Wendy's 2010 Annual Report Download - page 52

The decrease in franchise revenues for 2010 was primarily due to the decline in Wendy’s and Arby’s North
America franchised restaurant same-store sales of 0.3% and 5.2%, respectively. The increase in franchise revenues in
2009 was primarily due to the Wendy’s Merger. Franchise revenues for the 53rd week in 2009 for Wendy’s and
Arby’s were approximately $4.8 million and $1.3 million, respectively.
Wendy’s North America franchised restaurant same-store sales for 2010 were impacted by the same factors
described above for Wendy’s company-owned restaurants, although we believe price increases taken by certain
franchised restaurants, which were not taken by Wendy’s company-owned restaurants, mitigated some of the decline
in same-store sales. Wendy’s franchised restaurant closings include 71 restaurants in Japan which closed at the
expiration of the franchise agreement on December 31, 2009.
Arby’s North America franchised restaurant same-store sales for 2010 were impacted by the same factors
discussed above for Arby’s company-owned restaurants, although Arby’s North America franchised restaurants in
2010 (1) were comparing to weaker 2009 sales levels than at company-owned restaurants as a result of fewer in-store
promotional discounts offered by franchisees during 2009, and (2) had a higher check average as a result of pricing
and menu mix as compared to company-owned restaurants.
The decrease in Arby’s franchise revenues in 2009 was primarily attributable to the 9.0% decrease in same-store
sales for North America franchised restaurants. In addition, the franchised restaurants were disproportionately
negatively affected by less national media advertising as certain underpenetrated franchise markets did not have
sufficient local media advertising to offset the decrease in national advertising.
Cost of Sales
Change
2010 2009
Wendy’s .......................................... 0.1% points (3.2)% points
Arby’s ............................................ 2.3% points 2.2 % points
Consolidated ...................................... 0.4% points 0.1 % points
Wendy’s North America company-owned restaurant cost of sales remained relatively flat as a percentage of sales
in 2010 as compared to 2009. The increase in occupancy, advertising, and other operating expenses of 0.5% points in
2010 as compared to 2009, was mostly offset by a decrease in restaurant labor costs of 0.4% points for the same
comparable periods. The increase in occupancy, advertising, and other operating expenses was due to increases in
utilities, credit and debit card fees, and insurance expenses, combined with an increase in advertising expenses
associated with the launch of the brand’s breakfast daypart in certain test markets. The decrease in Wendy’s restaurant
labor costs in 2010 as compared to 2009 was primarily due to a 0.5% point decrease in incentive compensation
expense and a 0.3% point decrease in salaries and wages which was the result of the approximate 1% blended price
increase taken primarily in late 2009, partially offset by a 0.4% point increase due to the deleverage effect of the
decline in Wendy’s same-store sales without similar reductions in fixed and semi-variable costs. Food and paper costs
were unchanged as a percent of sales in 2010 as compared to 2009. These costs were impacted by a 0.6% point
increase in commodity costs primarily in the second half of 2010, which was offset by a 0.3% point decline in food
costs from the approximate 1% blended price increase taken primarily late in 2009 and by 0.3% points from other
individually insignificant factors which comprised the remainder of the offset.
The percentage decrease in Wendy’s North America company-owned restaurant cost of sales in 2009 as
compared to the fourth quarter of 2008 was primarily attributable to improvements in restaurant labor costs and
certain occupancy, advertising, and other operating expenses, partially due to ongoing operational improvements and
the effect of price increases in 2009. As a percent of sales, the impact of the 53rd week in 2009 on cost of sales was
not material.
As a percentage of sales, Arby’s North America company-owned restaurant cost of sales increased in 2010 as
compared to 2009 primarily due to higher restaurant labor costs and occupancy, advertising, and other operating
expenses, and to a lesser extent an increase in food and paper costs. Restaurant labor costs and occupancy, advertising,
and other operating expenses were mainly affected by increases of 1.3% points and 1.0% points, respectively, due to
the deleverage effect of the decline in Arby’s same-store sales without similar reductions in fixed and semi-variable
costs excluding advertising. These increases were offset, in part, by a 0.5% point decrease in advertising
46