Wendy’s/Arby’s in Line

Wendy’s/Arby’s Group, Inc. (WEN), the third largest fast-food restaurant operator, recently reported third-quarter 2009 results. The quarterly earnings of 6 cents a share were in line with the Zacks Consensus Estimate. The company had reported a loss of 14 cents in the prior-year quarter, excluding income from discontinued operations. Lower commodity prices and cost-cutting initiatives have driven earnings.
 
Consolidated revenue surged 191% year-on-year to $903.2 million due to Wendy’s merger, which added 6,608 restaurants as of Sep 27, 2009, and contributed $613.5 million in total revenue during the quarter. The merger between Triarc Companies, the franchisor of the Arby’s restaurant chain and Wendy's International was completed in Sep 2008. 

The quick-service food chain is trying to lure consumers by offering $5.01 combo meals, and plans to make $1 menu available at most of its restaurants to compete with big players like McDonald’s Corporation (MCD) and Burger King Holdings Inc. (BKC). 

Fast food chains are faring better than casual dining operators like Red Robin Gourmet Burgers Inc. (RRGB) and Cosi Inc. (COSI) as cash-strapped consumers are trading down to cheaper alternatives or dining at home. 

Wendy’s Financial Highlights: 
Wendy’s total revenue for the quarter fell 1.8% to $613.5 million due to lower comparable-store sales. Company-operated restaurants sales declined 2.1% to $536.8 million, whereas franchise revenue climbed marginally by 0.1% to $76.7 million.
 
The company-operated comparable-store sales increased 0.1%, whereas franchise comparable-store sales ascended 0.4%. However, comps remained weak in Oct 2009. Company-operated restaurant margin for the quarter expanded 400 basis points to 16.5% reflecting reduction in food, labor and certain controllable costs.
 
Management expects to improve full year restaurant margins by more than 250 basis points, which is half of the company’s three-year target of 500 basis points increment in restaurant margin. 

Arby’s Financial Highlights: 
Arby’s total revenue for the quarter fell 6.7% to $289.7 million due to lower comparable-store sales. Company-operated restaurants sales declined 6.4% to $269.2 million, whereas franchise revenue slipped 9.9% to $20.5 million. 

The company-operated comparable-store sales dipped 6.5%, whereas franchise comparable-store sales plunged 10.2%. Comps further softened in October. Company-operated restaurant margin for the quarter shrank 450 basis points to 12.1%.