Wendy's reiterates its Buy recommendation on Wendy's:
(also - closing of salad bars is mentioned)
Wendy's International, Inc. Announces Up to $150 Million Increase in Share Repurchase Program
August 18, 1998 08:00 AM
DUBLIN, Ohio, Aug. 18 /PRNewswire/ -- Wendy's International, Inc. WEN today announced an increase in its share repurchase program by up to an additional $150 million of its outstanding common shares over the next two years. This is in addition to the program announced in February to repurchase up to $200 million of Wendy's shares as part of an integrated set of strategic initiatives.
"We expect to fund the additional $150 million of share repurchases by redeploying assets that are earning less than our cost of capital, such as notes receivable from franchisees, certain properties leased to franchisees, certain restaurants that will be refranchised and excess cash," said Chief Financial Officer Frederick R. Reed. "Furthermore, we intend to purchase shares after the $150 million addition is completed to offset dilution from employee stock options."
Through the end of the second quarter, Wendy's had repurchased 5.6 million of its shares for $132 million. At the end of the second quarter the company had $117 million of cash and cash equivalents.
"We aggressively purchased shares in the first half of the year and we believe that Wendy's current share price is attractive," said Chairman, CEO and President Gordon F. Teter. "The announcement to expand the repurchase program represents a continuation of our strategic initiatives intended to improve shareholder value and we are pleased that we have made excellent progress on the initiatives to date." The strategic initiatives include:
* Closing 64 underperforming Wendy's units (written down in the 1997
fourth quarter). Thus far 60 have been closed.
* Refranchising of about 160 Wendy's units, many of which were producing
returns below the system average. At the end of the second quarter, 117
units had been sold to franchisees, and the remaining transactions are
expected to be completed in the third quarter. Pretax gains realized
during 1998 as a result of refranchising restaurants are expected to be
less than $15 million, as compared to $81 million in 1997.
* Improving returns on the remaining company operated Wendy's restaurants
by focusing on margin improvements. Salad bars have been removed from
most company units, and a number of other projects are under way that
will also reduce costs and improve margins.
* Accelerating new restaurant development. The company plans to increase
systemwide development by 15% next year.
* Repurchasing shares. The February announcement specified a repurchase
of up to $200 million of Wendy's common shares using available cash.
Teter stressed that the company intends to continue its long-term strategies of focusing on restaurant operations, aggressive but responsible growth, balanced marketing and maintaining a performance driven culture. "This strategy has produced the best top-line sales growth in the industry," he said.
Wendy's strong sales performance has continued in the third quarter. Average unit volumes for domestic company operated Wendy's restaurants were up more than 8% compared to last year. The average unit volume comparison was favorably impacted by the closing and refranchising of company operated stores. Same-store sales for domestic company operated Wendy's restaurants were up 3.2% for the month of July. Same-store sales at Tim Hortons' restaurants in Canada were up 10.7% in July.
The Company's long-term goal is to deliver core EPS growth in the low- to mid-teens.
Wendy's International, Inc. is one of the world's largest restaurant operating and franchising companies with $6.0 billion in systemwide sales in 1997. Wendy's Old Fashioned Hamburgers, founded by Dave Thomas in 1969, is the third largest quick-service hamburger restaurant chain in the world, with 5,207 units in 34 countries and territories. The Company also owns Tim Hortons, the largest coffee and donut restaurant chain in Canada, with 1,578 total units at year-end.
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 significantly 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 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.
The non-recurring charge recorded in the fourth quarter of 1997 included $35 million related to the closure or sale of restaurants to franchisees and the disposition of surplus properties. The actual loss incurred from these activities could vary significantly from the Company's estimate due to many of the factors set forth above.
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.
SOURCE Wendy's International, Inc.
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