X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

DUBLIN, OH-Wendy’s International Inc. will spin off 15% to 18% of its Tim Hortons doughnut-store brand in an initial public offering expected to take place by March 2006, the company said today in its second-quarter earnings conference call. The company also announced essentially flat year-over-year earnings of 61 cents per share, compared to 62 cents per share, but a same-period revenue increase of 4.6% to $951 million for the quarter, amid a challenging quarter that faced record-high beef costs and compressed margins.

Same-store sales for the flagship Wendy’s brand in the US decreased 4.6% from the same period in 2004 for company-owned stores and 3.9% for franchised stores. According to the company, sales continued to be impacted by a consumer fraud incident earlier this year at one of its San Jose, CA, restaurants. The Tim Hortons stores, meanwhile, increased same-store sales in that period by 5.6% in Canada and 9.1% in the US.

In spinning off that portion of Tim Hortons, and in considering a complete spinoff of the rest of that brand within the next two years, Wendy’s is recognizing that as Hortons grows and its namesake brand matures, the two businesses are starting to overlap, said chairman and CEO Jack Schuessler in the conference call. “We believe that separating the two companies is the best action for both,” he said. “One could see that they could become competitors.”

When Wendy’s merged with Tim Hortons in 1995, the combination worked well because at that time the majority of its business conducted was in the afternoon, while most of Tim’s was done in the morning, Schuessler said. But now Wendy’s is considering a breakfast menus and Tim’s is moving into the lunch space, he said. The company first looked at spinning off Tim’s in 2000, then again in 2002, and has finally decided the time is right. That’s because Tim’s has greater visibility to investors now, profitable growth in the US, where it now has 251 stores, and is now self-funding, says Schuessler. In the US, Tim’s will stick to its goal of having 500 stores by 2007.

The spinoff will list on the New York Stock Exchange and Toronto Stock Exchange; Wendy’s will retain ownership of the remainder of the company. Meanwhile, Wendy’s is also kicking off a strategic initiative oriented around slowing down its US growth in recognition of a mature market for its 5,935 flagship fast-food stores. As part of this plan, it will rebalance its US store mix, lowering the mix of company-owned stores from 22% now to about 15% to 18% over the next couple of years, he said. At the same time, the company may buy certain stores from franchisees.

The company will also sell some franchised real estate, Schuessler noted, and slow new-store development down. Because the cost to build new Wendy’s store units has risen as high as an average $1.5 million per store, new stores are hurting Wendy’s overall returns, so we will be “extremely selective” with new stores, says Schuessler. The company will drive down company store development from 71 units per year to 30 to 40 per year, he said.

Wendy’s will also rebalance its store mix in Canada, where 40% of its stores are company-owned, Schuessler noted. The company’s other brands—Baja Fresh, Pasta Pomodoro and Café Express—are “stable” and metrics are improving, Schuessler added.

Even after all the changes—including the Tim’s spinoff and reduced new stores—Wendy’s expects to maintain its current long-range EPS growth of 11% to 13%, said Schuessler. “We’re still good even with the reduction of 15% to 18% in Tim’s earnings and offset by our other actions,” he said. “We see the actions overall within the next two to three years, whether gains or losses, as neutral.”

To further polish its bottom line, Wendy’s announced it will pay off $100 million in debt by December and that its board has approved an additional $1 billion for stock repurchases, which brings its total there to $1.2 billion.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 3 free articles* across the ALM subscription network every 30 days
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?

Dig Deeper

GlobeSt

Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.