030924 Wendy's Sales Rise; Forecast Is Backed

Chicago - Wendy's International Inc. said comparable sales at its U.S. company-operated hamburger outlets rose 3.5% in September, as it introduced new chicken strips to compete with larger rival McDonald's.

The third-largest hamburger chain said it is heartened by an increase in the number of customers eating at its chains and backed its prior forecast for 2003 earnings.

Shares of the Dublin, Ohio-based company were up 2.7% on Thursday afternoon, after rising 3.3% earlier, as the monthly sales increase surpassed analysts' expectations.

Wendy's said it expects to meet its earnings-per-share forecast of $1.97 to $2.03. Analysts on average were expecting a profit of $1.97.

Wendy's is facing stepped-up competition from larger rival McDonald's Corp., which has unveiled a host of new offerings in recent months, including entree-sized salads and McGriddles breakfast sandwiches. McDonald's, whose U.S. same-store sales have been up for five consecutive months, is expected to post September sales results next Tuesday.

"I think what we're seeing here in the category is that there can be co-existence among the big chains," said Lehman Brothers analyst Mitchell Speiser. He had expected Wendy's to post a same-store sales gain of about 0.5% at its U.S. company hamburger outlets.

Wendy's has been introducing its own new products as well, and said it was "optimistic" about the national roll-out of its new Homestyle Chicken Strips.

"Consumers are willing to pay up for premium fast food," Speiser said, noting he believes that Wendy's average check has risen to about $4.50, compared with McDonald's, which he pegs at $4.25.

Wendy's said same-store sales at its U.S. franchised stores also rose 3.5% in September. Its Canadian Tim Hortons doughnut shops posted a monthly same-store sales increase of 6.5%, while those in the United States saw same-store sales rise 6.9%.

Analysts said they are encouraged by Wendy's earnings outlook, but will keep an eye toward higher costs that could crimp operating margins and drive menu prices up.

"We continue to be watchful of beef and chicken costs, and believe above-average pricing will be required across the industry to offset commodity pressure," wrote J.P. Morgan analyst John Ivankoe in a research note.

Wendy's remains Ivankoe's top pick in the fast-food sector with an "overweight" rating on the stock.

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