast program, which the company is testing in 120 U.S. restaurants.

Anderson pointed out on the conference call that Wendy's has yet to build a substantial breakfast business, unlike competitors like


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that have made a breakfast a major part of their revenue.

"That's a big opportunity for us," said Anderson.

Profit margins at Wendy's company-operated restaurants improved to 30.2% of sales for the quarter, up from 29.1% a year ago.

The company is in the process of trying to revitalize its brand after several years of dismal sales. Earlier this month, Wendy's announced a plan to

overhaul its business by focusing on new menu items and strengthening franchisees.

The company also set an $800 million Dutch auction tender for its shares with the proceeds from its spinoff of Tim Hortons.

Shares of Wendy's ended the session down 7 cents, or 0.2%, to $35.50.