Wendy's Arby's Group Inc AWEN

Morningstar Rating

Stock Research and Analysis

by R. J. Hottovy, CFA

Triarc's September 2008 acquisition of Wendy's International created one of the largest quick-service restaurant companies in North America. The new entity, Wendy's/Arby's Group, brings together two widely recognized brands with scalable franchise models. Read more

Bulls Say

Even in challenging economic times, Wendy's/Arby's should generate stable cash flow because of recurring royalty fees (around 4% of franchise sales), modest capital requirements, and scale benefits.

With more than 10,000 locations in North America, Wendy's/Arby's possess two valuable, widely recognized brands.

New menu innovations, more compelling marketing campaigns, and extended hours could reinvigorate the Wendy's and Arby's brands and drive improvement in store traffic.

Wendy's ranks first among fast food chains for best hamburgers, customer satisfaction, and a favorite restaurant, according to consumer surveys by Zagat, the University of Michigan, and QSR Magazine.

With $644 million of cash on its balance sheet, the company has the opportunity to augment shareholder value through share repurchases or dividends. Read more

Bears Say

The quick-service restaurant industry is intensely competitive, marked by a history of price wars. With minimal switching costs, customers can be fickle.

In addition to McDonald's MCD, Burger King BKC, and Subway, the company must compete with a host of smaller chains like Sonic SONC, Jack in the Box JACK, Hardee's and Carl's Jr. CKR, and Quizno's.

Bankruptcies among quick-service franchisees are possible. High food, commodity, and labor costs are a serious concern, and restrictive credit markets may limit small franchisees' access to growth capital.

There are meaningful international expansion opportunities for both brands, but they won't come easy. McDonald's and other well-entrenched peers are formidable competition.

Managing the Wendy's and Arby's brands as separate, autonomous business units could limit the ability to realize operational efficiencies. Read more

Strategy

Management's key objective is to turn around the struggling Wendy's brand through reduced operating and food-purchasing costs and the elimination of corporate redundancies. Management has targeted $100 Read more

Management

Former Triarc CEO Roland Smith is the CEO of Wendy's/Arby's Group as well as CEO of the Wendy's brand. Tom Garrett, the former president of Arby's, is the CEO of the Arby's brand. Arby's and Wendy's will continue to operate as autonomous business units Read more

Profile

Wendy's/Arby's Group is the result of Triarc's September 2008 acquisition of Wendy's International. The firm owns 1,150 Arby's locations, with another 2,575 operated by Read more

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