* Q4 adj EPS 7 cents vs Street view 3 cents
* 2010 EBITDA outlook below Street view
* Shares down 5.3 percent
(Adds analyst and executive comments; updates share movement)
By Lisa Baertlein
LOS ANGELES, March 4 Wendy's/Arby's Group Inc
WEN.N cut its 2010 earnings growth forecast below Wall Street
estimates on Thursday as it tries to turn its fast-food
restaurants around, and its shares fell more than 5 percent.
The disappointing outlook overshadowed the company's news
that quarterly profit came in higher than expected despite
continued declines in closely watched same-store sales at both
The Wendy's and Arby's chains each suffered from neglect
prior their $2 billion merger in September 2008. They now are
fighting to catch up with rivals in terms of restaurant
appearance, operations, menu variety and value.
Their parent company, the third-largest U.S. fast-food
restaurant operator, plans to spend more money in 2010 to boost
results at the chains.
That bigger investment, in combination with weak economic
conditions, forced executives to temper growth forecasts.
Wendy's/Arby's said it expected adjusted earnings before
interest, taxes, depreciation and amortization to increase at a
low- to mid-single-digit percentage rate in 2010, with growth
returning to the mid-teens in 2011 if the economy improves. It
previously had said it expected average annual growth in the
mid-teens through 2011.
RBC Capital Markets analyst Larry Miller said in a note
that the outlook equated to 2010 EBITDA of $430 million to $445
million, missing the analysts' average estimate of $450
Rampant industry discounting has even the best operators
fighting to boost sales and profits, and investors remain
cautious about Wendy's/Arby's prospects.
While margins improved in the latest quarter, Bernstein
Research analyst Sara Senatore said in a note that the
company's weak same-store sales and lowered 2010 expectations
"speak to challenges."
Fourth-quarter systemwide sales at Wendy's North American
established restaurants dropped 3 percent, weakened by the
removal of breakfast from about 300 locations. Arby's North
America systemwide same-store sales plunged 11 percent as the
chain continues to struggle.
By comparison, industry leader McDonald's Corp (MCD.N)
reported a 1 percent rise in fourth-quarter U.S. systemwide
sales, which include all established restaurants, whether
operated by the company or by franchisees.
Several large fast-food chains recently have reported
declines in same-store sales as unemployment among young men
and minorities -- groups that account for a large percentage of
fast-food diners -- hovers at rates higher than the national
average. Still, declines of 10 percent or more raise flags.
Wendy's/Arby's said same-store sales should rise at Wendy's
this year but fall at Arby's as it works on improvements and
boosts national advertising.
This year, the company is rolling out its revamped Wendy's
breakfast in more new markets, focusing on the chain's
reputation for serving fresh food, and adding premium
sandwiches. At Arby's, which has traditionally sold sandwiches
at higher prices than its peers, it is remodeling stores and
taking the value menu national in April.
"Because Arby's has lacked an everyday value menu, we've
not been able to compete effectively in this environment, and
we've lost a significant number of transactions and sales,"
Chief Executive Officer Roland Smith said on a conference
Wendy's/Arby's said same-store sales trends improved at
North American company-operated locations in January, as
Wendy's promoted items such as 99-cent spicy chicken nuggets
and Arby's expanded its $1 value menu to more than 2,500
restaurants. Wendy's posted a 0.3 percent rise, and Arby's, a
7.4 percent decline.
The fourth-quarter net loss at the company narrowed to
$13.6 million, or 3 cents per share, from $393.2 million, or 84
cents a share, a year earlier, when it booked significant
Excluding charges, Wendy's/Arby's earned 7 cents a share in
the latest quarter, topping the analysts' average forecast of 3
cents, according to Thomson Reuters I/B/E/S.
Consolidated fourth-quarter revenue from the 10,000-plus
restaurant chain rose 0.5 percent to $900.9 million, below the
$914.8 million analysts had expected.
Wendy's/Arby's shares were down 5.3 percent at $4.68 in
afternoon New York Stock Exchange trading.
(Reporting by Lisa Baertlein in Los Angeles and Jessica Wohl
in Chicago; Editing by Derek Caney, John Wallace and Lisa Von