Wendy’s/Arby’s International Inc., a subsidiary of Wendy’s/Arby’s Group Inc. (WEN) recently announced that it has inked a long-term development agreement with Wenphil Corporation to expand in the Philippines. Per the deal, Wenphil will develop 44 additional Wendy’s restaurants in other cities and regions in that country outside Metro Manila, through the sub-franchising method. The terms of the deal were not disclosed.
Wenphil’s association with Wendy’s dates back to 1983. The latest deal will increase the total number of Wendy’s locations in the Philippines to 75. The deal affirms management’s intent to make the Philippines one of the prime markets for international expansion, considering stepped up economic growth and under-penetration of quick-service restaurants in that region as against the North American countries. The company seeks to capitalize this potential in full.
Wendy’s is on an expansion spree in the overseas market. Last month, the company announced another development agreement with Desarrollos Gastronomicos S.A. to expand in Argentina. The franchisee will develop 50 Wendy’s restaurants over the next ten years in that country.
Apart from Argentina, Atlanta-based Wendy’s has been in a long-term development agreement since June 2009 with franchisees in the Middle East and North Africa, Singapore, Turkey, Russia and the Eastern Caribbean. Additionally, the company is exploring growth opportunities in Japan, China, Brazil and other key international markets.
Fulfillment of the company’s current expansion plans would widen its global presence considerably, with as many as 1,000 international restaurants.
Beginning 2012, management expects the Wendy’s chain to drive annual increases of 10% to 15% in EBITDA. The expansion program includes 20 company-operated and 45 franchise domestic stores as well as 50 international franchise stores, all with a 2011 launch target.
Management believes that Wendy’s provides high growth opportunities with 6,500 restaurants in more than 20 countries. The company recently announced its plan to sell the Arby’s restaurants, to focus solely on building the Wendy’s brand.
Although the company signed a franchise development agreement for international growth, the scale of most of its peers like McDonald’s Inc. (MCD) and Yum! Brands Inc. (YUM) are larger. A wider scale provides the company’s peers with greater operational strength. Moreover, all these companies seek to ramp up their operations in Latin America and Asia-Pacific region that, in turn, would lead to heightened competition.
Sharp rises in commodity costs also remain causes for concern. Hence, we prefer to remain on the sidelines till the outcome of the sale of the Arby’s chain is clear. Wendy’s/Arby’s currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. We also maintain our long-term “Neutral” recommendation on the stock.
MCDONALDS CORP (MCD): Free Stock Analysis Report
WENDYS/ARBYS GP (WEN): Free Stock Analysis Report
YUM! BRANDS INC (YUM): Free Stock Analysis Report
Zacks Investment Research
