000809 Wendy's Net Up, Raises 2000 Earns Goal

Chicago - Fast-food restaurant chain Wendy's International Inc., reported a 2.4% rise in second-quarter earnings as its Tim Hortons restaurant chain posted strong sales gains and prompted the company to increase its earnings growth goal for 2000.

Dublin, Ohio-based Wendy's, said its net income rose to $50.7 million, or 43 cents a diluted share, in the quarter ended July 2, beating Wall Street's expectations by a penny.

That compares with $49.5 million, or 39 cents, in the year-earlier second quarter which ended July 4, 1999.

Analysts on average had expected Wendy's to post operating earnings of 42 cents per share in the latest quarter, according to First Call/Thomson Financial, which tracks such data.

Total revenues in the second quarter, including retail sales, franchise revenues and asset gains, rose 8% to $569.9 million from $528.6 million.

Shares of Wendy's closed up 1-5/16 at 18-1/4 on the New York Stock Exchange, against a 52-week trading range of 14 to 29-13/16.

Wendy's is the No. 3 fast-food chain, behind industry leader McDonald's Corp. and No. 2 Burger King, a unit of Britain's Diageo Plc. There are more than 5,600 Wendy's restaurants worldwide and more than 1,865 Tim Hortons restaurants in Canada and the United States.

Wendy's said it raised its base earnings per-share growth goal for 2000 to a 14% to 17% range from its previous 12% to 15% range. Base per-share earnings are total diluted EPS less asset gains.

The company earned $1.26 in base per share earnings in 1999, Wendy's said.

Company officials told analysts during a conference call they were optimistic about the second half, expecting beef costs to moderate and labor cost increases to slow thanks in part to a new labor-saving food preparation method. They also predicted sales would grow faster than they did a year earlier.

The company expects Tim Hortons' same-store sales growth to meet or exceed its goal of 5-6% in the second half. Officials said they expect Wendy's to finish the year with same-store sales growth in the range of 3.5% to 4%.

“We are optimistic about the second half of the year,” said Tom Mueller, president and chief operating officer of Wendy's North America, in a statement. “The Mozzarella Chicken Supreme sandwich is our August national promotion. Other excellent product promotions and Kids' Meal promotions are coming later this year.”

The company has also succeeded in keeping its restaurants open later at night, President and Chief Executive Officer Jack Schuessler said during the conference call.

Officials said they were testing a smaller prototype restaurant in certain markets to see if restaurants with 62 seats can achieve high volume and improve returns. A typical Wendy's has about 90 to 100 seats.

“Both concepts (Wendy's and Tim Hortons) are doing fairly well,” said Mark Kalinowski, a restaurant industry analyst at Salomon Smith Barney. “Wendy's is showing a deceleration in U.S. same-store sales growth but remains on the positive side. The concept in Canada (Tim Hortons) is going gangbusters. It continues to turn in phenomenal same-store sales growth.”

Same-store sales, or sales at restaurants open at least a year, at Wendy's company-operated restaurants grew by 2.8% for the second quarter on top of an 8.3% growth a year ago, despite price discounts at competitors, the company said.

Same-store sales at Tim Hortons restaurants in Canada grew by 8.7% in the quarter, on top of a 10.9% increase during the same period a year ago. Same- store sales at Tim Hortons in the U.S. grew 11.8% in the quarter and have increased at double-digit rates for five consecutive quarters, the company said.

In addition to reporting second-quarter earnings, Wendy's also said preliminary results show same-store sales at Wendy's grew 1-2% for the month of July ending August 6, on top of a 6% increase during the same period a year ago.

Same-store sales at its Tim Hortons restaurant chain in Canada rose in the 9-10% range in the July period, on top of a 14% improvement a year ago, the company said.

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