UPDATE 4-Wendy's scales back breakfast plans; shares rise

Tue Jan 13, 2009 1:12pm EST

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By Lisa Baertlein and Jessica Wohl

LOS ANGELES/CHICAGO Jan 13 (Reuters) - Wendy's/Arby's Group Inc WEN.N said it will overhaul its breakfast strategy, cutting the morning menu at hundreds of its U.S. stores and aiming to relaunch breakfast across the United States in 2011.

Shares of Wendy's/Arby's rose as much as 3.9 percent.

The move -- which would cut the number of Wendy's outlets selling breakfast from 850 to between 450 and 475 -- is a sharp reversal of the plan the hamburger chain laid out in 2007. At that time, Wendy's added breakfast to hundreds of U.S. locations to revitalize its business.

Wendy's/Arby's was formed when Triarc, the owner of the Arby's sandwich chain, acquired Wendy's International Inc for $2.2 billion on Sept. 29. In April, when announcing its plans to buy Wendy's, Triarc also said breakfast would play an important role in sprucing up the brand.

Wendy's breakfast offerings have included a Steak and Egg sandwich, a Grande Breakfast Burrito, a Buttermilk Frescuit -- a type of biscuit made with egg and cheese and bacon.

But Wendy's and other fast-food chains have struggled to compete with McDonald's Corp (MCD.N), which has 14,000 U.S. restaurants and dominates the fast-food breakfast business.

McDonald's size means diners are more likely to pass a store on their drive to work. Compared with smaller rivals, McDonald's also can buy ingredients at lower prices and fund major advertising campaigns. McDonald's has credited breakfast with helping to boost its sales.

Morningstar analyst R.J. Hottovy called the retooled breakfast plan a good long-term move that could give Wendy's room to focus on core operations in the near term.

"The decision to scale back on the number of stores offering breakfast is prudent while the company adjusts and improves the overall quality of its breakfast product," he said. But Hottovy said the morning meal is still one companies should invest in, even in a recession, "because consumers have come to expect it from fast-food chains."

Roland Smith, president and CEO of Wendy's/Arby's, who also serves as CEO of the Wendy's brand, said his team is working to improve margins at Wendy's restaurants.

Smith, speaking at a Cowen and Company conference, said the company expects to grow earnings before interest, taxes, depreciation and amortization or EBITDA by $100 million and cut costs by $60 million over three years.

Smith said Wendy's would focus on the Pittsburgh, Kansas City and Phoenix markets this year with a revamped breakfast menu. After testing its plans, it aims to relaunch breakfast nationally in 2011.

Fourth-quarter results for the combined company will be released on March 5. In November, Wendy's/Arby's posted quarterly losses for each of its former companies.

Wendy's/Arby's shares were up 5 cents, or 1 percent, at $5.15 in early afternoon trade after rising to $5.30 on the New York Stock Exchange. (Reporting by Jessica Wohl and Lisa Baertlein; Editing by Derek Caney, Maureen Bavdek, Leslie Gevirtz)

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