Wendy´s: Reports Preliminary Q4 and 2012 Results

Dublin / OH. (twc) The Wendy´s Company reported preliminary, unaudited results for the fourth quarter and fiscal year ended December 30, 2012. The Company plans to release its audited financial statements on February 28, 2013.

«We are pleased with progress we made in 2012, as our brand transformation accelerated with Image Activation and our ‘A Cut Above’ brand positioning gained traction with consumers», said President and Chief Executive Officer Emil Brolick. «Our 2012 North America same-store sales growth of 1,6 percent and record-high average annual restaurant sales of 1,48 million USD are evidence that our growth initiatives are beginning to work. While our fourth-quarter same-store sales were slightly negative, they increased 4,9 percent on a two-year basis as we rolled over the successful introduction of «Dave´s Hot’n Juicy» cheeseburgers a year ago.

«As we look to 2013, we are optimistic about our product pipeline and marketing plans», Brolick said. «We are also very encouraged by the continued success of our Image Activation initiative, which is transforming our brand in the eyes of consumers by contemporizing the Wendy´s restaurant experience. Given the attractive results we are achieving, we will accelerate our Image Activation initiative in 2013, including the introduction of lower-investment Tier 2 and Tier 3 designs. We expect to complete 200 total re-images in 2013, including about 100 franchised re-imaged restaurants. Average sales volumes for Image Activation restaurants have increased more than 25 percent, and we remain on track to re-image more than 600 Company-operated restaurants by the end of 2015. We expect franchisees will also re-image a significant number of restaurants over the next three years».

«We are confident that our strong balance sheet, financial flexibility and excellent cash flow provide us the capacity to fund our Image Activation initiative and also return capital to shareholders in the form of dividends and share repurchases», Brolick said.

Preliminary Fourth-Quarter 2012 Summary

  • Consolidated revenues were 629,9 million USD, an increase of 2,4 percent compared to 615,0 million USD in the fourth quarter of 2011.
  • Wendy´s North America Company-operated restaurant same-store sales decreased 0,2 percent during the fourth quarter, compared to a 5,1 percent increase a year ago. Franchise same-store sales in North America decreased 0,6 percent during the quarter.
  • Company-operated restaurant margin was 15,9 percent, compared to 15,0 percent in the fourth quarter of 2011, primarily due to higher sales, including Image Activation, and a reduction in breakfast advertising expense, partially offset by commodity cost increases.
  • The Company reported net income from continuing operations of 21,4 million USD, compared to net income from continuing operations of 4,3 million USD in the fourth quarter of 2011. The fourth-quarter 2012 results include:
    • A 17,5 million USD total pre-tax charge related primarily to discontinuing breakfast at certain restaurants as well as facilities relocation
    • 5,4 million USD in prior-year tax benefits
    • Pre-tax dividend income of 4,6 million USD from the Company´s investment in Arby´s
  • The Company reported earnings per share from continuing operations of 0,06 USD, compared to reported earnings per share from continuing operations of 0,01 USD in the fourth quarter of 2011.
  • Adjusted Ebitda from continuing operations was 95,9 million USD, up 19 percent compared to 80,9 million USD in the fourth quarter of 2011. This increase reflects the improvement in restaurant margin and lower general and administrative expense.
  • Adjusted Earnings Per Share from continuing operations were 0,08 USD, compared to Adjusted Earnings Per Share from continuing operations of 0,04 USD in last year´s fourth quarter.

Preliminary Full-Year 2012 Summary

  • Consolidated revenues were 2,505 billion USD, an increase of 3,0 percent compared to 2,431 billion USD in 2011.
  • Wendy´s North America Company-operated restaurants generated a same-store sales increase of 1,6 percent during 2012. Franchise same-store sales in North America also increased 1,6 percent during the year.
  • Company-operated restaurant margin was 14,0 percent in both 2012 and in 2011.
  • The Company reported net income from continuing operations of 4,0 million USD before non-controlling interests in 2012, which compares to net income from continuing operations of 17,9 million USD in 2011. The Company reported net income from continuing operations attributable to The Wendy´s Company of 1,6 million USD in 2012, after non-controlling interests of 2,4 million USD. The 2012 results include:
    • A 75,1 million USD total pre-tax charge related to the early retirement of debt
    • A 45,0 million USD total pre-tax charge related primarily to facilities relocation as well as the discontinuation of breakfast at certain restaurants
    • A 27,4 million USD pre-tax net gain on the sale of an investment
    • 7,6 million USD in prior-year tax benefits
    • Pre-tax dividend income of 4,6 million USD from the Company´s investment in Arby´s
  • The Company´s reported earnings per share from continuing operations attributable to The Wendy´s Company were 0,01 USD, compared to reported earnings per share from continuing operations of 0,04 USD in 2011.
  • Adjusted Ebitda from continuing operations was 333,3 million USD, a 0,7 percent increase compared to 331,1 million USD in 2011. Adjusted Earnings Per Share from continuing operations were 0,16 USD in 2012 compared to 0,15 USD in 2011.

2012 Domestic and International Restaurant Portfolio

As of December 30, 2012, the Company´s total number of worldwide restaurants was 6’560, including 6’186 restaurants in North America and 374 restaurants outside of North America. As previously stated, the Company is optimizing its system by purchasing select franchise restaurants and by selling restaurants to new and existing franchisees. The Company´s optimization goal is to accelerate Image Activation and to gain operational and market efficiencies. As a result of this strategy, Company-operated restaurants as a percentage of the U.S. system may decline slightly. As part of this initiative, the Company during 2012 acquired 56 franchised Wendy´s restaurants and sold 30 Company-operated Wendy´s restaurants to franchisees.

Dividend and Share Repurchase

In November 2012, the Company´s Board of Directors authorized a 100 percent increase in the quarterly cash dividend rate to 0,04 USD per share, as well as a new share repurchase program for up to 100 million USD of the Company´s common stock through December 29, 2013. The Company did not repurchase any shares during the fourth quarter.

Company Reiterates 2013 and Long-Term Outlook

For 2013, the Company reiterated its preliminary outlook for Adjusted Ebitda of 350 million USD to 360 million USD, a five to eight percent increase compared to 333,3 million USD in 2012.

The Company´s outlook for 2013 Adjusted Earnings Per Share of 0,18 USD to 0,20 USD is a 13 to 25 percent increase compared to 2012 Adjusted Earnings Per Share of 0,16 USD. Estimated 2013 Adjusted Earnings Per Share excludes 20 to 30 million USD of anticipated pre-tax depreciation for existing assets that will be replaced as part of the Company´s Image Activation initiative. The Company expects its total 2013 depreciation and amortization to increase 15 to 20 percent compared to 2012. Also included in the 2013 outlook is:

  • Same-store sales growth of two to three percent at Wendy´s North America Company-operated restaurants.
  • New restaurant development of approximately 25 new Company restaurants and 40 new franchise restaurants, plus approximately 60 new international franchise and joint-venture restaurants.
  • Five to ten Company-operated restaurant closures and approximately 90 to 100 franchise restaurant closures in North America, plus approximately 15 to 20 international restaurant closures.
  • The re-imaging of 100 Company-operated restaurants and 100 franchised restaurants. The outlook includes the cost of a ten million USD incentive program for franchisees to re-image their restaurants in 2013.
  • Wendy´s Company-operated restaurant margin of 14,2 to 14,5 percent, compared to 14,0 percent in 2012. This estimate assumes the benefit of same-store sales increases, Image Activation sales, discontinuation of breakfast at certain restaurants and cost-savings initiatives. It also assumes a 90 to 120 basis-point impact from higher commodity costs, driven primarily by rising beef and chicken costs.
  • Capital expenditures of approximately 245 million USD, compared to approximately 200 million USD in 2012. This estimate includes 145 million USD for Image Activation designs at 25 new and 100 re-imaged Company-operated restaurants in North America.

The Company continues to target long-term Adjusted Ebitda and Adjusted Earnings Per Share growth beyond 2013 in the high single-digit to low double-digit range.

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