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-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, Gunter Plush, will give a business update, review our fourth quarter and full year 2021 results, as well as our 2022 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. We had a breakthrough year in 2021 as evidenced by significant growth in our business, and we did so in partnership with our franchisees, restaurant crews, and suppliers. I am incredibly proud of our consistent growth each and every year. We delivered on this again with an incredible 11th consecutive year of global same restaurant sales growth, and accelerated to double digits on a one and two year basis. This was driven in part by growth in our breakfast business, which reached 8.5% of US sales at the peak of our very successful Buck Biscuit promotion and global digital acceleration, which grew to approximately 10% of sales by year end. Our strong sales performance and commitment to the restaurant economic model led to company operated restaurant margin expansion of almost 200 basis points in the face of historic inflationary pressures. We also made meaningful progress on expanding our footprint, opening more than 200 new restaurants across the globe in 2021, despite a very challenging supply chain environment. Our success is further evidenced by the continued return of cash to our shareholders in accordance with our capital allocation policy, where in 2021 we returned approximately $360 million through dividends and share repurchases. As we turn to 2022 remain focused on our three long term growth pillars to build our breakfast day part accelerate digital and expand our global footprint. We believe that now more than ever qsr is the place to be in our mix of convenience affordability and speed position us to deliver against customers evolving expectations. The momentum we have built and our focus on execution are evident in the step up in growth in our 2022 outlook that GP will talk through later. Our goal remains the same, which is to invest in driving efficient, accelerated growth, and we are delivering on that commitment. We have achieved our 11th consecutive year of global same restaurant sales growth, which is a streak we plan to keep alive in 2022 and beyond. This growth extended across the globe with double-digit two-year same-restaurant sales in the U.S. and incredible double-digit one- and two-year same-restaurant sales internationally. In the U.S., these strong results led to dollar and traffic share growth, marking our sixth consecutive year of gaining or holding both dollar and traffic share in the QSR burger category. With the momentum that we have, we expect to continue delivering growth on top of growth across the globe in 2022 and beyond. Before I share more on our growth strategies for this year, I'll turn it over to GP to provide a few more details on our 2021 results. Thanks, Todd.

We are very proud of our 2021 results, which far exceeded our initial outlook for the year and showcase the power of our business model. Global system-wide sales grew almost 12% adjusted for the 53rd operating week in 2020. This was driven by our same restaurant sales growth of 10% and approximately 2% net new restaurant growth. We have also now re-imaged 72% of all our restaurants ahead of our 70% goal for 2021. Company-operated restaurant margin expanded by almost 200 basis points to 16.7%, driven by our sales growth through a higher average check and an increase in customer counts. We also benefited from letting restaurant recognition pay in the second quarter. These increases were partially offset by an unprecedented increase in commodity and labor inflationary pressures. After adjusting for the 53rd week, adjusted EBITDA increased over 13% to $467 million. This was supported by our significant sales growth, an increase in net franchise fees, and company-operated restaurant margin expansion. These increases were partially offset by higher G&A expense and our incremental investment in breakfast advertising. Adjusted earnings per share increased almost 45% to $0.82. This was driven by the increase in adjusted EBITDA, a lower tax rate, lower interest as a result of our debt refinancing that we completed in 2021, lower DNA expense, and fewer shares outstanding as a result of our share repurchase program. Free cash flow increased significantly to $263 million. The increase resulted primarily from higher net income, the timing of accrued compensation payments, the impact from the cash payment related to the settlement of the financial institution case in 2020, and the timing of collection of royalty receivables. These increases were partially offset by an increase in cash paid for income taxes and cash paid for cloud computing arrangements, primarily related to the company's ERP implementation. Now let's turn to our fourth quarter results. Global same-restaurant sales growth re-accelerated to double digits on a two-year basis, coming in ahead of our expectations for the quarter at approximately 12%. U.S. same-restaurant sales accelerated to 11.6% on a two-year basis, driven by growth across our core business, breakfast and digital. Our game-changing fry innovation and compelling buck biscuit promotion resonated with our customers, helping us grow customer accounts year-over-year, while also maintaining year-over-year check growth in the fourth quarter. Internationally, we delivered a third consecutive quarter of double-digit one- and two-year same-restaurant sales growth. This was driven by our largest markets, with two-year same-restaurant sales outperformance in Canada, and in our Latin America and Caribbean region, which was driven by strong results in Puerto Rico and Mexico, one of our strategic growth markets. Our strong sales result also drove company restaurant margin to exceed our expectation for the quarter at 14.5%. Year over year, company restaurant margin decreased 300 basis points driven by record levels of commodity and labor rate inflation of almost 13 and 12% respectively and higher insurance costs. These decreases were partially offset by the benefits of sales leveraging driven by the strength of our fourth quarter promotions. Our increase in G&A was primarily driven by high incentive in stock compensation expense as a result of our strong financial performance in 2021. Adjusted EBITDA decreased to $103 million primarily due to the $8 million impact of rolling over the 53rd week in 2020. In addition, there was a decrease in company-operated restaurant margin, higher G&A expense, and a decrease in franchise rental income. These decreases were partially offset by an increase in net franchise fees and higher franchise royalty revenue. The decrease in adjusted earnings per share was driven by lower adjusted EBITDA. This was partially offset by a decrease in interest and depreciation expense and fewer shares outstanding. With that, I will pass things back over to Todd to talk about our plans to accelerate our growth even further.