Wendy's Cuts 2004 Profit Outlook :: Restaurant Supply Resource

Wendy's Cuts 2004 Profit Outlook

Wendy's International, Inc. Adjusts 2004 EPS Goal to a Range of $2.25 to $2.30, up 10% to 12% Over 2003

* 3rd Quarter EPS expected to be in the $0.59 to $0.60 range
* Hurricanes affected 3rd Quarter sales and profits
* 4th Quarter beef costs will be higher than expected

Wendy's International, Inc. (NYSE: WEN) announced it is adjusting its 2004 earnings per share growth goal to a range of $2.25 to $2.30, which is a 10% to 12% increase over its 2003 earnings of $2.05 per share. The Company's previous goal for 2004 EPS was a range of $2.32 to $2.37.
The adjustment for the year is due to a combination of factors. The third-quarter factors include the impact on Wendy's® restaurants from recent hurricanes and an increase in legal reserves, including the preliminary settlement of litigation. The fourth-quarter factors include higher-than- expected beef costs and short-term challenges at Baja Fresh® Mexican Grill.

The Company expects EPS for the third quarter ending Sept. 26, 2004 to be in a range of $0.59 to $0.60.

Third Quarter affected by hurricanes and other factors

Hurricanes Charley, Frances and Ivan have negatively affected sales and profits at Wendy's company and franchised restaurants throughout the Southeast and Gulf Coast. Wendy's has lost more than 2,000 store days so far in the third quarter due to closed restaurants, mandatory evacuations and power outages. In addition to the lost store days, customer traffic at Wendy's restaurants has been affected by heavier-than-normal rain in the aftermath of the hurricanes, especially in the Southeast and Northeast U.S., resulting in inefficient store operations.

Wendy's U.S. company same-store sales for the month (period 9), through September 20, are running approximately -1.0% compared to a year ago, which is lower than expected. Same-store sales for period 9 in 2003 increased 3.5%.

Also affecting third-quarter performance:

Three separate insurance deductibles totaling up to $750,000 for structural damage from the hurricanes to Wendy's company restaurants.
An increase in legal reserves, including the preliminary settlement of litigation.
As a result of these factors, the Company anticipates that third quarter EPS will be in the range of $0.59 to $0.60. The Company plans to publish third-quarter results on October 21.

Fourth-Quarter beef prices will be higher than expected

The Company expects beef prices to be $1.39 per pound for the fourth quarter, which is higher than anticipated and a 7.8% increase over the fourth- quarter beef price of $1.29 per pound in 2003. Beef prices, which were $1.31 per pound in the third quarter of 2004, had been expected to stabilize. Instead, beef prices increased due to low beef production through the late summer. Production in July and August was the lowest for those months since 1994, despite an available cattle supply that was the fourth-largest on record. Cattle slaughter was approximately 7.5% below the available supply. Wendy's quarterly beef cost is a formula based on certain prices in the prior quarter.

The Company also expects sales and operational challenges to continue at Baja Fresh in the fourth quarter.

"The hurricanes and the aftermath of the storms have affected sales at Wendy's for both our company operators and franchisees," said Chairman and Chief Executive Officer Jack Schuessler. "Heavy rain, flooding and power outages following the storms in the Eastern United States have negatively affected sales and store-level efficiencies."

Wendy's has 1,030 total restaurants in Florida, Georgia, Alabama, Louisiana and Mississippi, which have received the brunt of the three hurricanes. This represents about 18% of Wendy's 5,840 total restaurants in the United States.

Number of Wendy's Restaurants in Southeast United States

State Company Franchise Total

Florida 178 283 461
Georgia 49 242 291
Alabama 104 104
Louisiana 30 62 92
Mississippi 82 82
Total 257 773 1,030

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Date Listed: 2004-09-22

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Industry: Restaurants
Category: Financial
Wendys International
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