WEN

Wendy's Company (The) (WEN)

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Wendy’s/Arby’s Group (WEN)

Q1 2011 Earnings Call

May 10, 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

Michael Kelter - Goldman Sachs Group Inc.

Christopher O'Cull - SunTrust Robinson Humphrey, Inc.

John Glass - Morgan Stanley

Phillip Juhan - BMO Capital Markets U.S.

Jason West - Deutsche Bank AG

Jocelyn Mackay

Sara Senatore - Sanford C. Bernstein & Co., Inc.

Joseph Buckley - BofA Merrill Lynch

Amod Gautam - JP Morgan Chase & Co

Howard Penney - Prudential Equity Group

Michael Gallo - CL King & Associates, Inc

Reza Vahabzadeh - Lehman Brothers

Presentation

Operator

Good morning, everyone, and welcome to Wendy's/Arby's Group's First Quarter 2011 Conference Call. Our hosts today are John Barker, Chief Communications Officer; Roland Smith, President and Chief 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. Good morning, everyone. Thanks for joining us. This morning, we issued our first quarter 2011 earnings release and we filed our Form 10-Q.

The agenda for today's call and our webcast will begin with an introduction from our President and CEO, Roland Smith, who is going to provide an update on Arby's strategic alternatives and a general overview of our recent performance. Our Chief Financial Officer, Steve Hare, will then review our first quarter 2011 results and our 2011 outlook. Following Steve's remarks, Roland will discuss Wendy's initiatives and he will 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 Investors Relations page at our corporate website, which is wendysarbys.com. For those of you who are listening by phone today, make sure that 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 refer to our reconciliations of non-GAAP financial measures and 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. Before I review the first quarter results, let me give you a brief update on our strategic alternatives process for Arby's.

As you know, we announced in January that we are exploring strategic alternatives for Arby's, including a sale of the brand. We continue to make substantial progress on a potential sale of Arby's. We've narrowed the large initial interest to several quality bidders that have completed significant due diligence and remain active in the process. We believe it is in the best interest of the company to bring this progress -- or process to closure as soon as possible.

As we have previously stated, a potential sale of Arby's would provide 2 key benefits: it will allow us to focus all of our financial and human capital resources on growing the Wendy's brand and to deleverage the balance sheet. In addition, proceeds from the sale would also be available for reinvestment in our Wendy's business and return of capital to shareholders. As a result of this strategic alternatives process, 2011 will be a transition year.

Now, I'd like to provide you an overview of our first quarter results. In the first quarter, we generated revenue growth of 1.2% to $848 million. Adjusted EBITDA for the first quarter was $83.5 million, which met our expectations. Compared to last year, these results were negatively impacted by commodity increases and also reflect our investments and incremental advertising to introduce Wendy's new breakfast to additional markets.

From the sales perspective, we remain optimistic about the remainder of the year at Wendy's as we continue to focus on our Real brand positioning by improving our core menu offerings and introducing exciting new products. I'll provide a more detailed update about our initiatives to drive stronger sales at Wendy's later on this call.

Now I want to comment on each brand's first quarter results. Wendy's North America, system-wide, same-store sales were flat and were negatively impacted by adverse winter weather and soft Canadian same-store sales. Canadian, company-owned restaurant, same-store sales decreased 4.7% and were negatively impacted by the higher -- by the effect of higher sales taxes, which raised our menu prices in 2 provinces.

North America same-store sales for company-owned restaurants declined 0.9%, and our franchise restaurants were up 0.3%. We believe this gap between company-owned and franchise same-store sales was primarily due to higher pricing on certain menu items by franchisees. Since implementing price increases at company restaurants at the end of March, this gap has significantly narrowed.

As you can see on the slide, in January, we promoted our My 99 Everyday Value Menu. In February, we introduced our new Asiago Ranch Chicken Club sandwich, which replaced our existing chicken club. And then in March, we promoted our Fish & Chips combo, which paired our natural-cut sea salt fries with a premium North Pacific Cod sandwich.

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