050434 Wendy's Profit Hurt by Finger Case

Chicago - Wendy's International Inc. said first-quarter profit dipped, hurt by higher beef costs and lost sales after a woman claimed she found a human finger in a bowl of Wendy's chili.

Police arrested the woman last week, claiming she carried out a hoax, and said the charge cost Wendy's restaurants about $2.5 million in lost business.

Quarterly profits still managed to beat Wall Street expectations, however, helped by a weaker U.S. dollar that boosted reported sales in Canada, and a lower tax rate.

The No. 3 U.S. hamburger chain also said full-year profit would be higher than expected because it decided to begin expensing stock options in 2006 instead of 2005.

Wendy's has been adding healthier options such as fruit cups and salads as it tries to compete with McDonald's Corp. and Burger King for increasingly health-conscious customers. The company has also been advertising its "combo choices" menu that let customers substitute chili, baked potato or a side salad for the standard fries.

Net income fell to $51.3 million, or 45 cents per share, from $52.8 million, or 45 cents per share, a year ago. There were fewer shares outstanding in the latest period.

Analysts, on average, expected Wendy's to earn 40 cents per share, according to estimates.

Dublin, Ohio-based Wendy's said earlier this month that earnings for the period would be lower than a year earlier, largely because of rising beef costs. Before that announcement, Wall Street analysts had been expecting earnings of 43 cents a share, according to estimates.

Wendy's made headlines during the quarter after a woman claimed she found a severed human finger in a bowl of chili at a San Jose, California, Wendy's in March.

The company said on Thursday that the incident cut 2 percent to 2.5 percent from its same-store sales since late March. Same-store sales refers to sales at restaurants open for at least 15 months.

Wendy's also blamed unfavorable weather for slow sales, and noted that it was difficult to top last year's strong 9.1 percent same-store sales increase at company-owned stores.

Overall, quarterly revenue increased 7.1 percent to $894 million thanks to strong sales growth at its Tim Hortons restaurants. Same-store sales at its company-owned Wendy's restaurants fell 2.2 percent. They were down 1 percent at franchised locations.

Beef prices averaged $1.42 per pound in the latest quarter, compared with $1.34 a year earlier. The company said it expects costs to rise even further in the current quarter, to about $1.52 per pound versus $1.23 last year.

Wendy's said it expects lower beef costs in the second half of the year, and forecast that sales would strengthen at its Wendy's hamburger restaurants.

The company said it now expects a full-year profit in the range of $2.29 to $2.35 per share, ahead of Wall Street expectations for $2.19.

RETURN TO HOME PAGE

E-mail: sflanagan@sprintmail.com