UPDATE 3-Wendy's/Arby's posts loss; Arby's weakness hurts

Mon Mar 2, 2009 2:32pm EST

* Q4 profit 5 cents excluding items meets analysts' view

* Same-store sales up at Wendy's, down at Arby's

* Wendy's and Arby's to combine under one credit agreement

* Shares rise 2 percent (Recasts; adds executive, analyst comment; byline; updates stock movement; Adds Los Angeles to dateline)

By Jessica Wohl and Lisa Baertlein

CHICAGO/LOS ANGELES, March 2 (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, rose 2 percent in midday trading after the company also outlined plans to improve performance at its lagging Arby's chain.

The company said fourth-quarter sales at established North American restaurants rose 3.7 percent at Wendy's, but fell 8.5 percent at Arby's -- which has introduced lower-priced sandwiches rather than discount its premium-priced roast beef sandwiches amid intense price competition.

"Arby's clearly needs to hit a home-run to stabilize (same-store sales) declines that are reaching double digits," UBS Equity Research analyst David Palmer wrote in a client note.

Wendy's/Arby's posted a fourth-quarter net loss of $393.2 million, or 84 cents per share, in the company's first financial report of combined results.

The results included $417.9 million, or 89 cents per share, in after-tax charges for writing down the goodwill of Arby's company-owned store operations and for an allowance for doubtful collection 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.

WORKING ON BOTH BRANDS

Arby's owner, Triarc, bought Wendy's International Inc for just over $2 billion in September to form Wendy's/Arby's. Chief Executive Roland Smith is trying to re-establish Wendy's as the fast-food industry's quality leader and is reworking its sandwich buns, french fries and bacon.

Wendy's, which is targeting older customers who already favor the chain, has redone its 99-cent value menu, introducing new products and moving popular items like its chili, baked potatoes and chicken nuggets to higher prices.

That strategy helped boost results at Wendy's, where items from the company's value menu accounted for some 15 percent of overall sales, down from 20 percent about a year ago. Value menu sales are less profitable than other menu items.

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

"Arby's experienced a difficult quarter as fast-food consumers shifted spending to value meals and deeply discounted sandwiches. Our sandwich category competitors continued to focus on $5 price points, which are below Arby's average check of about $7.50," Smith said in a release.

Arby's recently introduced new "Roastburger" roast beef sandwiches and it said it will introduce roasted chicken, swirl shakes and iced fruit teas this year. It is also testing value-priced products.

VALUE MENU

Wendy's/Arby's competes with McDonald's Corp (MCD.N) and Taco Bell, KFC and Pizza Hut parent Yum Brands Inc (YUM.N). The company plans to open 10 new Wendy's and five new Arby's restaurants this year, plus other outlets that will be opened by franchisees.

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.

The company also 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. It plans to complete the process before it files its 2008 annual report with the U.S. Securities and Exchange Commission.

Wendy's/Arby's shares rose 9 cents, or 2 percent, to $4.62 after falling to $4.31 earlier in the session. (Editing by Lisa Von Ahn and Maureen Bavdek)

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