Wendy's International, Inc.

Wendy's International, Inc.

February 06, 2006 10:23 ET

Wendy's International, Inc. Announces New Combo Plan to Drive Sales, Improve Margins and Reduce Costs

DUBLIN, Ohio--(CCNMatthews - Feb 6, 2006) -

Wendy's International, Inc. (NYSE:WEN) announced today its new "3-Tiered, 3-Year Combo Plan" to drive sales, improve restaurant profit margins and reduce costs over the next three years.

Chairman and Chief Executive Officer Jack Schuessler discussed elements of the strategic plan during the Company's Analyst and Investor Meeting in New York.

"We are focused on driving Wendy's same-store sales by more than 3% annually and reducing costs throughout the organization by $40 million to $60 million beginning in 2006," said Schuessler. "Our goals are to improve restaurant margins 500 total basis points and to generate at least $100-125 million pretax profit improvement by the end of 2008. We are confident about our future and we are eager to begin writing the next great chapter of Wendy's long-term success story."

During the Analyst and Investor Meeting, the Company also provided its key financial projections for 2006.

Wendy's focused on significantly improving sales and profits over the next 3 years

Schuessler said Wendy's management team is confident about its "3-Tiered, 3-Year Combo Plan" strategy focused on:

1. Increasing Sales - Chief Marketing Officer Ian Rowden has
developed a new marketing strategy to drive same-store sales by
more than 3% annually. Wendy's will differentiate its brand in the
quick-service restaurant industry with innovative products, new
product categories and day-parts, and more compelling advertising.

-- The Company's research and development process has been
re-engineered to produce a steady stream of new products, line
extensions and test products beginning in 2006.

-- Wendy's will introduce this spring new Frescata® deli
sandwiches, which consist of four different offerings on
fresh-baked artisan bread. Wendy's is also introducing this
year new Garden Sensations® salads, a 10-piece Chicken
Nugget Combo and two Kids' Meal deli sandwiches.

-- Test items in 2006 will include unique Double Melt
cheeseburgers, a 99-cent chicken sandwich, new beverages, a
Vanilla Frosty, Frescata deli sandwich line extensions and
combo meal sizing options.

-- The Company plans to test breakfast in 2006 and introduce it
in 2007.

-- The Company also plans to invest an incremental $25 million in
advertising and marketing activity to support certain Wendy's
products during 2006.

2. Improving Restaurant Margins - Management is focused on improving
restaurant-level margins 500 total basis points over the next three
years. In addition to the sale initiatives, there are several
cost-saving initiatives to improve margins, including:

-- A system-wide rollout of the innovative double-sided grill,
which reduces labor costs while ensuring food safety and
accelerating cooking times for greater throughput.

-- A store automation program, which reduces administrative and
labor costs.

-- Supply chain management tactics to reduce food, paper and
controllable costs.

-- A heightened focus on "Service Excellence", which improves
speed of service, accuracy and courtesy for customers.

3. Reducing Costs - Management is reviewing processes throughout the
organization, analyzing opportunities for efficiencies and
identifying cost reductions as it plans for the future. "Our plan
is to reduce expenses by $40 million to $60 million," Schuessler
said. "As we continue to move toward an initial public offering
(IPO) and anticipated full spinoff of Tim Hortons®, we recognize
that tomorrow's Wendy's will look very different from the Company

Tim Hortons focused on continued success with Innovation

"Tim Hortons has delivered strong sales and profit growth for 10 years since the merger with Wendy's, and we expect that to continue," Schuessler said. "The 'Always Fresh' par-baking process enables Tim Hortons to provide customers with new and promotional products that drive transactions and overall sales."

Schuessler said the Tim Hortons IPO remains on track for its targeted date in late March. The Company filed its amended registration statement with the Securities and Exchange Commission on January 19.

The Company reiterated its plan, assuming a successful IPO, that a spinoff of Tim Hortons would occur within nine to 18 months after the IPO, depending on market conditions.

"Based on our analysis of the current facts, we believe the earliest a tax-free spinoff could occur is the end of 2006," said Chief Financial Officer Kerrii Anderson. "If the spin occurred sooner, we could incur tax costs. We have analyzed the tax impact of an immediate spin, and we believe any potential increase in valuation would not offset the associated costs to shareholders."

Other reasons the Company believes an earlier spinoff of Tim Hortons is not advisable include the following:

-- Seamless transition - Both Wendy's International, Inc. and Tim Hortons are committed to a seamless transition for Tim Hortons to become an independent public company.

-- The Securities and Exchange Commission's '34 Act - A company must be subject to SEC reporting requirements for at least 90 days to take advantage of an exemption from registration. To use this exemption, a spinoff could not occur until August 2006, assuming a March 2006 IPO.

Company announces 2006 outlook

The Company today also provided guidance on certain key financial measures for its 2006 fiscal year. The information excludes the effects of the Company's planned IPO of Tim Hortons, which is expected to take place in late March and will impact many of its key operating measures. The Company plans to update guidance following the IPO.

The guidance provided by the Company for 2006 includes:

-- Revenue growth in the 7% to 8% range, up from $3.8 billion in 2005.

-- Operating income growth of 10-13%, up from $377 million reported in 2005 to a range of $415 to $425 million in 2006 (operating income is pretax income excluding interest income and interest expense).

-- Same-store sales and development guidance as follows below:

Wendy's U.S. Company 3.0% to 4.0%
Wendy's U.S. Franchise 3.0% to 4.0%
Tim Hortons Canada 4.0% to 5.0%
Tim Hortons U.S. 6.0% to 7.0%

Wendy's North America 140 to 160 192
International Wendy's 20 to 25 19
Tim Hortons Canada 140 to 150 149
Tim Hortons U.S. 40 to 50 38
Baja Fresh System 5 to 10 19
Cafe Express 0 0

The Company expects total capital expenditures in a range of $315 to $335 million, compared to $360 million in 2005. This includes:

-- $190 million to $200 million for new restaurant development, which reflects an increase for Tim Hortons and a decrease for Wendy's.

-- $95 million to $100 million for remodeling and maintenance.

-- $30 million to $35 million for technology and other investments.

Other items in the Company's 2006 outlook

-- A loss of rental and other income of approximately $15 million in the Wendy's segment due to the sale of certain real estate properties, which was substantially completed at year end 2005.

-- No impact from Canadian currency, which averaged $1.21 and benefited pretax income about $26 million in 2005.

-- General and Administrative expenses, as a percentage of revenue, in the 8.0% to 9.0% range, compared to 2005 results of 8.5%. Included in the G&A guidance is incentive cash compensation in line with expected improved performance at Wendy's in 2006; start-up costs for the new Tim Hortons distribution center in Ontario; costs associated with additional staffing and compliance requirements for Tim Hortons, as it prepares for its conversion to an independent public company; and incremental restricted stock compensation expense of about $0.07 per share compared to 2005. The Company does not expect to incur stock option expense in 2006 due to its accelerated vesting of all remaining options in 2005. The anticipated equity compensation increase in 2006 is due to the conversion from stock options to restricted stock and from early retirement provisions, as required by FAS 123R, which the Company adopted in January 2006. The majority of the early retirement provision impact will occur at Tim Hortons. The Company also expects to incur IPO costs in the first quarter of 2006.

-- An investment by the Company of $25 million related to increased advertising and marketing activity for the Wendy's brand.

-- A 2% to 3% decline in beef prices compared to 2005 and manageable costs for other key commodities, such as chicken, produce and coffee.

-- Anticipated cost increases in utilities and implementation costs for Wendy's double-sided grill, which will impact Company Restaurant Operating Costs.

-- An effective tax rate of 34.0%, compared to 33.7% in 2005.

-- Average shares outstanding of about 116 million, compared to 116.8 million in 2005.

-- The Company repaid $100 million in debt in December 2005, which will reduce interest expense in 2006 by about $6 million.

-- The Company expects to incur charges related to its cost-reduction initiatives announced as part of the "Combo Plan" strategy, which are not incorporated into its current outlook.

Tim Hortons IPO statement

A registration statement relating to Tim Hortons Inc. securities has been filed with the Securities and Exchange Commission, but has not yet become effective. These securities may not be sold, nor may offers to buy be accepted prior to the time the registration statement becomes effective.

Safe Harbor statement

Certain information in this news release, particularly information regarding future economic performance and finances, and plans, expectations and objectives of management, is forward looking. Factors set forth in our Safe Harbor under the Private Securities Litigation Reform Act of 1995, 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. Please review the Company's Safe Harbor statement at http://www.wendys-invest.com/safeharbor.

Wendy's International, Inc. overview

Wendy's International, Inc. is one of the world's largest restaurant operating and franchising companies with more than 9,900 total restaurants and quality brands - Wendy's Old Fashioned Hamburgers®, Tim Hortons and Baja Fresh Mexican Grill. The Company also has investments in two additional quality brands - Cafe Express and Pasta Pomodoro®. More information about the Company is available at www.wendys-invest.com.

Cafe Express is a trademark of Cafe Express, LLC

Pasta Pomodoro is a registered trademark of Pasta Pomodoro, Inc.

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