020229 Wendy's Sees Earnings Higher on Sales

Chicago - Wendy's International Inc. , operator of the No. 3 U.S. hamburger chain, on Monday said its 2002 earnings would be slightly below estimates, but said it would drive long-term growth with North American expansion and entry into a new quick-service concept.

The operator of Wendy's hamburger and Tim Hortons doughnut chains said it expects 2002 earnings to rise 11% to 14%, or $1.83 to $1.88 a share, including asset gains, up from $1.65 in 2001. The company's long-term growth rate remains 12% to 15%.

Analysts had forecast a mean of $1.89 a share for 2002, according to market research firm Thomson Financial/First Call.

"Their EPS (earnings per share) guidance is probably conservative, but it's consistent with their targeted growth rate," said Bear Stearns analyst Joe Buckley, who rates Wendy's shares "attractive." "It's a good, solid story. Management is executing well."

Shares of Wendy's fell 42 cents to close at $31.63 on the New York Stock Exchange. The shares are up nearly 30% in the past 12 months.

Dublin, Ohio-based Wendy's said it will buy a 45-percent minority stake of $9 million to $10 million in Cafe Express, a Houston-based chain of 13 restaurants offering pastas, salads, sandwiches, and other fare in the growing fast-casual category. The chain operates stores in Houston, Dallas, and Phoenix.

"We really expect (mergers and acquisitions) to be a contributor to our long-term growth plans," Chief Executive Jack Schuessler said. "Fast casual is an area we've been looking at and we've really done some research on it."

The trend includes restaurants that have limited table service, but whose fare is typically higher priced, more diverse, and fresher than that offered at traditional fast-food chains.

BULLISH SALES FORECAST

Wendy's, whose sales have been pacing faster than larger rivals McDonald's Corp. and Burger King Corp., a division of Diageo Plc. , said it expects 2002 revenues to rise 7% to 8%, helped by more advertising and the introduction of new products, such as its Garden Fresh Salad.

The company is broadening its marketing approach with the recent launch of a national Hispanic advertising campaign, Don Calhoon, Wendy's executive vice president of marketing, told analysts. It's also continuing to advertise extended hours at its Wendy's restaurants, something its rivals can't match.

The expansion comes in the wake of the death of the company's founder and long- time spokesman Dave Thomas, who died last month of liver cancer. Thomas was featured in television ads for more than a decade.

Wendy's expects to enter two to three new U.S. markets this year. It recently opened three restaurants in the highly competitive Los Angeles market.

It plans to open 515 to 540 new Wendy's hamburger and Tim Hortons doughnut restaurants this year, and will continue to convert the remainder of its 30-percent company operated Wendy's stores to franchised operated ones, executives said.

The so-called refranchising program will allow the company to book asset gains in the year of a penny a share, down from 3 cents in 2001. Excluding gains, it sees per-share earnings growing 12 to 15% in 2002.

A lower tax rate and the elimination of the amortization of goodwill could add 2 cents a share to 2002 earnings, offset by a weaker Canadian dollar, which could cut 2 cents to 4 cents a share. The majority of Wendy's Tim Hortons stores are Canadian.

Lower interest income could cut another penny or two, the company said.

Wendy's also said that the estate of founder Thomas exercised all its stock options, acquiring 1.2 million shares and bringing $25 million to the company.

For all of 2001, Wendy's reported net income of $193.6 million or $1.65 per diluted share, including the 3 cents per share of asset gains, on revenues of $2.39 billion. During 2001, Wendy's and its franchisees opened 535 new restaurants systemwide.

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