Wendy's/Arby's posts loss, hurt by Arby's weakness

A combined Wendy's/Arby's sign is shown near a restaurant in Fontana, California, January 6, 2009.

CHICAGO (Reuters) - Wendy's/Arby's Group Inc WEN.N, the third-largest U.S. fast-food chain, posted a quarterly loss of nearly $400 million on Monday, hurt by impairment charges and falling sales at Arby's sandwich restaurants.

Shares of Wendy's/Arby's, which was formed last fall, fell as much as 4.8 percent after it released its first report of combined operations. The company said it planned to combine Wendy's and Arby's revolver and term-loan borrowings under one credit agreement to improve its ability to manage and deploy cash.

Wendy's sales were "solid" given the tough economy, and weakness at Arby's was not surprising, said Morningstar restaurant analyst R.J. Hottovy. But the plans to consolidate the lines of credit could "scare the general market" and be pressuring the stock price, he said.

Wendy's/Arby's posted a fourth-quarter loss of $393.2 million, or 84 cents per share.

The results included $417.9 million in charges for writing down the goodwill of Arby's company-owned store operations and for an allowance for doubtful collectability for a promissory note received in connection with the company's 2007 sale of Deerfield & Co LLC.

Excluding items, the company earned 5 cents per share, matching the analysts' average forecast, according to Reuters Estimates.

Revenue was $896.5 million, as sales at established North American restaurants rose 3.7 percent at Wendy's and fell 8.5 percent at Arby's.

Arby's owner, Triarc, bought hamburger seller Wendy's International Inc for just over $2 billion in September to form Wendy's/Arby's. Chief Executive Roland Smith earlier this year told investors he wanted to revamp the company as the fast-food industry's quality leader -- a position long held by Wendy's.

While Wendy's marketing and restaurant operations have improved, Arby's faced a tough quarter as rivals offered discounts to lure diners, Smith said in a statement.

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Wendy's/Arby's competes with McDonald's Corp (MCD.N) and Taco Bell, KFC and Pizza Hut parent Yum Brands Inc (YUM.N). It plans to open 10 new Wendy's and 5 new Arby's restaurants this year. It is also introducing new "Roastburger" roast beef sandwiches at Arby's as it tries to improve that brand.

Wendy's, which is targeting older customers who already favor the chain, is tweaking its value menu, joining the rush to specialty coffee and taking breakfast off the menu at many of its restaurants.

Smith said the company expected positive same-store sales at Wendy's in the current first quarter. Wendy's will launch new chicken and hamburger items this year and plans to expand its retooled breakfast menu into more markets, he said.

Wendy's/Arby's said it planned to combine its revolver and term loan borrowings under one amended credit agreement, and complete the process before it files its 2008 annual report with the U.S. Securities and Exchange Commission.

Shares of Wendy's/Arby's were down 5 cents, or 1.1 percent, at $4.48 after falling to $4.31 earlier in the session.

(Additional reporting by Lisa Baertlein in Los Angeles; Editing by Derek Caney and Lisa Von Ahn)