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Wendy’s outlines growth plans, brand focus

All eyes are on Wendy’s, as parent company Wendy’s/Arby’s Group Inc., looks to shed the Arby’s brand and focus its attention and energy on the third-largest hamburger chain.

Speaking with analysts and investors Thursday, Wendy’s management outlined sales and unit growth projections for 2011, as well as menu, operational and marketing initiatives for the chain.

“This year represents a transition period for our company,” said president and chief executive Roland Smith, “as we are exploring strategic alternatives for Arby’s, including a sale of the brand, reducing our corporate G&A to support a single brand and focusing our energies on investing in Wendy’s growth opportunities.”

Earlier Thursday, the Atlanta-based Wendy’s/Arby’s reported fourth-quarter results that included a narrowed net loss and positive same-store sales. See full results.

Looking at projections for this year, Wendy’s outlined certain brand initiatives:

Menu. Seasonal new-product are set to debut, including a fish-and-chips combo in March for Lenten season, as well as a soon-to-debut salad and Frosty dessert with fresh blueberries and strawberries. In the fall, Wendy’s will roll out nationally the Dave’s Hot ‘N Juicy Cheeseburger, which is testing in four markets. More product extensions are set for the ‘My 99’ value menu later in the year.

By the end of the year, breakfast at Wendy’s is expected to be available in about 1,000 units. Wendy’s executives are encouraged by sales and traffic patterns seen in the Shreveport, La., test market, which are trending better than those in Pittsburgh and Phoenix, markets where Wendy’s tested breakfast menus previously and had to scrap them.

“We have the right product line, and we’re learning more about how we need to represent that line in an advertising and promotional standpoint,” Smith said. “It’s a fairly price-competitive daypart, and we’re testing what the right mix of premium and value products is, and we’d expect a morning execution of ‘My 99’ going forward.”

Growth. Wendy’s officials said the projected $145 million in capital expenditures would contribute to operations improvements, unit remodeling, and expansion in both North America and abroad.

Long-term development potential at Wendy’s has room for 1,000 more restaurants in North America. In addition, Wendy’s plans to remodel 100 restaurants in 2011, 75 of which will sport a new prototype design, which the chain hopes to unveil in the second quarter.

Wendy’s executives also reiterated previously stated international growth targets of 8,000 units, 30 percent of which would come in Brazil and China and 9 percent of which would open in Japan. Wendy’s has 340 international units, mostly franchised, with agreements on the books for 610 more. Its recently announced deal to re-enter Japan was its first international joint-venture agreement.

Outlook. Smith said the unfavorable winter weather in January negatively affected first-quarter same-store sales between 1.5 percent and 2 percent, but if sales improvements seen in February hold through March, Wendy’s should end the quarter with flat to positive same-store sales. The 2011 outlook of increased same-store sales between 1 percent and 3 percent includes the assumption of margin improvements of between 30 and 60 basis points, he said.

“We think the combination of new products, positive transactions, a shift in mix, and pricing all will be able to deliver the margin improvement we offered in our guidance,” Smith said.

Commodity prices are expected to rise between 2 percent and 3 percent, with certain staples like lean beef jumping as much as 15 percent. Wendy’s took a small price increase in late 2010 and early 2011 to partially offset those pressures, and would look at further increases this year based on commodities fluctuation and pricing moves at competitors.

Wendy’s own recent analysis of certain products showed that as much as 70 percent of its North American restaurants could withstand a modest price increase on a few individual key items, and the brand would take price in those markets while leaving price points unchanged in more economically sensitive areas.

“What we have is not really a pricing structure so much as a pricing strategy and methodology,” Smith said. “It goes product by product in different zones of the country. What we’ve learned is we have pricing opportunity, but it’s not the same in every single category.”

Atlanta-based Wendy’s/Arby’s Group operates more than 10,000 quick-service restaurants worldwide.

Contact Mark Brandau at [email protected].

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