Wendy's Company (The)

Good morning. Welcome to the Wendy's Company earnings results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. Thank you. Greg Lemenchuk, Senior Director, Investor Relations and Corporate FP&A. You may begin your conference.

Thank you and good morning, everyone. Today's conference call and webcast includes a PowerPoint presentation, which is available on our investor relations website, irwendies.com. Before we begin, please take note of the safe harbor statement that appears at the end of our earnings release. This disclosure reminds investors that certain information would be discussed today is forward-looking. Various factors can affect our results and cause those results to differ materially from the projections set forth in our forward-looking statements. Also, some of today's comments will reference non-GAAP financial measures. Investors should refer to our reconciliations of non-GAAP financial measures to the most directly comparable GAAP measure at the end of this presentation or in our earnings release. On our conference call today, our President and Chief Executive Officer, Todd Pettigore, and our Chief Financial Officer, Dr. Plush, will provide a business update and share our 2020 third quarter results. From there, we'll open up the line for questions. And with that, I'll hand things over to Todd. Thanks, Greg, and good morning, everyone. As we jump into our third quarter results, I want to start off by saying that we are incredibly proud of the results we have hosted against the backdrop of the global pandemic.

I want to send a huge heartfelt thank you to all our employees and franchisees for the ongoing partnership as we are navigating through the challenges that we have faced and, in turn, delivering these very strong results while building an even stronger Wendy's. In the third quarter, we delivered our highest global same-restaurant sales growth number in over 15 years on the strength of our breakfast day part, our growing digital business, and increased mobility. This momentum continued into October, where we saw U.S. same-restaurant sales of 6.6% on a one-year basis and in the low teens on a two-year basis. On top of the sales momentum we have built in the third quarter, we also grew our restaurant margin to approximately 17%, and we did this despite significant commodity headwinds. Our focus remains on ensuring that we have a strong restaurant economic model across our system, and we are doing just that. Our cash balance continues to grow, coming in at over $350 million at the end of the quarter, up from $275 million at the end of July. driven by our strong third quarter results. We also benefited from the collection of two additional royalty payments as our franchisees paid back the amounts that have been deferred in the second quarter as part of our COVID relief package, a testament to the health of our franchise system. We announced this morning that our board has approved a quarterly dividend of seven cents, which is an increase of 40%. Our strengthening liquidity position, along with the momentum we are seeing in our business, supports this increase. while still having plenty of flexibility to invest in growth, which is priority number one in our capital allocation policy. As we look to the future, we remain committed to our long-term growth initiatives, which are to build our breakfast day bar, grow our digital business, and accelerate growth internationally. Our goal remains the same, which is to drive efficient, accelerated growth, and we continue to deliver on that commitment. Moving on to provide more detail on our recent US sales performance, we have momentum and our two year same restaurant sales accelerated meaningfully in Q3. Our same restaurant sales in the third quarter significantly improved to 7% on a one year and 11.5% on a two year basis, as we saw customer counts continue to improve as mobility increased. We launched two new products within the quarter in the spicy crispy chicken sandwich featured in our four for four platform, as well as the pretzel pub cheeseburger and chicken sandwich, which we added to the made to crave lineup, both which helped us slap our spicy nuggets relaunch from the prior year. On a two year basis, our same restaurant sales improved each month throughout the quarter to 14.4% in September, underpinning the strength we are seeing in our business. We have added another layer of growth in breakfast and it continues to perform well. We have also seen our rest of day business grow, which is very promising. In fact, our rest of day business was up over 5% on a two year basis, which shows the strength of our underlying business. We continue to see very strong average checks as ordering sizes have remained elevated, which is helping to drive restaurant margins across the system. Another key indicator of success for us is how we compare against our QSR burger peers within NPD Crest. And year to date, Wendy's traffic trends have outperformed QSR burger chain leaders versus the same period a year ago. As we look to the fourth quarter, we are excited about the marketing and promotional plans we have in place. We will continue to drive awareness across our breakfast business, as well as launch our new classic chicken sandwich. that has been renovated and will allow us to compete with anyone. Sales growth, share growth, and profit growth are a winning formula that we plan to continue to execute on moving forward. We could not be more pleased with our breakfast day part as average weekly sales continued to grow in the third quarter. And on a percentage of sales basis, it remained strong at over 7%, even as our rest of day business continued to strengthen. We have been seeing some very positive trends on top of the fact that breakfast is providing a sales and profit layer that we did not have previously. We have now been able to get data on customer repeat, and we are seeing this to be very strong. We are also seeing our customer satisfaction scores be our highest at the breakfast day part as customers are loving the offering that we have. Our breakfast day park has proven to be easy to staff, operationally simple and profit accretive to our restaurant economic model, and we will continue to build on this success. Our breakfast awareness levels have remained consistent at approximately 50%. We plan to continue to support breakfast with our incremental company advertising spending to drive trial and frequency as we ingrain Wendy's into consumers morning routines. We are confident that we can continue to grow this business into the future as more and more people fall back into their daily routines. The great news is the messaging around the quality food we deliver at breakfast halos back to support our rest of day business. We said that we were going to bring America the breakfast it deserved, and we are delivering on that promise. The key unlock for this business moving forward will be mobility. As this improves, coupled with our incremental investment in marketing, We believe that this business has a ton of upside. Now, jumping into digital. Our digital business continued to grow each month in the third quarter, coming in at 5.5% of sales in the US, which is more than double the amount we had in 2019. We exited the quarter in September with digital sales at over 6%, and we are outpacing our peers in digital traffic share growth. We are very pleased. with the launch of our new Wendy's rewards program and the early results are in line with our expectations. We have seen a significant jump in app downloads as those have increased over 15% since we launched rewards. We have also seen higher average checks and higher frequency, both of which were expected benefits of the program. We are excited about this program and will continue to drive awareness through compelling offers and within our marketing messaging to grow this program in the coming months. Digital is one of our key growth pillars, and we continue to pace ahead of our expectations. We expect this business to build even more as we continue to make significant investments in this area. Our restaurants are essential to feeding our communities, and we could not do this without great leadership and support from our dedicated restaurant teams who are on the front lines every day. We have now open dining rooms in many of our restaurants and, as of the end of September approximately 75% of the dining rooms were open for carry out and, in some cases dine in services. As we have open dining rooms, we have seen about 10 to 15% of our sales coming through either carry out or dine in. We will continue to reopen in a thoughtful phased approach to ensure the safety of our crews and customers, as well as making sure that it makes sense economically. Our staffing levels remain strong in our company restaurants with the lowest turnover rates that we have seen in over a decade. We know that when staffing levels are good and turnover is low, that we can drive an exceptional customer experience, and we are doing just that. Customers are noticing these operational improvements as overall satisfaction scores, including speed, taste, and order accuracy have seen significant improvements. An outcome of all of these things has been an accelerating restaurant margin in our company restaurants, which increased 70 basis points from the prior year, despite a challenging commodity environment. We believe that we have found operating model efficiencies which should result in strong restaurant margins on a go-forward basis. Our international business also improved significantly in the third quarter. We now have approximately 95% of our restaurants operating and saw our sales turn positive in Canada and Puerto Rico, which comprise about 75% of our international sales. In Canada, our digital sales penetration has doubled from last year, reaching almost 10%, and we continue to outperform our QSR burger competitors in both dollar and traffic share gains. In Puerto Rico, our same restaurant sales grew to almost 20% as we leaned in on our local fresh beef differentiation. On the other hand, we have some high potential emerging markets where the recovery period has taken a bit longer, but they are showing improvement and our franchise partners remain excited about the future. We also continue to make progress towards our plan to expand into Europe and remain on track to open restaurants in the UK in the first half of 2021. We have been building a top talent team on the ground, have a strong pipeline of locations, including some with drive-thrus, and are engaging with potential franchise candidates to build out the market with us. International expansion remains one of our three growth pillars, and we are excited to continue to grow our Wendy's footprint around the world. I wanted to provide an update on some enhancements that we have made as an organization to continue to drive growth. As we previously announced, we are very excited to welcome Kevin Viscone to the Wendy's family as our Chief Information Officer. Technology is a critical growth driver for our brand, and Kevin is the ideal leader to join a talented team and help take us to the next level. We are confident that his industry-leading experience will help us to accelerate the growth we have already seen across our technology channels in 2020. We have recently taken the opportunity to look at the way we work, and we believe there's a better way to utilize our resources to drive the business. We have made the decision to reorganize our operations team in the U.S. under one leader responsible for company and franchise restaurants, and Deepak Ajmani has assumed this position. He has over 30 years of Wendy's experience, and we are confident he will help us create even better and more consistent experiences across all our restaurants. We are also optimizing our field structure to ensure that our restaurants are set up for success moving forward. Lastly, we also expect to incur contract termination charges, including the plan closure of certain field offices is we have found that people can be just as effective working remotely. As a result of these changes we implemented a restructuring plan with expected total costs of approximately seven to $9 million. Investing in growth is our top priority and we will be taking the savings from these changes and putting them right back into the business to fuel growth. We have made the decision to create a diversity equity and inclusion office and are currently in the process of hiring someone to lead that team. We are also reinvesting back into our technology organization to continue to drive that business. Lastly, we are adding resources to our international franchise recruiting team to support our international expansion plans. Our company-wide response to the pandemic reinforces the values that Dave Thomas instilled over 50 years ago when he founded this great brand. the values that continue to guide us today. The health, safety, and well-being of our teams and customers has always been and will continue to be our top priority. Our system will remain focused on continuing to provide essential access to high quality affordable food to all our communities around the world. A differentiator for us continues to be the relationship that we have with our franchisees. The partnership across our system this year, as we have navigated these unprecedented times, has been nothing short of incredible. We recently hosted our annual convention virtually, and it was great to get our system together to highlight all our accomplishments over the last year, while aligning everyone behind the plans to finish the year strong and continue the momentum into 2021. We have successfully partnered with our franchisees to navigate through a global pandemic and launched our Breakfast Day Park, And along the way, built an even stronger culture in support of the special brand. Everything we do at Wendy's is focused on bringing our vision to life, which is to become the world's most thriving and beloved restaurant brand. With the momentum that we have in our business on the top and bottom line, as we continue to execute against our strategic growth initiatives, we are well on our way. I will now hand things over to GP to talk through our third quarter results.