Wendy's Company (The)

financial outlook. From there, we will open up the line for questions. And with that, I will hand things over to Todd. Thanks, Greg, and good morning, everyone. We are extremely proud of the meaningful progress we made in the third quarter against our three strategic growth pillars. We continued to grow our breakfast business, digital sales accelerated, and we expanded our global footprint in a challenging environment. We achieved a strong two-year global same restaurant sales result of 9.4%. driven by growth across the globe, which included an acceleration in our breakfast and digital sales mix throughout the quarter. Our strong performance helped us lengthen our streak of growing or maintaining our QSR burger dollar share to an outstanding nine consecutive quarters and further strengthen our position as the number two hamburger chain in the US. Our expansion into Europe through the UK continued to accelerate as we've opened several restaurants since the second quarter. We are seeing extremely strong sales across all of our UK restaurants as customers are thrilled to have Wendy's in the market, making us even more excited about our growth opportunity. We also announced a new strategic partnership with Google, which we believe will allow us to tap into the capabilities of a world-class technology company to drive growth for us now and into the future. I will also share some results from a recent franchisee survey that highlights the strength of our relationship with our franchisees, which we continue to believe is a differentiator for us as a brand. We remain fully committed to our three long-term growth initiatives to build our breakfast day part, accelerate our digital sales, and expand our global footprint. Our goal remains the same, which is to invest in driving efficient, accelerated growth. We are delivering on that commitment with strong year-to-date adjusted EBITDA and free cash flow growth and overall results that are pacing well ahead of our initial 2021 plan. Let's now turn to our U.S. same restaurant sales. Our strong programming and continued execution by our restaurant teams drove another impressive two-year same restaurant sales result as we lapped our best quarter of 2020. Our average check saw continued growth bolstered by craveable products like the big bacon cheddar cheeseburger that was launched during the quarter. We achieved strong results this quarter, but we know that several macroeconomic factors that others across the industry experienced related to staffing and shifting mobility due to the Delta variant impacted results across our entire business. Both the company and our franchisees are committed to making each Wendy's restaurant a great place to work, which will help attract and retain talent in our restaurants to help mitigate some of these impacts moving forward, and we are making progress. We are very excited about the plans we have in place for the rest of the year, including the recent launch of our new game-changing fry innovation. We believe we have a winner with this product. These fries remain hotter and crispier for longer, and our consumer preferred nearly two to one to McDonald's. This is yet another example of us elevating our core menu, which we expect to help us continue delivering growth on top of growth. I could not be more proud of our international business, which delivered a second consecutive quarter of double digit one and two year same restaurant sales growth. These results were driven by an improvement across the globe, both in our larger international markets, such as Canada and Puerto Rico, where we continue to take market share, and also across the rest of the world as those areas continue to recover. Canada continued to post impressive growth, partially driven by their growing delivery business, which recently added Uber Eats, as well as by engaging customers through a Wendy's phone contest that really resonated with our fans there. We're also seeing strong results in our Latin America and Caribbean region. In Mexico, one of our significant growth markets, sales have not only recovered from COVID impacts, but have far surpassed 2019 sales levels. And we believe there is still huge potential for further growth in this market. The strength and recovery of our international business continues to be a catalyst for growth. As of the end of the third quarter, almost two-thirds of our international markets have seen sales recover to at least pre-COVID levels, and we haven't seen a single permanent COVID-related market closure. We are extremely thankful for our team and our international franchisees for their commitment to growing the Wendy's brand across the globe alongside us. We continue to be very pleased with our breakfast business, which grew throughout the third quarter. exiting at our highest monthly mix of 2021 at 7.5% of sales. Our strong performance led to morning meal traffic share gains within the QSR burger category. This growth was driven by the successful two for four and $1.99 croissant trial driving promotions. We believe this momentum will continue as we close out the year with our recently launched dollar biscuit offering. We continue to see high customer repeat, showcasing that these offers are paying off. Incredibly, in a little over a year and a half, we have now moved into the number three spot in terms of overall morning meal share in QSR Burger. While we saw growth in our breakfast business, mobility continues to shift and be depressed during this day part. As a result, we now expect our year-over-year breakfast sales to grow approximately 20 to 30 percent in 2021. We remain confident in our ability to reach our breakfast goals and remain committed to invest $25 million in breakfast advertising this year to drive trial and awareness, which we believe will set us up for further growth in 2022 and beyond. We continue to see strength in our digital business across the globe in the third quarter, reaching approximately 8.5% mixed globally. Our international digital sales were approximately 13% as we saw strong results across several of our markets. We expect growth to continue moving forward as we integrate new delivery partners and roll out mobile ordering across our markets. Our U.S. digital business accelerated throughout the third quarter, exiting with a digital sales mix north of 8%. This was once again driven by gains in mobile ordering and our strong delivery business. The growth in our mobile ordering business was supported by successful acquisition campaigns, which increased our total loyalty program members by approximately 10% compared to the second quarter, reaching almost 19 million. We have now increased our total members by an impressive 7 million since the start of the year. We have also been hard at work at an exciting new strategic partnership with Google, which we believe will allow us to tap into the capabilities of a world-class technology company to drive growth. We expect this engagement will drive innovation around our one-to-one activation with customers and deliver better business analytics to drive enhanced insights. We'll also be focused on improving our in-restaurant environment by finding ways to remove friction from our customer and crew experiences. This type of innovative growth driving partnership is exactly what the technology fee was designed to enable. We remain fully committed to our digital journey and expect continued growth in 2021 and for years to come. Our development momentum continued as we delivered significant growth across the globe, reaching almost 50 new restaurant openings in the quarter. I am also pleased to share that our development agreement with Reef is off to a great start, with locations now open across the US, Canada, and the UK. As I shared earlier, we are extremely excited about the consumer response to our expansion into the United Kingdom, which drove better than expected sales in these new restaurants during the third quarter. We've now opened several restaurants in the UK since the second quarter, and we are in the process of bringing additional franchise partners into the family in the near future, which we are extremely excited about. We anticipate having 10 restaurants open by the end of the year, which is incredible given that we just opened our first location in June. We have also added to our new restaurant commitments with several ground-breaker development agreements in some of our international markets, further solidifying our path towards our long-term unit growth goal. We remain on track to reach approximately 7,000 restaurants by the end of 2021 as we continue to navigate through a challenging supply chain environment. Our development foundation is extremely strong, and we have a robust pipeline of almost 200 potential franchisees, which gives us confidence that we'll reach our goal of 8,500 to 9,000 global restaurants by the end of 2025. Our playbook of investing to drive accelerated growth behind our three long term pillars to build our breakfast day part driver digital business and expand our footprint across the globe remains the same, and we continue to make meaningful progress. Our continued growth and success would not be possible without the partnership we have with our franchisees who we believe are the best in the business. We recently received the 2021 Franchise Business Review Survey, resulting in another year of Wendy's exceeding industry benchmarks and also paced ahead of our results from 2019. I am particularly pleased with our ratings on overall satisfaction and financial opportunity, which were more than five percentage points ahead of the industry benchmark. We also achieved strong scores on our clear vision and ability to drive the system forward, highlighting our ongoing alignment behind our strategic priorities. Despite the challenges of a global pandemic, over 90% of our franchisees would make the decision to invest in Wendy's again and increase versus our 2019 results, which we are very proud of. These results highlight how our strong franchise relationships have been a differentiator for the Wendy's brand. Through this partnership and the dedication of our restaurant crews and support center teams, we will continue our march towards achieving our vision of becoming the world's most thriving and beloved restaurant brand. I will now hand things over to GP to talk through our third quarter financial results.

Thanks, Todd. We are pleased with our third quarter results, which delivered against our financial formula as an accelerated, efficient growth company by growing same-restaurant sales and expanding our global footprint, which translated into significant free cash flows. Our global system-wide sales grew 5.3%, and our same-restaurant sales growth decreased. was a very strong 9.4% on a two-year basis. This was driven by the outstanding results in our international business and continued growth in our U.S. business. As Todd mentioned earlier on the call, our U.S. same-restaurant sales in quarter three were impacted by macroeconomic challenges. Without these impacts, we believe our U.S. same-restaurant sales results would have been generally in line with our expectations for the quarter. Year over year, company restaurant margin decreased 250 basis points, driven by higher than expected labor rate inflation of almost 9.5%, commodity inflation of almost 3%, lower local advertising spend in the prior year, and customer count declines. These were partially offset by the benefits of a higher average check. The increase in G&A was driven by higher incentive and stock compensation expense as a result of our strong financial performance in 2021 that continues to pace well ahead of our initial plan. Higher technology costs primarily related to our ERP implementation and increased travel expenses. Adjusted EBITDA decreased approximately 5.5% to $112 million, primarily as a result of higher general and administrative expense and a decrease in company-operated restaurant margin. These decreases were partially offset by higher franchise royalty revenue and an increase in net franchise fees. Adjusted earnings per share was flat to the prior year, driven by lower adjusted EBITDA, offset by a decrease in interest and depreciation expense. Finally, our free cash flow increased significantly to approximately $274 million year-to-date. The increase resulted primarily from higher net income, the timing of receipt of franchisee rental payments, and the timing of accrued compensation payments. Before we turn to our outlook, I want to quickly highlight our strong year-to-date results through the third quarter, which continue to pace well ahead of our initial plan for 2021. Our year-to-date global system-wide sales grew 13.2%, and we achieved an impressive two-year global same-restaurant sales growth of approximately 11%. Our year-to-date company-operated restaurant margin has reached almost 17.5%, 350 basis points higher than 2020, driven by sales leverage, which has more than offset headwinds from higher labor and commodity costs. Finally, year-to-date adjusted EBITDA is up approximately 19% versus 2020, primarily driven by our strong sales and company operated restaurant margin expansion. We continue to expect very strong results in 2021. However, due to the previously mentioned impact we are facing, in addition to being late in the year, we are tightening our outlook ranges across some of our metrics. we now expect full-year system-wide sales growth of 11% to 12%. This in turn flows through and tightens our expected ranges for adjusted EBITDA and adjusted EPS to $465 to $470 million and $79 to $0.80 respectively. Our adjusted EBITDA outlook is also impacted by our company-operated restaurant margin, which we now expect to be approximately 16% to 16.5%. This change in restaurant margin is being driven by the tightening of our sales outlook range and an increase in commodity and labor rates, which we are now expecting to be inflationary, approximately 4% and 7% to 8%, respectively. This is being offset by a decrease in G&A to approximately $235 to $240 million and higher net franchise fees as a result of additional franchise transactions that are expected to close in the fourth quarter. Finally, we are holding our free cash flow at $270 to $280 million as a reduction in our capital expenditure outlook is offsetting our updated adjusted EBITDA outlook range. The favorability in capital expenditures is being driven by supply chain challenges, which we believe to be transitory in nature. To close, I would like to highlight our capital allocation policy, which remains unchanged. Our first priority remains investing in profitable growth. We are continuing to showcase this through the investments we are making across our three strategic growth pillars. Today, we announced the declaration of our fourth quarter dividend of 12 cents per share, which aligns with our capital allocation policy to sustain an attractive dividend-paired ratio of more than 50%. Lastly, we plan to utilize excess cash to repurchase shares and reduce debt. We announced today that we have added $80 million to our existing share repurchase authorization to a total of $300 million. With this increased authorization, we are planning to launch a $125 million accelerated share repurchase program in the fourth quarter. As a result of the above actions, we now expect to return approximately $350 million to shareholders by year-end through a combination of dividends and share repurchases. We are fully committed to continue delivering our simple yet powerful formula. We are an accelerated, efficient growth company that is investing in our strategic pillars and driving strong, systemized sales growth on the backdrop of positive, same-raspond sales and expanding our global footprint, which is translating into significant free cash flows. With that, I will hand things back over to Greg.

Thanks, JP. We are excited to announce that we will be hosting a virtual Investor Day on March 10, 2022. During the event, we are planning to provide an update on our long-term strategic vision, reintroduce our long-term outlook, and issue our outlook for 2022. The event will be available to all interested parties via webcast from our investor relations website at irwendies.com. In advance of the event, we plan to pre-release our fourth quarter and full year earnings on February 10, 2022. We will also host a conference call that same day to review those results. Now, turning to our fourth quarter investor outreach events. To start things off, we'll be hosting an investor call on November 12th with Truist. This will be followed by a two-day NDR with the first leg in Chicago with Credit Suisse on November 16th and the second in Boston with BMO on November 17th. We'll follow this up with an NDR in New York with Cohen on November 30th and then head to Nashville on December 1st for the Stevens Conference. We will then hold a virtual NDR focused on the West Coast hosted by Goldman Sachs on December 9th, and we'll round things out with a virtual headquarter visit with Deutsche Bank on December 14th. 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. 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 will once again be limiting everyone to one question only. And with that, be ready to take your questions.