Wendy's Posts $30M Profit, Beats Expectations

Wendy's International Inc. (WEN), the No. 3 U.S. hamburger chain, Friday reported a quarterly profit, reversing a large year-earlier loss, but results were weighed down by costs from closing poorly performing restaurants as it struggles to revitalize stagnant sales.

Sales, which dipped slightly in the fourth quarter, have suffered for more than a year due to stepped-up competition from larger rival McDonald's Corp. (MCD).

Net income was $30 million, or 25 cents per share, for the fourth quarter, compared with a net loss of $141.4 million, or $1.25 per share, a year earlier.

While Wendy's did not provide a figure for its quarterly profit excluding extraordinary items, Prudential analyst Larry Miller put the number at 44 cents a share, below Wall Street's average estimate of 47 cents a share.

Wendy's has been closing restaurants, selling real estate to franchisees and preparing its Tim Hortons bakery chain for an initial public offering as part of a broad plan to focus on boosting business at its flagship hamburger chain.

McDonald's has revitalized sales at its U.S. business in part by adding chicken sandwiches and salads to its menu — items Wendy's was once alone in selling.

The bigger chain has also expanded into late-night hours, a part of the day once considered Wendy's domain.

"They need something new," Victory Capital Management analyst Dave Kolpak said of Wendy's. "McDonald's has taken away all of their exclusive items."

Wendy's will introduce a line of deli-style sandwiches later this year, though Kolpak said he was concerned the product would be "operationally very complex" compared with serving up burgers.

Dublin, Ohio-based Wendy's will hold a meeting with analysts in New York on Monday. Miller said investors were hoping for insight into recent turnaround efforts.

"We believe most investors are more focused on Monday's analyst meeting in (New York) rather than near-term earnings," Miller said in a client note.

Wendy's shares were up 61 cents at $59 Friday on the New York Stock Exchange. The stock has climbed 6.8 percent so far in 2006, largely in anticipation of the upcoming Tim Hortons IPO, analysts said.

Revenue slipped 0.1 percent in the quarter to $977.3 million. The chain also posted a 2.9 percent drop in sales at company-owned Wendy's restaurants open at least 15 months, the fifth consecutive quarter of declines.

The results included over $100 million in charges for closing restaurants, goodwill impairment, stock-based compensation and the planned spin-off of the Tim Hortons bakery chain. They also included a $60.9 million gain for the sale of real estate.

The year-earlier quarter included hefty charges for the company's Baja Fresh Mexican-style chain.