updated 4/28/2005 9:14:50 AM ET 2005-04-28T13:14:50

Wendy’s International Inc. said Thursday its first-quarter earnings fell 2.8 percent from last year, as sales at its namesake fast-food chain were hurt by inclement weather and an incident in San Jose in which a female customer claimed she found a finger in a bowl of chili.

Net income decreased to $51.3 million, or 45 cents per share, from $52.8 million, or 45 cents per share, last year. Total revenue increased 7.1 percent to $894 million from $835 million a year ago.

Analysts surveyed by Thomson Financial were looking for a profit of 40 cents per share on sales of $883.6 million in the latest quarter.

The company said same-store sales were strong at its Tim Hortons restaurants, but declined at Wendy’s and Baja Fresh Mexican Grill. Wendy’s sales were impacted by exceptionally strong sales in the same quarter a year earlier, inclement weather in various parts of the United States, and the incident that took place last month at one of its restaurants in San Jose.

Wendy’s estimates the San Jose incident hurt U.S. same-store sales by about 2 percent to 2.5 percent since late March, with the most significant impact in the Western region.

Chairman and Chief Executive Officer Jack Schuessler said, “Tim Hortons continues to produce outstanding same-store sales results, while Wendy’s encountered the toughest comps we will face all year, as well as other unexpected challenges. The operating income results at Baja Fresh showed a $276,000 improvement in the quarter, despite sales that were below our expectations.”

The company has decided to postpone its adoption of stock options expensing, and therefore raised 2005 earnings per share guidance to between $2.29 and $2.35 per share. Chief Financial Officer Kerrii Anderson said Wendy’s is waiting for “the latest guidance and interpretation” of Securities and Exchange Commission rules before it begins recording a charge for the cost of stock options given to employees.

For the second quarter of 2005, the company anticipates beef prices of about $1.52 per pound, versus $1.23 last year, which is higher than initially expected. In addition, the company also faces difficult sales comparisons in April and May, expenses associated with the rollout of Wendy’s double-sided grill and costs for the new Tim Hortons distribution center in Canada during the second quarter of 2005.

In the second half of the year, the company said it expects strengthening sales at Wendy’s and lower beef costs.

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