Money down the drain.
That's the situation facing Wendy's
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.
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