Baja Does In Wendy's

Money down the drain.

That's the situation facing Wendy's (NYSE: WEN  ) in its most recent quarter. The company announced a $122.5 million pre-tax impairment charge related to its Baja Fresh Mexican Grill subsidiary. That was enough to swing what would have been an estimate-beating $0.54 earnings per share gain to an ugly $0.25 per-share loss. Ouch! What really hurts is that these charges are happening too frequently.

In its earnings release, Wendy's stated, "The company believes that presenting its net income and EPS results, excluding the impact of the Baja Fresh impairment charges, provides a more accurate view of its underlying operating performance."

Sorry, I completely disagree. The underlying performance includes the bad performance of Baja Fresh and writeoffs of investors' money, whether management wants to admit that or not. Investors, the owners of the company, do not benefit when bad results are hidden from them.

By writing down tens of millions of dollars of goodwill -- money paid above book value during an acquisition -- management has to admit that it made a major mistake. The price for Baja Fresh was $275 million back in 2002. Now, the vast majority of that sum is gone, just as if management had made a gift of it to the sellers.

Wendy's has stated its intention to "explore alternatives" for Baja Fresh, a phrase that often translates to "sell" -- and it's probably past time for doing so. For instance, once Wendy's purchased it, the only quarter in which Baja Fresh showed positive same-store sales growth was the first full quarter of ownership, the third quarter of 2002.

The sooner Baja Fresh is sold, the better. Management doesn't need the distraction, and neither do long-term shareholders.

For more fast-food Foolishness

What type of investor are you? Talk stocks with other investors and our analysts when you give our newsletters a try.

Fool contributorJim Muellerthinks the food at Wendy's is pretty good for fast-food fare, but that has not translated into any share ownership. The Fool isinvestors writing for investors.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 515060, ~/Articles/ArticleHandler.aspx, 9/2/2014 3:44:05 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement