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Wendy’s Arby’s Group Inc. (WEN)

Q3 2010 Earnings Call Transcript

November 12, 2010 8:30 am ET


John Barker – SVP and CCO

Roland Smith – President and CEO

Steve Hare – SVP and CFO


David Palmer – UBS

Michael Gallo – CL King

Matthew DiFrisco – Oppenheimer

John Glass – Morgan Stanley

Jeffrey Bernstein – Barclays

Larry Miller – RBC


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Good morning, everyone, and welcome to Wendy’s Arby’s Group third quarter 2010 conference call. Our hosts today are John Barker, Chief Communications Officer; Roland Smith, President and Chief Executive Officer; and Steve Hare, Chief Financial Officer. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions-and-comments following the presentation.

I would like to now turn the call over to John Barker. You may begin, sir.

John Barker

Thanks. Good morning, everybody. Today’s conference call and our webcast is accompanied by a PowerPoint presentation. You can find it on our Investor Relations page at our corporate Web site, For those of you who are listening by phone today, make sure you select the appropriate webcast player option from our Web site, and that will ensure that you can sync up the slides with the audio.

The agenda for today’s call and the webcast will begin with an introduction from our President and CEO, Roland Smith, who will provide a general overview of Wendy’s Arby’s brands with respect to the third quarter. Our Chief Financial Officer, Steve Hare, will then review our financial results and our updated 2010 outlook in greater detail, as well as today’s dividend and share repurchase announcements. Following Steve’s remarks, Roland will discuss current product initiatives of both brands, as well as a strategic discussion of the business. This will also include a preview of some of the topics we intend to discuss at our Investor Day in January. And then, afterwards, we will open the line for questions.

Earlier today, we filed our 8-K that includes our earnings release and associated financial tables for the third quarter that also contains an updated historical sales and margin trend schedule. Both of these documents include new cost of sales detail by brand. That will be part of our financial presentation going forward.

In addition, this morning we filed our Form 10-Q for Wendy’s Arby’s’ Group. The 10-Q is filed in accordance with the SEC’s XBRL mandate, and as such, you will be able to access the interactive the data using the viewer that is included on our Web site.

Now, before we begin, I’d like to refer for just a minute to the safe harbor statement that is attached to today’s release. Certain information that we may discuss today regarding future performance, such as financial goals, plans and development, is forward-looking.

Various factors could affect the company’s results and cause those results to differ materially from those expressed in our forward-looking statements. Some of those factors are referenced in the safe harbor statement that is attached to the news release.

Also, some of the comments today will reference non-GAAP financial measures, such as earnings before interest, taxes, depreciation and amortization. Investors should compare our reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measure.

Now, let me turn the call over to Roland.

Roland Smith

Thanks, John. Good morning, everyone, and thanks for joining us today. Before I begin with the overview of the third quarter, I am pleased to report that the Board of Directors recently approved an additional $170 million in stock repurchases, which, combined with the amount previously authorized and available, brings the total to $250 million. Additionally, the Board authorized a 33% increase to our quarterly dividend. We believe these actions demonstrate our continued commitment to enhancing shareholder value.

Let’s begin by acknowledging that the third quarter was a difficult one and the results were simply not satisfactory. Softer than expected same-store sales at both brands and higher year-over-year commodity costs negatively impacted our results. For the three months, total revenue decreased slightly less than 5% to $861 million, while adjusted EBITDA fell approximately 20% to $100 million versus third quarter of 2009.

Consistent with prior quarters, our results were affected by the weak economy and intense competition. However, we recognize that our job is to outperform the competition regardless of the macroeconomic environment.

Year-to-date adjusted EBITDA is down 2.8% from the nine-month period a year ago, and we are reiterating our expectations for full year 2010 adjusted EBITDA to decrease 3% to 5%. Steve Hare will discuss our outlook in further detail later in the call.

We believe Wendy’s Arby’s had significant long-term earnings growth potential. In addition to being intensely focused on developing high quality differentiated menu items for both brands, we are investing in new dayparts, such as breakfast at Wendy’s, continuing our remodeling programs and creating the platform for further international expansion.

The Arby’s brand turnaround is also a key focus and we are encouraged by our most recent results, especially October. I’ll speak more about each of these key initiatives later in the call, but first, I’d like to share further details about Wendy’s third quarter results.

Wendy’s system-wide same-store sales decreased 1.7%, company-owned restaurant same-store sales declined 3.1% and our franchise restaurants were down 1.3%. The gap between company-owned and franchise same-store sales was primarily due to higher pricing on certain menu items by franchisees. We expect to begin to close this gap later this year and in 2011, as we implement elements of our strategic pricing initiative in company-owned stores.

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