Dublin, OH - Wendy's International, Inc. reported that pro forma net income for the fourth quarter, which ended on December 28, 1997, was a record $45.9 million, or $0.34 per share (diluted), excluding non- recurring charges. That compared to net income of $40.2 million, or $0.30 per share (diluted) a year ago.
The Company reported summary results for its 1997 fourth quarter and full year in a news release on February 4, 1998, and outlined several new strategic initiatives. The Company plans to accelerate new unit growth, enhance operating margins and repurchase up to $200 million of outstanding shares over the next 18 to 24 months. The Company also announced on February 4 that it took $72.7 million in pretax non-recurring charges in the fourth quarter, substantially all of which were non-cash. The charges are expected to have a favorable effect on future cash flow and earnings.
For the year, systemwide sales increased 10.5% to an all-time high of $6.0 billion, total revenues rose 7.4% to a record $2.0 billion and retail sales were up 5.4%. Pro forma net income in 1997 increased 15.7% to $180.5 million, or $1.33 per share (diluted), before non-recurring charges. Net income including the effect of the non-recurring charges was $130.5 million.
Also for the year, average unit volumes (AUVs) at domestic company operated Wendy's rose 5.9% to a record $1.11 million, which was the 11th consecutive year of comparative increases. AUVs at franchised units rose 4.0% to a record $1.02 million. Same-store sales at Tim Hortons restaurants in Canada rose 8.0%. Margins at company operated Wendy's in the United States increased to 14.8%, up from 13.3% a year ago, despite accelerating crew wage rates and cost pressures.
"Our North American Wendy's and Canadian Tim Hortons restaurant businesses produced excellent results over the past year and we are confident our momentum will continue in 1998," said Chairman, CEO and President Gordon F. Teter. "Our long-term strategies are solid in an increasingly competitive industry. And, our new initiatives announced two weeks ago will enable the Company to enhance results from restaurant operations while remaining focused on disciplined restaurant development, balanced marketing and everyday value with superior products for our customers at both Wendy's and Tim Hortons."
The Company ended 1997 with 6,785 units open systemwide. That includes 4,575 domestic Wendy's, 632 international Wendy's and 1,578 Tim Hortons. The Company plans to open a total of about 575 new units in 1998 and 675 in 1999.
A total of 228 Wendy's company owned restaurants were sold to new or existing franchisees during 1997, which generated a pretax gain of $81 million compared to $67 million in 1996. The Company, as part of its February 4 announcement, said that it expects to continue selling company owned units to franchisees but that pretax gains from the sales would be lower than in previous years, in the $10 million to $15 million range per year. The Company also intends to continue acquiring units from franchisees and to consider acquisitions that take advantage of core competencies.
The Company's long-term goal for net income and EPS growth is in the low to mid teens. "Starting from a 1997 base of $0.97 (diluted EPS from restaurant operations excluding gains from selling stores to franchisees), our goal in 1998 is to deliver EPS growth from operations in the 13% to 15% range," said Teter. "That growth rate excludes gains from the sale of company owned stores to franchisees, which we expect to be $10 million to $15 million pretax in 1998."
The Company is optimistic about 1998, although the first half of the year will be challenging considering the excellent sales volumes achieved at Wendy's from January through June in 1997.
"Sales comparisons ease somewhat in the second half of the year," said Frederick R. Reed, Chief Financial Officer, General Counsel and Secretary. "We are encouraged by results in January 1998 as AUVs at company operated Wendy's in the U.S. increased 4.9% and same-store sales at Tim Hortons in Canada were up 12.5%."
The Company also announced today that the Board of Directors approved a quarterly dividend of $.06 per share, payable on March 16 to shareholders of record on March 2. This will be the Company's 80th consecutive quarterly dividend.
In other action, the Company announced that John K. Casey has retired from the Board of Directors, as was expected. Casey, 64, joined Wendy's in 1981 as vice president of development. He was named senior vice president in 1984, executive vice president in 1986, elected to the board in 1988 and became vice chairman and chief financial officer in 1991. Paul D. House, President and Chief Operating Officer of Tim Hortons, has been appointed as a new director. House, 54, joined Tim Hortons in 1985.
Wendy's International, Inc. is one of the world's largest restaurant operating and franchising companies. At year end 1997, the Company had $6.0 billion in systemwide sales and a total of 6,785 units in 34 countries and territories. Wendy's Old Fashioned Hamburgers, founded by Dave Thomas in 1969, is the third-largest quick-service hamburger restaurant chain in the world. Tim Hortons, founded in 1964, is the largest coffee and fresh baked goods restaurant chain in Canada.
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