Wendy's International, Inc. (NYSE: WEN) today announced sales and earnings results for the second quarter, which ended on July 4, 1999. The results included robust same-store sales growth at Wendy's(R) in the United States and Tim Hortons(R) in Canada, the best quarterly domestic margin in 14 years and a 21% increase in Base EPS compared to the 13-week period a year ago. Second Quarter Highlights * Systemwide sales increased 3.7% to $1.8 billion. * Average unit volumes (AUVs) at Wendy's company restaurants in the U.S. increased 10.4%. It was the 38th consecutive month of positive AUVs. Same-store sales were up 8.3% and AUVs at franchise restaurants in the U.S. increased 6.7%. * Tim Hortons' same-store sales increased 10.9% in Canada and strongly in the U.S. * Wendy's domestic margin improved to 17.7%, up 110 basis points from 16.6% a year ago, due to the sales growth and effective store-level productivity initiatives. * Net income was $49.5 million compared to $45.6 million a year ago. * Total diluted earnings per share for the second quarter were $0.39, a 15% increase from $0.34 reported a year ago. Total EPS for the quarter included $0.04 in asset gains from the sale of real estate, franchising and fees. That compared to $0.02 in asset gains in the same quarter a year ago. Total EPS results for the second quarter a year ago included 14 weeks and $0.03 in EPS from the extra accounting week (see chart below). * Base EPS (total diluted EPS less asset gains) was $0.35 for the quarter, up 21% from $0.29 in the equivalent 13-week quarter a year ago.
Second Quarter Diluted Earnings Per Share
2Q 1999 2Q 1998 Increase
Base EPS $0.35 $0.29 21%
Extra Week -- $0.03 --
Asset Gains $0.04 $0.02 --
Total EPS $0.39 $0.34 15% "Our core businesses of Wendy's in North America and Tim Hortons in Canada are extremely healthy," said Gordon F. Teter, Chairman, CEO and President. "The North American economy is strong, consumer traffic in our restaurants is growing and we have good sales momentum. "We are encouraged with results from our Service Excellence program at Wendy's. It is delivering incremental sales and improved customer service at the restaurant level," said Teter. "In addition, other sales driving programs were effective in the second quarter and productivity initiatives at the store level helped offset increasing crew wage rates." Earlier this month, management raised the Company's Base EPS growth goal for 1999 to 18% to 21%, up from a previous range of 16% to 18%. Base EPS was $1.03 in 1998 excluding non-recurring charges. Total EPS for 1999 is expected to include a total of $0.06 to $0.07 in asset gains. First Half Highlights * For the first six months of the year, ended July 4, 1999, systemwide sales increased 7.4% to $3.4 billion. * AUVs at Wendy's company restaurants in the U.S. increased 11.7% while same-store sales were up 9.0%. Tim Hortons' same- store sales in Canada were up 10.5%. * Wendy's domestic margin for the first half improved to 16.8%, up 180 basis points from 15.0% a year ago. * Net income was $81.5 million compared to $69.4 million a year ago. * Total diluted EPS for the first six months was $0.64, compared to $0.52 a year ago. * Base EPS was $0.59 for the first six months compared to $0.50 a year ago (the first half of 1999 included 26 weeks compared to 27 weeks in 1998). * The Company opened a total of 188 new restaurants during the first six months of the year: 24 company Wendy's in the U.S.; 79 franchised Wendy's in the U.S.; 27 Wendy's in international markets and 58 Tim Hortons in Canada and the U.S. Quality Products and Service Excellence at Wendy's The Company continues to emphasize quality products and balanced marketing at Wendy's and Tim Hortons. Customers reacted favorably to Wendy's "Cheddar Lovers' Bacon Cheeseburger" introduced during the second quarter. A new promotional sandwich, the "French Onion Chicken Grill," was introduced earlier this month and a national advertising campaign for the sandwich debuts today. The French onion grilled chicken sandwich achieved strong results in test markets. Wendy's "Service Excellence" program is being expanded from the Company's Western U.S. region to the rest of the U.S. and Canada. About 30% of the system has implemented the program. All company stores are expected to be converted by late 1999 and franchised units by the end of the first quarter 2000. "Our restaurant managers and crew have utilized Service Excellence to deliver incremental sales gains, improved speed and better service at pick-up windows in the Western region," said Teter. "We look forward to a positive impact in our other regions as we extend the program to company and franchise stores throughout North America." Iced Cappuccino Popular at Tim Hortons Customer demand for the new iced cappuccino drink at Tim Hortons continues to be strong following the introduction of the product during the second quarter. Tim Hortons is currently promoting its popular Timbits(R) products with a national television campaign in Canada. "In addition to the outstanding results in Canada, Tim Hortons' same-store sales are improving in our three U.S. markets as we focus on operations," said Teter. "Customers in the U.S. are becoming more familiar with the Tim Hortons brand and quality products." Progress on Strategic Initiatives The Company made progress during the second quarter on its strategic initiatives: * Repurchasing 1.9 million shares for $52.6 million during the quarter. Through the end of the second quarter the Company repurchased a total of nearly 12 million shares and completed $280 million of the $350 million stock repurchase program authorized by the board and previously announced.
* Completing more than $50 million of the program to refinance with third-party lenders $150 million in notes receivable held by the Company. The program is essentially complete. "We are pleased with our progress and to be ahead of plan on the share repurchase and the notes programs," said Frederick R. Reed, Chief Financial Officer. "Furthermore, the domestic margin expansion has been much stronger than expected. Our cash flow is strong and the balance sheet is healthy." Dividend Approved The Board of Directors today approved a quarterly dividend of 6 cents per share, payable on August 23 to shareholders of record as of August 9. It will be the Company's 86th consecutive dividend payment to shareholders. Tim Hortons Website Launched The Company recently launched a website profiling Tim Hortons. The new website can be accessed at www.wendys.com or www.timhortons.com . The Tim Hortons website features interesting historical and current information, in both English and French, about the coffee and fresh baked goods restaurant chain. It also has information about products, promotions, a nutrition guide and the Tim Hortons Children's Foundation. Wendy's International, Inc. is one of the world's largest restaurant operating and franchising companies with $6.5 billion in systemwide sales during 1998. Wendy's Old Fashioned Hamburgers was founded in 1969 by Dave Thomas and is the third-largest quick-service hamburger restaurant chain with more than 5,400 units in the United States, Canada and other international markets. Tim Hortons was founded in 1964 by Tim Horton and Ron Joyce and is the largest coffee and baked goods restaurant chain in Canada. There are more than 1,700 Tim Hortons restaurants in North America. SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain information in this news release, particularly information regarding future economic performance and finances, and plans, expectations and objectives of management, is forward looking. The following factors, in addition to other possible factors not listed, could affect the Company's actual results and cause such results to differ materially from those expressed in forward-looking statements: Competition: The quick-service restaurant industry is intensely competitive with respect to price, service, location, personnel, and type and quality of food. The Company and its franchisees compete with international, regional, and local organizations primarily through the quality, variety, and value perception of food products offered. The number and location of units, quality and speed of service, attractiveness of facilities, effectiveness of advertising and marketing programs, and new product development by the Company and its competitors are also important factors. The Company anticipates that intense competition will continue to focus on pricing. Certain of the Company's competitors have substantially larger marketing budgets. Economic, Market and Other Conditions: The quick-service restaurant industry is affected by changes in national, regional, and local economic conditions, consumer preferences and spending patterns, demographic trends, consumer perceptions of food safety, weather, traffic patterns, and the type, number and location of competing restaurants. Factors such as inflation, food costs, labor and benefit costs, legal claims, and the availability of management and hourly employees also affect restaurant operations and administrative expenses. The ability of the Company and its franchisees to finance new restaurant development, improvements and additions to existing restaurants, and the acquisition of restaurants from, and sale of restaurants to franchisees is affected by economic conditions, including interest rates and other government policies impacting land and construction costs and the cost and availability of borrowed funds. Importance of Locations: The success of Company and franchised restaurants is dependent in substantial part on location. There can be no assurance that current locations will continue to be attractive, as demographic patterns change. It is possible the neighborhood or economic conditions where restaurants are located could decline in the future, thus resulting in potentially reduced sales in those locations. Government Regulation: The Company and its franchisees are subject to various federal, state, and local laws affecting their business. The development and operation of restaurants depend to a significant extent on the selection and acquisition of suitable sites, which are subject to zoning, land use, environmental, traffic, and other regulations. Restaurant operations are also subject to licensing and regulation by state and local departments relating to health, sanitation and safety standards, federal and state labor laws (including applicable minimum wage requirements, overtime, working and safety conditions, and citizenship requirements), federal and state laws which prohibit discrimination, and other laws regulating the design and operation of facilities, such as the Americans with Disabilities Act of 1990. Changes in these laws and regulations, particularly increases in applicable minimum wages, may adversely affect financial results. The operation of the Company's franchisee system is also subject to regulation enacted by a number of states and rules promulgated by the Federal Trade Commission. The Company cannot predict the effect on its operations, particularly on its relationship with franchisees, of the future enactment of additional legislation regulating the franchise relationship. Growth Plans: The Company plans to increase the number of systemwide Wendy's and Tim Hortons restaurants open or under construction. There can be no assurance that the Company or its franchisees will be able to achieve growth objectives or that new restaurants opened or acquired will be profitable. The opening and success of restaurants depends on various factors, including the identification and availability of suitable and economically viable locations, sales levels at existing restaurants, the negotiation of acceptable lease or purchase terms for new locations, permitting and regulatory compliance, the ability to meet construction schedules, the financial and other development capabilities of franchisees, the ability of the Company to hire and train qualified management personnel, and general economic and business conditions. International Operations: The Company's business outside of the United States is subject to a number of additional factors, including international economic and political conditions, differing cultures and consumer preferences, currency regulations and fluctuations, diverse government regulations and tax systems, uncertain or differing interpretations of rights and obligations in connection with international franchise agreements and the collection of royalties from international franchisees, the availability and cost of land and construction costs, and the availability of experienced management, appropriate franchisees, and joint venture partners. Although the Company believes it has developed the support structure required for international growth, there is no assurance that such growth will occur or that international operations will be profitable. Disposition of Restaurants: The disposition of company- operated restaurants to new or existing franchisees is part of the Company's strategy to develop the overall health of the system by acquiring restaurants from, and disposing of restaurants to, franchisees where prudent. The expectation of gains from future dispositions of restaurants depends in part on the ability of the Company to complete disposition transactions on acceptable terms. Transactions to Improve Return on Investment: The sale of real estate previously leased to franchisees is generally part of the program to improve the Company's return on invested capital. There are various reasons why the program might be unsuccessful, including changes in economic, credit market, real estate market or other conditions, and the ability of the Company to complete sale transactions on acceptable terms and at or near the prices estimated as attainable by the Company. Year 2000: The Company anticipates timely completion of its program to address year 2000 issues. However, if the new information systems are not implemented on a timely basis, modifications to existing systems cannot be accomplished on a timely basis, information technology resources do not remain available, or other unanticipated events occur, there would be adverse financial and operational effects on the Company. The amount of these effects cannot be ascertained at this time. Although the Company has not been informed of material year 2000 issues by third parties with which it has a material relationship or franchisees, there is no assurance that these entities will be year 2000 compliant on a timely basis. Unanticipated failures or significant delays in furnishing products or services by third parties or general public infrastructure service providers, or the inability of franchisees to perform sales reporting and financial management functions or to make timely payments to the Company or suppliers, could have a material adverse effect on results of operations, financial condition and/or liquidity. Readers are cautioned not to place undue reliance on forward- looking statements, which speak only as of the date thereof. The Company undertakes no obligation to publicly release any revisions to the forward-looking statements contained in this release, or to update them to reflect events or circumstances occurring after the date of this release, or to reflect the occurrence of unanticipated events. ots Original Text Service: Wendy's International, Inc. Internet: http://www.newsaktuell.de Contact: John D. Barker of Wendy's International, Inc., 614-764- 3044, or email@example.com Web site: http://www.timhortons.com http://www.wendys.com