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 will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star followed by the number two. Thank you. Kelsey Freed, Director of Investor Relations. 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, 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, will give a business update, and our Chief Financial Officer, Gunter Plush, will share a franchise health update, review our 2022 second quarter results, and provide an update on our outlook for the year. From there, we will open up the line for questions. With that, I will hand things over to Todd.

Thanks, Kelsey, and good morning, everyone. I am incredibly proud of the entire Wendy system for driving a significant sequential acceleration in our results in the second quarter, which highlights the strength of our underlying business and brand, as well as our commitment to the restaurant economic model. Our global same restaurant sales significantly exceeded our expectations, marking a third consecutive quarter of double-digit two-year growth We once again accelerated versus the prior quarter on a one- and two-year basis, which highlights the momentum that continues to build in our business across the globe. This sales growth translated into an almost 300 basis point sequential expansion in our company-operated restaurant margin, even as we faced incredible inflationary pressures during the quarter. On the breakfast front, we are very excited to have officially launched Breakfast in Canada, giving our fans in that market the craveable breakfast they deserve. Meanwhile, our U.S. breakfast business outperformed the competition with another quarter of morning meal traffic share growth in the QSR burger category. Our digital business continued to accelerate delivering global digital sales mix of approximately 10% and growing monthly active users in the U.S. by more than 5%. Our franchisees are operating from a position of strength after achieving record setting profits across the U.S. and Canada in 2021. These results are evidence of our strong system alignment, consistent execution, and unwavering focus on delivering profitable growth across our three strategic pillars. As we look ahead, we remain committed to accelerating our business behind these pillars for years to come. Our global same restaurant sales accelerated on both a one- and two-year basis in the second quarter, with two-year growth of over 21%. We are entering the back half of the year with a ton of momentum following sequential global same restaurant sales acceleration each month of the second quarter. We continue to see widespread growth across our international business, achieving a fifth consecutive quarter of double digit one and two year same restaurant sales growth. This was driven by another outstanding quarter in Canada. due in part to our breakfast launch and outperformance across our Latin America and Caribbean region and our largest markets in Asia Pacific. During the second quarter, we also celebrated the one year anniversary of our first UK restaurant opening. Only one year later, we have over 20 restaurants in the UK, eight of which are company operated. Sales in our company operated UK restaurants held steady quarter over quarter, despite macroeconomic headwinds that continued away on the overall market. Even in the face of these industry wide pressures our development plans are on track and the long term opportunity in the region remains fast. We now have six traditional franchisees approved in the region, who we expect will begin opening restaurants in early 2023. In the U.S., our strong and balanced marketing calendar, alongside the benefit of our strategic price increases, drove our outperformance versus the competition and delivered our 12th consecutive quarter of gaining or maintaining dollar share within the QSR burger category. The relaunch of our fan favorite $5 Biggie bag delivered a compelling value meal that offers a trade-up option from our other value platforms. We also paired the return of our summer salad with a new twist on one of our most iconic products, Strawberry Frosty was an instant runaway success that drove year-over-year customer count growth as we exited the quarter. We believe our U.S. marketing calendar sets us up to continue delivering strong results in the back half of the year with the craveable innovation only Wendy's can deliver, the return of an old favorite, and our ownable and compelling value platforms. We also recently completed a pilot with a third-party pricing specialist and plan to partner with them to support our U.S. system in making strategic pricing decisions backed by rigorous data and analytics. We expect this partnership will drive sales and profit growth while protecting value perception. We believe that our momentum and the strong plans we have in place make us uniquely positioned to compete in this environment and in the QSR category. Now let's turn to our breakfast business. We are thrilled by the customer and franchisee excitement around our breakfast launch in Canada. The day part met our expectations for the quarter despite overall category pressures and increased competition. We are confident that the addition of this day part will drive Canadian franchise profitability to new heights. Turning to the U.S., we are pleased with our breakfast performance in the context of the overall category, which continued to contract in the second quarter. We were able to maintain breakfast sales volumes versus the prior year and grow morning meal traffic share in the QSR burger category. Our performance was driven by another run of our successful Buck Biscuit promotion and awareness messaging throughout the quarter. Our sales volumes continue to reach well above our breakeven mark of just over $2,000 per week, driving profit for the company and our franchisees. We continue to expect year-over-year U.S. breakfast sales growth of approximately 10% in 2022 and to reach average weekly sales of $3,000 by year-end. This growth will be supported by the launch of our new French toast sticks this month, which we expect to drive incremental visits and add-ons. We will also continue to lean into profitable promotions throughout the back half of the year. We know there's a ton of upside ahead of us this year and over the long term as we look to capture our fair share of the massive QSR breakfast business, and we remain committed to our $16 million global investment in breakfast advertising this year. Our global digital sales accelerated versus the first quarter, with global digital sales mix holding strong at approximately 10%. Our international digital sales mix was approximately 15% as we continue to achieve outstanding results across many of our markets, including Canada, which is seeing strong digital usage at breakfast, and our UK restaurants, which reached digital mix of over 70%. In the US, digital made up just over 9% of our overall sales and accelerated approximately 2.5% versus the prior quarter. This growth was driven by an uptick in mobile orders as we grew our total loyalty members and monthly active users by over 5% versus the first quarter, exiting the second quarter at record highs. We expect our focus on refining our one-to-one marketing capabilities, expanding delivery and mobile order access and efficiency, and fine tuning our user experience will continue to grow our digital business across the globe. We continue to make progress against our global unit expansion in the second quarter, now opening 140 new restaurants and reaching a key milestone of 75% global image activation. Clearly our franchisees are all in on investing in the Wendy's brand, and I couldn't be prouder of the team for once again delivering growth in what continues to be a challenging environment. As the second quarter progressed, we re-evaluated our reef development commitment. We now anticipate that reef will open approximately 100 to 150 Wendy's delivery kitchen locations by the end of 2025, with the majority operating internationally in Canada, and the UK, where sales volumes have continued to meet our expectations. This reduction in our anticipated reef development is due to a change in reef's growth strategy, which includes a shift to operating multiple brands from its locations, and some recent challenges with opening Wendy's delivery kitchens in certain locations. In the US, we will continue to test and learn with reef, with a focus on densely populated, high potential markets. We remain committed to expanding access to our great brand and will continue to be a leader in innovative non traditional concepts, alongside many franchisees across the globe. Primarily due to this change, we now anticipate 2022 net unit growth of approximately three to 4% and expect to reach 8000 to 8500 global restaurants by year end 2025. This continues to represent a significant step up versus our historical unit growth performance. And we have made even further progress and solidifying our near and long term growth plans through the end of July, we had over 70% of our 2022 new unit growth open or under construction. We now have well over 200 potential franchise candidates in our pipeline and we expect our own your opportunity campaign to attract additional interest. This recruiting focus is already paying off as we expect an approximately 10% increase in our global franchisee count in 2022. Finally, we recently unveiled a new global restaurant design that we expect to improve operating efficiency and seamlessly integrate digital access while lowering build costs by almost 10% to improve overall returns. This new design is truly cutting edge and will focus on optimized layouts that deliver convenience, speed, and accuracy for our crew and our customers across all order and fulfillment channels. All these growth initiatives, alongside our strong underlying performance, make us confident in our accelerated unit growth in 2022 and beyond. Our playbook of investing to drive accelerated growth behind our three long-term pillars to build our breakfast day part, drive our digital business, and expand our footprint across the globe remains the same. 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. The entire Wendy's system is laser-focused on driving the restaurant economic model, which is highlighted by our ability to deliver strong results year after year. I will now hand things over to GP to share our record-setting 2021 franchise financial results.