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 include the PowerPoint presentation, which is available on our investor relations website, irwendys.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 we may discuss today is forward-looking. Various factors could 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-gap financial measures investors should refer to our reconciliations of non-gap financial measures to the most directly comparable gap measure at the end of this presentation or in our earnings release lastly i wanted to point out that our 2020 results contain a 53rd operating week we have included a listing of the financial impacts in our earnings release as well as in the appendix of this presentation please note that our 2021 outlook items exclude the impact of the 53rd week On our conference call today, our President and Chief Executive Officer, Todd Pettigore, will provide an update on our accelerating growth initiatives, and our Chief Financial Officer, Gunther Plush, will review our fourth quarter and full year 2020 results, as well as our 2021 outlook. From there, we will open up the line for questions. With that, I will hand things over to Todd. Thanks, Greg, and good morning, everyone. I could not be more proud of our results and the work that was done by the Wendy's system across the globe in 2020 with all the challenges we faced and overcame during the year. I am confident that we have emerged as a stronger, more unified brand that is poised to deliver outsized growth. I want to send a heartfelt thank you to all of our employees and franchisees for our ongoing partnership as we navigated through 2020 and in turn delivered a very strong performance. One of the things that we pride ourselves on has been our ability to deliver accelerating same restaurant sales year after year. And this continued again in 2020 with our 10th consecutive year of U.S. growth. This was driven by our highly successful breakfast launch and a significant acceleration in our digital business. An outcome of our success has resulted in us leaping into the position of the number two QSR hamburger chain in the U.S., which highlights our momentum and strengthening brand presence. On top of our growing sales, we continue to see underlying strength in our restaurant margin, which grew to almost 18% in the fourth quarter. Our focus remains on ensuring we have a strong restaurant economic model across our system, and we are delivering. We also made good progress in expanding our footprint in 2020 by opening approximately 150 restaurants, which was quite the feat in the face of COVID. As we look to the future, we remain committed to our long-term growth initiatives, which are to significantly build our breakfast day park, drive our digital business, and expand our footprint across the globe. Our goal remains the same, which is to invest in driving efficient, accelerated growth, and we are delivering on that commitment. We are extremely pleased to say that we have achieved our 10th consecutive year of U.S. same restaurant sales growth, which is a streak we planned on keeping alive in 2021 and beyond. We firmly believe that this is just the beginning of our growth journey. Remarkably, the third and fourth quarters of 2020 were our two highest global same restaurant sales growth quarters in over the last 15 years. And this was on top of very strong results in the back half of 2019. The momentum has continued into 2021 through the week ended February 21 our US name restaurant sales were up approximately 6% on a one year basis. And almost 10% on a two year basis, despite an approximately 1% adverse impact from weather and our global same restaurant sales was up approximately 5%. Given the strong start to the year, we are expecting Q1 USA restaurant sales growth of approximately 10%. We are heading into 2021 from a position of strength with the full support of the franchise system behind us. We believe that we are well positioned to win now and over the long term as we can deliver on the consumer need for speed, convenience and affordability while separating ourselves with quality. Our system is engaged and we are excited about our plans for the future. With that, I will now hand things over to GP, who will provide a few more details on our 2020 results.

Thanks, Todd. We were very pleased with our fourth quarter results as we closed out the year on a high note with core earnings growth that was ahead of our internal plan. Our global SRS remained strong on a one- and two-year basis in quarter four. Breakfast contributed approximately 6.5% to our U.S. same-restaurant sales, and our digital business accelerated across the globe. Once again, with two-year SOS growth in the U.S. of 10%, which was also driven by the launch of our new classic chicken sandwich, which added to the momentum from our pretzel launch. Attracted revenues increased by approximately 12% to $382 million, driven by higher sales at company-operated restaurants and an increase in franchise royalty revenue. These increases were due to the impact of the 53rd week and an increase in same restaurant sales. Year-over-year company restaurant margin increased by 330 basis points to almost 18%, primarily driven by a higher average check and low insurance cost as the result of better claims management. These benefits were partially offset by customer accounts declines as a result of the pandemic and labor cost increases largely driven by higher rates. The increase in G&A was driven by higher professional fees related to IT-related costs and the $2.5 million impact of the 53rd week. This was partially offset by reduced travel expenses. Attracted EBITDA increased by almost 40% to $115 million. This was driven by higher franchise royalty revenues and fees, lower franchise support costs as we lapped our investment to support our breakfast launch, and an increase in company-operated restaurant margin. These benefits were partially offset by our incremental investment in breakfast advertising of $6.3 million in 2020. Adjusted earnings per share increased over 100% to $0.17, driven by our higher adjusted EBITDA. Now let's turn to our full-year results. We are very proud of our 2020 results, which showcase the resiliency of our business model. Global same-western sales grew 1.2%, which marks a significant improvement in SRS in the back half of the year, as we were down approximately 3% to the end of the second quarter. Our trusted EBITDA increased 2% to approximately $420 million, which is remarkable given the pressures we had from the pandemic. Our trusted earnings per share decreased 2 cents to 57 cents. This was driven by an increase in our tax rate and lower other income, partially offset by fewer shares outstanding and an increase in our trusted EBITDA. Free cash flow came in at approximately 182 million dollars. The year-over-year decrease resulted from higher reorganization and realignment payments, a higher incentive compensation payout for the 2019 fiscal period paid in 2020, and rental payment timing. To round things out, I would like to highlight the progress we made on development throughout the year. We ended the year with net new unit growth across the globe, which was well ahead of our expectations post-COVID in March. We also sustain momentum in our image activation program as 64% of the system is now on the new image, which is ahead of schedule. Our 2020 results continue to showcase our ability to drive momentum on the top and bottom line as we move forward into 2021. With that, I'll pass things back over to Todd to talk about our plans to continue accelerating growth in 2021. Thanks, GP.

As we move into 2021, our playbook of investing to drive accelerated growth behind our three long-term pillars remains the same. We have plans in place to significantly build our breakfast day park, drive our digital business, and expand our footprint across the globe. We have been investing in growth over the last several years with significant investments made across our growth pillars. For breakfast, we invested nearly $20 million to ready the U.S. system for its launch and invested $15 million in incremental advertising in 2020 and plan to do the same in 2021. In the area of digital, we have made investments to build out our mobile app, launch our loyalty program, and bring in top-notch talent. In terms of development, we invested millions early in our re-imaging program and have continued to make substantial investments through our new restaurant incentive programs and by developing innovative design solutions to fit the needs of any trade area, enable our growing digital business, and improve returns. Underneath our growth pillars are three foundational items. The first is fast food done right, which is our keen focus on food that is fresh and craveable at a competitive price. The second is operational excellence, which is running consistently great restaurants every day. And lastly, good done right, which is our commitment to do the right thing in the area of environmental, social and governance. I did want to mention that we will be releasing our annual CSR report in April, where we plan to announce new goals and report our progress against industry accepted reporting frameworks. We are excited to continue to share the important work we are doing in this area. Our plans remain deeply rooted in the foundation of the restaurant economic model. We believe that with the addition of our breakfast day part and strong restaurant margins in the back half of the year, our franchise system has never been healthier. The combination of strong sales and margins fuels reinvestments into people, technology, re-imaging, and new development, which drives our confidence in growth for the future. With that, let's talk through our strategic growth pillars. We were thrilled with the launch of our breakfast day part in 2020 and we know that we are just scratching the surface of its potential, as we continue to believe that we can get to 10% plus of sales relatively quickly. Through our marketing efforts and high quality offerings we have grown our awareness to very solid levels seen strong customer repeat and customer satisfaction has been overwhelmingly positive. In the fourth quarter, breakfast remained solid at approximately 7% of sales and drove a meaningful increase to restaurant AUVs in 2020. We believe that breakfast has been and will be transformative to our overall restaurant economic model, giving us fuel for growth into the future. On top of an increase to restaurant AUVs, breakfast remains profit accretive, which is a game changer for our economic model. This will be a benefit to overall franchise health and should be a tailwind to new restaurant development as unit economics have improved significantly as a result. As we turn the page to 2021, we are expecting this business to grow by 30% through a combination of year-over-year same restaurant sales growth through higher average weekly sales and rolling over two months where we did not have breakfast fully launched across the US system. We plan to continue to support breakfast with more advertising dollars year over year to drive trial and frequency as we continue to ingrain Wendy's into morning routines. Because higher spend will be supported by a $15 million company investment and the resumption of marketing contributions on breakfast sales as the abatement offered as part of the COVID relief package has ended. The great news is that we are seeing the marketing messaging around the quality food we deliver at breakfast haloing back to support our rest of day business. We said that we were going to bring America the breakfast it deserved, and we have delivered on that promise. Getting this business to 10% plus of sales remains our goal, and we are confident this will happen by the end of 2022. The key to this business moving forward will be improvements in mobility as consumers return to their daily routines. We believe this, coupled with our incremental investment in marketing, will unlock this day part to drive significant growth in 2021 and beyond. Our digital business was another bright spot for us in 2020 as it saw meaningful acceleration as the result of additional delivery partners and the launch of our loyalty program. In the fourth quarter our digital business grew to over 6% of sales in the US, which is more than double the amount we had in the prior year and our digital traffic share growth reached double digits, which is ahead of our key competitors. We also continue to see expansion in our delivery business on the strength of strong promotions with our delivery partners, as well as momentum in our loyalty Program. Since the launch of loyalty in the third quarter we have seen significant increases in our monthly active users by about 25%. And at the end of the year, we had approximately 3 million active users to go along with 12 million total members. We believe that this business is going to continue to accelerate meaningfully to reach 10% of sales by the end of 2021. As GP will talk about later, we are making significant investments to drive this business in partnership alongside our franchisees. As a company, we will continue to make incremental investments like we have over the past years in our technology infrastructure to ensure that this business can thrive. We are hyper-focused on turning our restaurants into what we call frictionless transaction centers. We launched curbside and mobile grab and go in 2020 and expect both to grow significantly in 2021 as we build awareness around these new ordering platforms. At the core of our digital business is the opportunity that exists to build one-to-one relationships with our customers. Under the leadership of Kevin Viscone, our new chief information officer, we are investing in data analytics and are building what we believe to be a best-in-class digital organization to take this business to another level across the globe. We made significant progress in digital in 2020, but we are just getting going in this area. As consumer behaviors continue to change, along with the investments we are making as a brand, we expect to see this business grow meaningfully for years to come. Our third strategic growth pillar is expanding our footprint. And just like our other two pillars, we have momentum. In 2020, we opened almost 150 new restaurants, and we ended with positive net unit growth. which exceeded our expectations after we allowed franchisees to delay new unit commitments as part of our COVID relief package. In a lot of cases, franchisees said thanks, but we want to keep growing and continue to build new restaurants, which shows their belief in the Wendy's brand. Under the leadership of Abigail Pringle, who leads our global development organization, we have built a very strong team that is driving growth in many ways. We have expanded our new franchise recruiting resources and accelerated these opportunities. The team has also built strategic relationships with capital and financing partners and has launched a conversion task force that is transforming numerous locations into a Wendy's. We believe design creates a competitive advantage. Like you've seen with our image activation program and the evolution of our new restaurant designs in recent years. We have enhanced our offerings to include smaller, more efficient prototypes that improve returns and allow us to solve for any potential growth opportunity. The same creativity and flexibility led us to launch a new drive-through only design and a new traditional freestanding solution that better enables our growing digital and delivery business. Innovation has continued with the opening of numerous dark kitchens globally. All these efforts have helped us increase our non-traditional pipeline to about 30% of our 2021 development plan. The solid development foundation that we have built is setting us up for substantial unit growth in 2021 as we are expecting to open about 250 new restaurants, which is an increase of 65% and are projecting to have about 7,000 restaurants globally by the end of 2021. We also recently announced a new incentive program that we expect to drive unit growth meaningfully. In fact, we believe it should accelerate our global unit growth in 2022 to more than 3% and we also expect to have approximately 8000 global Wendy's restaurants by the end of 2025. Our new incentives reward franchisees for new restaurant growth accelerated timing and making multi year commitments to grow their operations. Franchisees can also earn more incentive value by doing conversions, which we think is a huge opportunity for us, not only to grow new units, but to do so more quickly than a traditional new build. Turning now to international, where we plan to leverage the global development strategies that I've just outlined to significantly expand our footprint, our leading markets. which represent about 80% of our same restaurant sales, finished with a positive same restaurant sales in 2020 on the strength of their drive-thrus and the fact that our digital business has doubled to approximately 10% internationally. We also finished the year with positive net unit growth, which showcases the belief that our franchisees have in the brand. We are very pleased with how we have navigated COVID in our international business, where restaurants weren't deemed to be an essential business in many markets. We are confident this momentum will continue into 2021 where we are expecting outsized growth at our investor day in late 2019 we had announced a target to grow net new units to 10% plus a year internationally and we are expecting to return to that growth rate this year. In doing so, we expect to far surpass the thousand international restaurant mark by the end of 2021. We are already seeing strong growth in India and the Philippines, two markets where we have signed large development agreements over the last couple of years. We also expect our largest growth in over a decade in Canada, which is our largest international market. We continue to make great progress towards our plan to expand into Europe and remain on track to begin opening restaurants in the UK in the first half of 2021. We have built a top talent team on the ground, have multiple locations secured, and are engaging with several potential franchise candidates to build out this market alongside us. International expansion remains critical to growing our Wendy's footprint, and we believe that we have the plans and the partners in place to make this happen. I'd like to close my remarks today with the Wendy's vision, as it is important to remember that our goal is to become the world's most thriving and beloved restaurant brand. Everything we do at Wendy's is focused on bringing our vision to life as we work to build an even stronger brand. We believe that we have the right plans in place to significantly accelerate growth in 2021, which are to build our breakfast day part sales by 30%, to drive our digital business to 10% of sales, and to expand our footprint with 250 global new restaurant openings. We have emerged from 2020 as a more resilient, more unified Wendy's brand that is poised to deliver outsized growth. With that, I will hand things back over to GP to take us through our 2021 outlook. Thanks, Todd.

As we move into 2021, our playbook remains the same. We are poised to deliver meaningful growth in our breakfast day part. We have a rapidly accelerating digital business, and we are expecting strong global restaurant expansion. Now let's take a deeper look into our key financial metrics, starting with global system-wide sales. We are expecting a significant increase in our 2021 global system-wide sales of 6% to 8%. We expect that same restaurant sale will drive the majority of our system-wide sales growth in 2021. Most of this will come through core growth, which is being driven by lessened COVID impacts, our marketing and product promotions, and a meaningful digital acceleration. The remainder of the SOS growth is driven by the anticipated 30% increase in our breakfast business by continuing to grow the day part as mobility improves and picking up two incremental months to start the year. Finally, we expect a significant increase in that restaurant development, which is being driven by opening about 250 new restaurants around the globe. Now on to adjusted EBITDA, which we expect to grow high single digits. Our strong top line is our biggest driver of growth, and we are also expecting an increase in net franchise fees in 2021. We expect these benefits to be partially offset by an increase in G&A. The increase in net franchise fees is being driven by a new technology fee that we have implemented in partnership with our franchisees to further accelerate our digital business. We had been collecting fees for technology for many years, but we've streamlined this process and increased the fee in order to further fund and grow our technology programs. These investments will show up as increased franchise support expenses and increased capital expenditures. The end result is that there is no expected cash flow benefit to the company. All the funds collected will be invested back into our digital business. We are also expecting a slight increase in company restaurant margin from the approximately 15% that we had in 2020. While margin is up year over year, restaurant EBITDA is about flat due to the expected sale of our New York marketing quarter 2 and investment in the UK as we launch into Europe. Finally, we expect G&A to increase to approximately $220 million, driven primarily by company-specific investment in technology of about $10 million, with the remainder being driven by increases to travel. The technology increase is driven by a multi-year enterprise resource planning implementation that we are beginning to work on in 2021 and investments in our digital organization. As we turn to our trusted EPS, we are expecting a strong increase to 67 to 69 cents. This is being driven by our expected increase in the trusted EBITDA, in addition to a slight tailwind from lower depreciation. Finally, we expect free cash flow to grow significantly to approximately 230 to $240 million in 2021, up 27 to 32% year over year. This increase in free cash is being driven by our strong expected co-earnings growth, timing benefits related to rental payments, third-party delivery sales collection, and the receipt of our 53rd week royalty payment. We are also benefiting from lower reorganization and realignment payments, primarily related to our IT realignment plan that was announced in December of 2019. This has been partially offset by an increase in capex from about $70 million in 2020 to $80 to $90 million in 2021, as we continue to make significant investments in growth. The primary driver of the increase is being driven by higher development capital, which is due to our investments to build company-operated restaurants in the UK. In addition, CapEx is also being impacted by digital investments being made that are being supported by our taxi. We are also making company-specific investments in technology to support our new ERP system, which will drive about a $10 million headwind to our operating cash flows in 2021 and about the same amount in 2022. To close, I would like to highlight our capital allocation policy, which remains unchanged. Our first priority remains investing in profitable growth. We continue to showcase this commitment with our incremental advertising investment for breakfast, our new building incentive programs, and increased investments in our technology platforms and capabilities. We announced last week the declaration of our first quarter cash dividend and that we are increasing it by 29% to $0.09 per share. Our strong liquidity position, along with the momentum we are seeing in our business, support this increase. Lastly, we plan to utilize excess cash to reduce debt and repurchase shares. On the share repurchase front, we continue to expect that we will manage dilution and have $58 million remaining on our $100 million share repurchase program. We also plan to continue to pay down debt opportunistically if it provides a solid return for us. In the fourth quarter, due to our strong performance, our leverage ratio came down half a turn to 5.2 times. We would expect this ratio to continue to come down as we will naturally be paying down our debt and increasing EBITDA. We fully intend on delivering our simple yet powerful formula in 2021 and beyond. We are an accelerated, efficient growth company that is investing and driving strong system-wide sales growth on the backdrop of positive sales and expanding our global footprint, which is translating into significant free cash flows. With that, I will now hand things over to Greg to close us out. Thanks, GP.

Due to the ongoing travel restrictions, all our investor meetings for the first quarter will be virtual events. We will be attending two conferences post-earnings, which will be the UBS conference on March 10th and the JP Morgan conference on March 11th. Following the two conferences, we will be doing an NDR focused on the New York market with Piper Sandler on March 16th. We will also be hosting an investor call on March 18th with Gordon Haskett and doing a virtual headquarter visit with Alliance Bernstein on March 24th. If you're interested in joining us at any of these events, please contact the respective sell-side analyst or equity sales contact at the host firm. Lastly, we plan to report our first quarter earnings and host a conference call that same day on May 12th. As we transition into our Q&A section, I wanted to remind everyone on the call that due to the high number of covering analysts, we'll be limiting everyone to one question only. With that, we are ready to take your questions.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. The first question comes from Brian Dittner of Oppenheimer. Your line is open.

Thank you. Good morning. Mike, one question is just going to relate to the restaurant unit growth that you laid out. This morning, you did say that you expect to have about an 8,000 global unit goal by 2025. Just the back of the envelope math, I just want to confirm, does this suggest that you anticipate to be growing units in that 5% range after year 2022? Can you confirm that's what's implied? And if that is the case, maybe just a little more color around it. You know, in that scenario, where are you growing 5%? Where is that coming from? Is it split between the U.S. international? What's the U.S. playing there? in that growth, and just a little more specifics on the exact incentives you're doing to drive this improvement in unit growth. Thanks.

Hey, Brian. This is Todd. So, you know, the way we've guided is 2% net unit growth in 2021. We talked about about 250 openings. And within that, about 1% net unit growth in the U.S. and 10% plus in the international business. That ramps up to 3% in 2022, and you'd still continue to have international growing at about that 10% clip. And then it starts to stay at about that 3%. So you look at just over a 3% CAGR between now and 2025, that would get you to that 8,000 units. We have a franchise system that's very healthy, that had really strong profits last year, had strong balance sheets, and is really eager to take advantage of the opportunities of some of the contraction in the industry to continue to provide more access to our brand. And the good news is we did put this new incentive in place, and I'll turn it over to GP to talk a little bit about that, which really helps improve the economics and gets folks excited about additional growth.

Good morning, Brian. As you know, we have done a lot to stimulate development. Obviously, the vision of a profitable day part with breakfast and really significantly increasing AUVs is obviously increasing returns. From an incentive point of view, it's the same as in the past. It's all abatement around the royalties and or marketing fund contributions. And, you know, the previous incentive expired at the end of 2020. We will put a new one out there that really makes sure that we have great returns for franchisees. So franchisees should be seeing cash-on-cash returns of about 15% to 20% as they are taking advantage of the opportunity. What I would say is existing groundbreakers can re-up their commitments, and if they accelerate their development, they can get value of up to $250,000 For those commitments, any new groundbreakers can get incentives of about $200,000. The really new thing is definitely conversion incentives. We think it's a big opportunity for us. As you know, we have a conversion task force. And if you are converting a building, you are getting about a $170,000 incentive. and we like that a lot because these things normally are getting executed relatively quicker. So all in all, we've been working through with franchisees to write up new agreements, and again, it will generate cash-on-cash returns of 15% to 20% for our franchisees.

Our next question comes from Eric Gonzalez of KeyBank Capital. Your line is open.

Hey, thanks, and good morning. If we go back to your analyst day a couple years ago when you were laying out the case for breakfast, you cited some frequency data that showed when these customers visit, I think you said five to six times per year, which compares to your largest competitor about 25 times a year. I think the point you're trying to make back then was breakfast visits will not cannibalize the rest of the day. Can you reflect on that one year later? And do you think that thesis played out? And do you think breakfast was as a correct sales than you previously thought, given the mix does imply slightly negative growth for the rest of the day? Thanks. Great question, Eric. And, you know, on frequency, it's a little bit interesting as we've gone through the pandemic. So if you look at overall QSR frequency year on year, as more meals have been sourced from home, you have seen frequency of visits come down. You know, we've seen nice average check growth to offset some of the traffic. But if you look at total frequency, and we talked about five and a half visits per year at a Wendy's restaurant, that had ticked down just slightly in 2021. But, you know, our decline in frequency in total was less than half of what the industry had declined. So we were down, you know, in that five to six range. The industry was down in the low teens range. You know, clearly breakfast had added to that, and that's why we've seen that less of a decline than the industry. But if you strip out breakfast and you look at the rest of the day frequency, you know, You know, our declines were much better than the overall industry. So we do feel really good that, you know, we're driving frequency and incremental visits through breakfast. We feel good that it's not coming from the rest of the day. And that really bodes well for the future. We think we can build on that platform.

Eric, it manifested itself in market share gains, right? We gained traffic and dollar share in the fourth quarter, so we have now a track record of having gained traffic share the last four quarters and dollar share the last six quarters.

Your next question comes from Andrew Charles of Cal. Your line is open.

Great, thanks. You guys previously spoke about franchisees' decision to renew breakfast in February 2021 around the one-year anniversary of the launch. And I'm curious, what is the mix of domestic stores that will continue breakfast in the second year? And as a follow-up, how did that influence the decision to contribute $15 million for breakfast advertising in 2021? Thanks.

Yeah, everybody is all in, Andrew, on breakfast. We've got less than a handful of franchisees that are even talking about potentially having a hiatus on breakfast, and it's not even a discontinuation. It's just give me a little bit of break here in the near term because I'm near a campus with no students or I'm in a trade area that just doesn't have folks coming into the office at this point in time. So everybody is all in on breakfast. You know, there's a lot of excitement across the system. We think the opportunity of mobility comes back and morning routines get more ingrained, that we can continue to drive this day part. And the system is fully aligned behind that. As we looked at the incremental $15 million of breakfast advertising that we're supporting from the company side, we really looked at our total market pressure. We looked at our marketing pressure for the breakfast day part. We looked at our marketing pressure for the rest of the day. And as we think about now collecting ad fees against our breakfast day part, we've got even more fuel in that mix. And we looked at really what pressure did we need across all of those day parts, and we felt that it was appropriate to add another $15 million to that, primarily focused on breakfast. And when you look at our all-in breakfast marketing support in 2021, we'll be up over 10% plus versus our launch weights that we had in 2020. So we feel good that we've got the pressure to really drive this business into 2021 and beyond.

The only other color I would add is that for 2022, year three of our launch, we do expect that our investment posture will be comparable to 2021 at around $15 million as well.

Your next question comes from John Glass of Morgan Stanley. Your line is open.

Thanks very much. You know, there's been a theme in earnings for quick service restaurants about G&A investment to support technology and other facets of the business. You've talked about that this quarter. How do you think, GP, about... You know, G&A longer term, do you still think you can get to this 1.5% of sales system sales? That is still the goal. How do you think about beyond 21, the need to reinvest in G&A? And is it rethinking about your efficiency ratios for G&A longer term?

Yeah, we're going to stay efficient and disciplined on G&A. Nothing has really changed. There's a couple of things where we needed to invest in 2021. We've talked about a $10 million increase year over year on technology expenses. Half of it is really to set up and strengthen our data and data insights, and the other half is really ERP. That is short-lived. That's going to be in 2021 and 2022. Creates, obviously, a little bit of headwind for us. But we totally expect that with the growth that we have and the discipline on GNA, that we are going to glide down eventually to 1.5%. I think it's also worth pointing out that the 1.8% that we are sitting on, we are definitely efficient. We are in the top third of the peer group.

Okay. Thank you.

Your next question comes from Jeffrey Bernstein of Barclays. Your line is open.

Great. Thank you very much. Just continuing on the longer-term outlook, I think your guidance for this year on EBITDA is 6% to 8%, similar, I guess, to what your prior long-term guidance was for high single-digit. Just wondering, as you think about over the next few years, is that high single-digit long-term guidance still reasonable? It seems like most people are looking through 21 and into 22. And just because you did withdraw most of your long-term guidance at the start of COVID, which I most believe was prudent, I'm just wondering whether any of those targets you think now look conservative or aggressive, perhaps having gone through COVID over the past 12 months, perhaps the GNA you just mentioned. So any color on the longer term, EBITDA, and any unusuals that would make any of those components aggressive or conservative going forward? Thank you.

Good morning, Jess. Yeah, we have not yet reinstated the long-term guidance. There's still a little bit too much uncertainty. We are confident about 2021. That's why we have put the guidance out there. But we obviously tried to help you guys with a couple of nuggets here, right? So as Todd said in his prepared remarks, we are all the three growth levers that will drive sales growth and accelerated profit growth. are all intact, right? I want to summarize for you a couple of those nuggets. On breakfast, we are saying we're going to achieve a 10% of sales level by the end of 2022. That points towards we continue to accelerate sales. We are also saying that on the breakfast side, we're going to continue to invest in 2022, comparably about $15 million. is going to disappear. So the same shape that we had in the investor day is going to happen in terms of earnings tailwinds on the breakfast side. Digital, we are three years ahead of plan. We're basically saying that by the end of 2021, we are getting to 10% of sales. And we have a promising progress, right? We exited the fourth quarter at about 6.4%. As we launch into the first quarter, we have actually accelerated that exit rate in December as well. So we're very confident that the goal of 10% by the end of the year is achievable. That obviously throws off of nice sales growth and profit growth. And then unit development, right? We are accelerating and maintaining post-2021 a 3% growth rate that obviously is driving a decent amount of royalty revenue income for us that will drive earnings growth. So we are high single digit of EBITDA growth in 2021. We see no reason that that should change significantly over the outer periods.

Your next question comes from Dennis Geiger of UPS. Your line is open.

Great. Thanks for the question. And, Todd and JP, thanks for the color on breakfast and then kind of some of the moving pieces this year. Just wondering if you could touch a little bit more on some of the drivers this year. You know, it seems like improved consumer mobility and the marketing presumably are some of the biggest drivers. But curious how important digital and loyalty efforts have been and will be this year. And for this year, will promotions, perhaps any new items to that menu be relevant at all? And the last part of that, just curious if you think about breakfast, day part, market share, and what your assumptions might be this year for that. Do you grow it from where it was last year as we think about the competition? I'm curious if you look at that at all. Thank you.

Yeah, Dennis, I think as you think about the levers going into this year, you know, we're really encouraged as vaccinations take hold and, you know, some of the pandemic starts to subside, mobility starts to come back and people get out. You know, as we think about the shape of our plan in 2021, you know it's driven more by you know traffic starting to come back and and and our our average check starting to subside so if that obviously doesn't happen that could be potentially some upside to the plan this year but we got a lot of pressure both from from a breakfast perspective with the support we have in the ad fund contributions coming back you know our expectation was we'd continue to gain share in that breakfast day part during the course of this year as we have big opportunities to continue to drive awareness to continue to drive trial And really to drive trial with some of our existing Wendy's consumers that we have today that haven't yet tried the breakfast. You'll also see that, you know, our pressure will be out there. As you saw at the beginning of the year, we started the year with two for four on breakfast. You know, the good news is we've started to see that business take up a little bit higher than our 7% sales mix to start the year. You know, our digital business, which we've got out there nice and strong with the loyalty program, picking up a lot of users today. As GP just said, our digital business has continued to tick up even from year end at this stage. So we've got momentum on those two big growth drivers. So we feel good that we've got the balance and the news. You know, you'll continue to see us continue to bring news to our made-to-crave lineup. You know, we've done quite nicely on our premium items over the last little while now with, you know, pretzel pub, cheeseburger. The reintroduction of a classic chicken sandwich with the renovation, the work that we have right now on a jalapeno popper chicken sandwich. And we'll have a steady pipeline of news because what we've really seen is our premium chicken and hamburger business growing north of 10%. And that's our best food items getting into the consumer's mouths today. You couple all of that with the ongoing work that we're doing on, you know, the overall operational efficiency, driving productivity and speed at the drive-thru, making sure we're driving overall customer satisfaction, you know, creating some more seamless experiences through digital with mobile grab-and-go and curbside and continuing to enhance our mobile ordering platform from a user experience standpoint. all driving frequency through our loyalty program. All those things line up to have a lot of tools in the toolbox to really drive some nice growth during the course of this year.

Our next question comes from Nicole Miller of Piper Sandler. Your line is open.

Thank you. Good morning. I wanted to ask about protein. Can you talk about beef in terms of its percentage of the COGS basket, inflation you're seeing, and any protection you have? And can you talk about chicken in the same regards and also your experience with mix as you've launched some new chicken products? Thank you.

Good morning, Nicole. So as far as the commodity basket is concerned, about 20% of our commodity basket is beef and about 20% is chicken. From a pure inflation point of view, we don't expect too much inflation really next year, since we are lapping, obviously, at 2% fiscal year inflation in 2020. Our chicken business is almost really anchored all in the made-to-grave platform. We're innovating constantly behind it. We are really happy with the relaunch of our classic chicken. We are now in the jalapeno popper chicken sandwiches and salads. They're off to a good start in the first quarter, and we are going to continue to build that business. We are competitive there, and our consumers really like our food. It's differentiated in terms of what we offer.

And Nicole, just quickly on the proteins, as you talk about the outlook, you know, we're largely locked in on chickens. I know there's some inflation out there today. We've got that managed through the course of this year. And we buy a quarter out on beef. And, you know, as you look at, you know, beef inflation, we think it would be fairly moderate this year. Could jump around a little bit as we lap some of the high beef costs in the Q3 of last year. And then we saw, you know, deflation come into play in the fourth quarter of last year. So you'll see a little bit of shifting between those two quarters.

Your next question comes from David Palmer of Evercore ISI. Your line is open.

Thanks. Good morning. Just a question on, and I realize you're not going to be able to tell us your entire marketing plan here for this year, but I just wanted to throw it out to you that perhaps an investor concern or curiosity about the new news away at competitors, you're going to see major chicken sandwich launches and I think that same investor might be thinking you're lapping breakfast more than having that be an engine for growth this year. Could you speak to that and generally how you think you can do – how you can maintain share this year while there is perhaps more chicken news away and – Do you believe, I guess maybe a question on breakfast put this way, do you think as mobility would improve that you could get to a 10% mix just on that alone? In other words, had it been a normal year, would that 7 be 10? Thanks.

Yeah, David, as we guided on the call, we now expect our breakfast business to be 10% of our sales mix by the end of 2022. So we should see a nice step up as we continue to work through now and 22, driving awareness, driving trial. As you think about breakfast, you know, what's severely impacted? Morning routines, have that been where they have been in the past?