WEN

Wendy's Company (The) (WEN)

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Wendy’s/Arby’s Group (WEN)

Q4 2010 Earnings Call

March 03, 2011 10:00 am ET

Executives

Stephen Hare - Chief Financial Officer and Senior Vice President

Roland Smith - Chief Executive Officer, President, Director, Member of Executive Committee, Member of Capital & Investment Committee, Interim Chief Executive Officer of Arby's Restaurant Group Inc and Interim President of Arby's Restaurant Group Inc

John Barker - Chief Communications Officer and Senior Vice President

Analysts

Matthew DiFrisco - Oppenheimer & Co. Inc.

Michael Kelter - Goldman Sachs Group Inc.

Christopher O'Cull - SunTrust Robinson Humphrey, Inc.

Jason West - Deutsche Bank AG

John Ivankoe - JP Morgan Chase & Co

Mitchell Speiser - Buckingham Research Group, Inc.

Jeffrey Bernstein - Barclays Capital

Joseph Buckley - BofA Merrill Lynch

Michael Gallo - CL King & Associates, Inc

Presentation

Operator

Good morning, everyone, and welcome to Wendy's/Arby's Group's Fourth Quarter and Full Year 2010 Conference Call. Our hosts today are John Barker, Chief Communications Officer; Roland Smith, President and Executive Officer; and Steve Hare, Chief Financial Officer. [Operator Instructions] I would now like to turn the call over to John Barker. You may begin, sir.

John Barker

Thanks, and good morning, everyone. This morning, we issued our fourth quarter and our full year 2010 earnings release. As you know, much of this data was released in a preliminary form on January 26, and our results released today are consistent with our preliminary release. The agenda for today's conference call and the webcast will begin with an introduction from our President and CEO, Roland Smith, who'll provide a general overview of our fourth quarter and full year results as well as an update on Arby's. Our Chief Financial Officer, Steve Hare, will then review our 2010 financial results and a 2011 outlook. Following Steve's remarks, Ron will discuss Wendy's current initiatives as well as he'll provide an update on our international expansion. Afterwards, we'll open up the line for questions.

Today's conference call and our webcast is accompanied by a PowerPoint presentation, which can be found on the Investor Relations page on our corporate website, which is wendysarbys.com. For those of who are listening by phone today, please make sure you select the appropriate webcast player option from our website, and that will ensure that you can sync up with the slides and the audio.

Now before we begin, I'd like to refer you 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 thank you for joining us today. As you know, we reported preliminary Q4 and full year 2010 results on January 26. We were pleased to report that our fourth quarter system-wide same-store sales were positive at Wendy's and Arby's. We believe this is a sign that our initiatives are gaining traction and producing results. We were also pleased that we were able to produce margin improvement at Wendy's in 2010 in spite of rising commodity costs. Wendy's adjusted margin was 15.2%, up 40 basis points from a year ago. Our fourth quarter adjusted EBITDA decreased 6.4% from the prior year, and our full year adjusted EBITDA decreased 3.6% from the prior year, which was at the high end of our annual guidance range of down 3% to 5%. These results are consistent with the preliminary results we announced on January 26.

Steve will discuss more about our 2010 results and our 2011 outlook later in the call. However, I want to comment on what we're seeing so far in the first quarter of 2011 in terms of same-store sales. At Wendy's, company-operated same-store sales in January were negative but were impacted by severe winter weather primarily in the Midwest and Northeast markets. We estimate that the weather negatively impacted our same-store sales by about 1.5% to 2%. However, Wendy's sales were positive in February, and we expect to produce flat to positive same-store sales for the first quarter.

In January, we announced that we are exploring strategic alternatives for Arby's, including a possible sale of the brand, and we're pleased with the progress so far. During this process, we remain committed to business as usual. At Arby's, company-operated same-store sales in January were slightly negative and were also impacted by severe winter weather. However, Arby's sales were positive in February, and we expect to deliver strong, positive same-store sales in the first quarter.

We began national ads last Sunday to relaunch the Arby's brand with our new positioning, Good Mood Food. As part of this relaunch, we introduced a new angus roast beef sandwich, the Angus Three Cheese and Bacon. It features sliced, lean angus top brown roast with three kinds of cheese and bacon and is served on a toasted Italian style role. Early customer reaction on the new angus product has been very positive.

I'll review our business initiative for Wendy's and international in a few minutes, but first, I'd like to turn the call over to Steve here to highlight our Q4 and full year 2010 financial results and our outlook for 2011. Steve?

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