Question-and-Answer Session
Operator
(Operator Instructions) The first question comes from the line of John Glass - Morgan Stanley.
John Glass - Morgan Stanley
I appreciate all the detail on the Wendy’s margin improvement and your increased targets. You still haven’t specified though where you think the Arby’s business can go. Can you talk to what a reasonable future target is for Arby’s and what your expectations are for this year and then maybe 2011? Can you maybe address what you think the margin impact is of that promotional activity you are targeting for the fourth quarter?
Roland Smith
As I mentioned, we are pleased with the sequential improvement we have seen quarter-over-quarter for Arby’s same store sales. We expect that improvement will continue. At Arby’s because the significance of the reduction year-over-year anyway of our margin has been from de-leveraging, we see a significant and very quick improvement in margin as sales improve. We continue to see sales improving this year. With that we will continue to see margins improving. We also see commodities softening obviously from the standpoint of costs.
The last time I updated you we were talking about commodities decreasing year-over-year around 2%. We have further looked at the commodity market and now we think that they will be flat to about -1 year-over-year. All in all I think we see both sales and margins improving at Arby’s this year and in the future.
John Glass - Morgan Stanley
In terms of a specific target though?
Roland Smith
We don’t give you specific targets obviously. We don’t provide that guidance on a quarterly basis.
John Glass - Morgan Stanley
You did at Wendy’s though so why not for?
Roland Smith
Wendy’s is a completely different story obviously in margins. Wendy’s from a margin standpoint we had a significant opportunity to kind of look at what happened over the last several years and then compare it to franchise and company stores and became very comfortable the 500 basis point margin target as something we certainly could achieve. As we have spoke about that, obviously that is not dependent upon commodities improving or sales improving.
Certainly we would need to be able to keep track of what is going on with inflation but because it is very little that is outside of our control typically in that 500 basis point improvement we are happy to give you kind of projections as to what we think we can do year-over-year. Because we have made such great improvement already this year of 370 basis points in the second quarter and we see commodities beginning to soften and we know the improvement we have made in labor and controllables and food costs we are comfortable in saying we think we are going to beat our projection of 160 to 180 basis points and produce this year greater than 200 basis points of improvement at Wendy’s.
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