Dublin / OH. (twc) The Wendy´s Company reported unaudited results for the first quarter ended March 30, 2014. «I am pleased to report continued progress with Wendy´s brand transformation», President and Chief Executive Officer Emil Brolick said. «Our Image Activation initiative is accelerating, bringing to life our «A Cut Above» brand position for consumers in a powerful way. Our product initiatives are successfully leveraging our brand heritage of quality and innovation and are distinguishing Wendy´s in the marketplace. With the implementation of mobile payment, we have taken another step to connect with millennial consumers. It is also very rewarding to be able to report solid results in the face of a tough winter and an intensely competitive market».
«Based on our results through early May, we are reaffirming our 2014 Adjusted Ebitda and Adjusted Earnings Per Share outlook», Brolick said. «We also remain confident in our long-term outlook, as momentum in our core business is strong and the economic foundation of our system optimization strategy is delivering positive results».
First-Quarter 2014 Summary
- Company-operated same-restaurant sales increased 1,3 percent, on top of a 1,0 percent increase last year. The 2014 same-restaurant sales increase resulted primarily from successful product promotions and increased customer traffic at Image Activation restaurants. Company-operated same-restaurant sales improved more than 500 basis points during the second half of the quarter compared to the first half, as the impact of severe weather conditions lessened. The 2013 disengagement of breakfast operations in certain restaurants also had a negative impact of approximately 40 basis points on first-quarter 2014 same-restaurant sales. The Easter holiday shift into the second quarter had a slight positive impact on first-quarter 2014 same-restaurant sales.
- Franchise North America same-restaurant sales increased 0,6 percent in the first quarter of both 2014 and 2013. The primary reason for the differential between Company-operated and franchise same-restaurant sales is a higher number of Image Activation Company-operated restaurants in operation.
- Consolidated revenues were 523,2 million USD compared to 603,7 million USD last year. The decrease resulted from lost revenue following the disposition of 418 Company-operated restaurants as part of the Company´s system optimization initiative, partially offset by same-restaurant sales growth, as well as increases in technical assistance fees, rental income and franchise royalties.
- North America Company-operated restaurant margin was 13,1 percent, an increase of 30 basis points compared to 12,8 percent last year. The margin increase was primarily the result of same-restaurant sales growth.
- General and administrative expense was 70,4 million USD, compared to 65,3 million USD last year. The increase resulted primarily from higher equity compensation expense and consulting fees related to the Company´s international growth strategy, partly offset by cost savings related to the Company´s system optimization initiative.
- Adjusted Ebitda was 87,3 million USD, an increase of 13,0 percent compared to 77,3 million USD last year. The first-quarter 2014 results include a gain of 12,1 million USD, which includes an 8,6 million USD gain on the sale of restaurants and a gain on the sale of surplus properties. The Company expects that gains and losses on the sale of restaurants and other assets will recur over time, with the net impact affecting the «Other operating (income) expense, net» line of the income statement.
- Operating profit was 89,0 million USD, compared to 22,5 million USD last year. Significant items impacting first-quarter 2014 operating profit include the gain on the sale of assets mentioned above, in addition to a 44,0 million USD net gain from the Company´s system optimization initiative. Significant items affecting first-quarter 2013 operating profit include a 3,0 million USD facilities action charge (primarily due to the relocation of the Company´s Atlanta Restaurant Support Center to Dublin).
- Net income was 46,3 million USD, compared to 2,1 million USD last year, an increase of 44,2 million USD, despite the impact of a 33,1 million USD year-over-year increase in income tax expense. First-quarter 2014 net income benefited from an 8,0 million USD year-over-year reduction in interest expense as a result of the Company´s 2013 debt restructuring.
- Adjusted Earnings Per Share were 0,07 USD, compared to 0,03 USD last year.
- Earnings per share were 0,12 USD, compared to 0,01 USD last year.
«Our strong first-quarter results reflect the implementation of our Recipe to Win and the elements of our Growth Pyramid, including North America Same-Restaurant Sales Growth, Image Activation and Restaurant Ownership Optimization», Brolick said. «In our commitment to increase the relevance of the Wendy´s brand and improve our economic model, we anticipate that the purchase and sale of Wendy´s restaurants and other assets will continue to be part of our growth optimization strategy going forward».
On Track for At Least 410 New and Reimaged Systemwide Restaurants in 2014
The Wendy´s system completed or initiated more than 200 Image Activation re-images of Company-operated and franchise-operated restaurants in 2013 and expects to nearly double the pace in 2014, with the re-imaging of 200 Company-operated restaurants and 150 to 200 franchise-operated restaurants. The Company also expects 15 new Company-operated Image Activation restaurants and 45 new franchise-operated Image Activation restaurants in 2014. The Company continues to target the implementation of Image Activation in 85 percent of its Company-operated restaurants and 35 percent of the North America system by the end of 2017.
Company Reaffirms 2014 Adjusted Ebitda and Adjusted EPS Outlook
For 2014, the Company expects Adjusted Ebitda of 390 million USD to 400 million USD, an increase of six to nine percent compared to 2013. The Company also expects Adjusted Earnings Per Share of 0,34 USD to 0,36 USD.
Estimated 2014 Adjusted Earnings Per Share excludes approximately 40 million USD of anticipated pre-tax depreciation for existing assets that the Company expects to replace as part of the Image Activation initiative. The Company expects its total 2014 depreciation and amortization expense to decrease approximately 10 percent compared to 2013, including the impact of accelerated depreciation in both years, primarily as a result of the Company´s system optimization initiative. Also included in the Company´s 2014 outlook are the following assumptions:
- Average same-restaurant sales growth of 2,5 to 3,5 percent at Company-operated restaurants.
- A reduction in interest expense of approximately 15 million USD, resulting from the Company´s 2013 debt restructuring.
- Capital expenditures of 280 to 290 million USD, including approximately 215 million USD for Company-operated Image Activation restaurants.
The Company now expects Company-operated restaurant margin in a range of 16,3 to 16,8 percent, compared to its previous guidance of 16,8 to 17,0 percent, due to the revised outlook for an increase in year-over-year commodity costs, with higher-than-expected beef costs, primarily in the second and third quarters.
The Company has identified and expects to realize 30 million USD of annualized reductions in General and administrative expense from its system optimization initiative. The Company expects higher equity compensation expense to partially offset these savings.
Due to the impact of changes in New York state tax law, as well as the impact of the system optimization initiative, the Company now expects an effective tax rate of 38 to 40 percent for 2014.
The Company also reaffirms its previous long-term outlook of high-single-digit to low-double-digit Adjusted Ebitda growth, as well as mid-teens Adjusted Earnings Per Share growth. This guidance includes the expectation for annual same-restaurant sales growth of at least three percent beginning in 2015. The outlook also includes:
- Adjusted Ebitda growth in the high single digits from 2014 through 2016, when Company-operated Image Activation activity peaks, resulting in an increase in lost operating weeks and a temporary increase in growth-oriented capital.
- Adjusted Ebitda growth in the low double digits beginning in 2017, when the number of Company-operated Image Activation restaurants exceeds the number under construction.
