010810 Wendy's Earnings Rise on Higher Sales

Chicago - Wendy's International Inc., the No. 3 U.S. hamburger chain, on Wednesday said its second-quarter earnings rose 11%, boosted by new restaurant openings and increased sales at its Wendy's hamburger and Tim Hortons doughnut chains.

Dublin, Ohio-based Wendy's said net income increased to $56 million, or 47 cents per share, from $50.7 million, or 43 cents per share, a year ago. Results in both years included gains of 2 cents a share from the sale of real estate.

Systemwide sales, which include company-owned and franchised stores, rose 8.5%, to $2.1 billion in the second quarter. Revenues rose 7%, to $609.6 million.

Wall Street analysts on average had expected 47 cents a share, with estimates ranging from 46 cents to 48 cents, according to market research firm Thomson Financial/First Call.

Last month, Wendy's lowered its full-year earnings guidance amid rising operating costs -- including beef, utilities, and labor. But a better-than- expected outlook for the second quarter boosted the consensus view in that period by a penny.

“It's basically in line with our guidance,” said Bear Stearns restaurant analyst Joe Buckley. “There was pressure on the Wendy's margins, as expected.”

Wendy's domestic operating margin fell to 16.1% from 17.3% a year ago.

July sales at the company's U.S. Wendy's stores open at least a year rose about 2.5%, while those at Tim Hortons Canadian stores rose in the 7% to 8% range.

The company opened 64 Wendy's and 37 Tim Hortons in the quarter. It now operates more than 5,800 Wendy's and 2,000 Tim Hortons.

“Our Wendy's business in North America is solid and we have excellent promotional products planned for the rest of the year,” said Wendy's Chief Executive Jack Schuessler, in a statement. “Tim Hortons continues to perform better-than-expected, which is important since the business represents about one-third of our pretax income.”

The company is looking to secure real estate to expand Tim Hortons doughnut shops to a new U.S. market quickly, officials said on a conference call. Tim Hortons' U.S. markets include Buffalo, upper New York, central Michigan, and central Ohio.

Wendy's is conducting an extensive country-by-country review of its international business to support current franchisees and find new business opportunities in Latin America and South America.

Wendy's said it expects some moderation in costs in the second half, and it is on track to open 500 new restaurants systemwide for the year. The company does not expect more asset gains, such as the sale of real estate that added 2 cents per share to earnings in the second quarter, the rest of the year.

Wendy's reiterated its lowered full-year guidance for 2001 growth in earnings per share of 11% to 13%, down from an earlier range of 12% to 15%.

The company now expects full-year earnings of $1.70 to $1.73 a share. Prior to Wendy's July 10 warning, Wall Street had expected 2001 earnings of $1.65 to $1.74 a share. Last year the company earned $1.44.

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