040159 Wendy's Quarterly Earnings Up Sharply

Wendy's, the No. 3 U.S. hamburger chain, and its top competitor, McDonald's Corp., have enjoyed renewed sales momentum in recent months, helped by increased menu promotions and evolving trends such as low-carbohydrate diets that embrace beef and chicken, analysts said.

Meanwhile, Burger King, the No. 2 hamburger chain, has lost ground, hurt by what analysts have called a lack of a clear strategy, spotty quality and the financial woes of some of its largest franchisees.

Dublin, Ohio-based Wendy's said it earned $64.7 million, or 56 cents a share, in the fourth quarter, compared with $50.7 million, or 44 cents, in the year-earlier period. The results beat analysts' average estimates by 2 cents a share.

"I think it's new products, easy comparisons, Atkins and a weak Burger King," said A.G. Edwards analyst Jack Russo of Wendy's quarterly profit. Low-carb diets, which eschew bread and starches, have hurt competitors like sandwich maker Panera Bread Co. (Nasdaq:PNRA - news), another factor that is likely helping Wendy's and McDonald's, he said.

McDonald's and Wendy's have had great success with their entree-sized salads, choices that appeal to health-conscious eaters.

Comparable sales at the Wendy's namesake stores and its other major banner, Canadian donut chain Tim Hortons, both rose strongly in the quarter, contributing to an overall revenue gain of 21 percent at $862.4 million. Sales also got a boost from a favorable Canadian exchange rate, Wendy's said.

So-called same-store sales at U.S. Wendy's stores rose 8.6 percent, while Tim Hortons Canadian stores were up 5.7 percent. The company's expanding Mexican chain, Baja Fresh Mexican Grill, saw same-store sales decline 5.3 percent.

Wendy's earnings improvement came despite a 29.3 percent quarterly increase in beef costs, which pushed domestic operating margins down 20 basis points to 14.7 percent.

"We delivered our best fourth quarter in the history of the company as both Wendy's and Tim Hortons produced excellent sales, we achieved our new store opening plans and our employees continued to effectively control costs," Wendy's Chairman and Chief Executive Jack Schuessler said in a prepared statement.

Analysts had expected profit of 54 cents a share on average.

Wendy's said it will shed light on its expectations for 2004 profit and disclose January sales results on Monday, when it holds a meeting in New York for investors.

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