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 Penagor, will give a business update, and our Chief Financial Officer, Gunter Plush, will review our 2023 second quarter results and provide an update on our outlook for the year. From there, we will open up the line for questions and with that I will hand things over to Todd.

Thanks Kelsey and good morning everyone. In the second quarter, we continue to deliver meaningful sales and profit growth alongside sustained progress against their strategic growth pillars. Our global same restaurant sales grew 5.1% on a one year basis and 8.8% on a two year basis in line with our strong expectations for the quarter. This was driven in part by our international business, which achieved another outstanding quarter with same restaurant sales growth of 7.2% and two year growth of 22.4%. This marks a ninth consecutive quarter of double digit international same restaurant sales growth on a two year basis. We continue to see strong results across all our regions, including our key international growth markets, which have all achieved double digit same restaurant sales growth year to date through the second quarter. The continued success of these markets is driving interest in development from both new and existing franchisees and bolsters our confidence in our international growth plans. Our U.S. business delivered same restaurant sales growth of 4.9% with strong two-year results of 7.2%. These results allowed us to hold our strong dollar and traffic share within the QSR burger category and once again widen our share gap to several competitors. During the quarter, we benefited from our strategic pricing actions and positive mix resulting from the evolution of our value platforms, partially offset by an expected decline in year-over-year customer counts. We carried forward our digital momentum as global digital sales mix held strong at over 12% following the large acceleration we drove during the first quarter. We once again drove significant profit expansion resulting in an over 200 basis point year-over-year increase in U.S. company-operated restaurant margin to 17.3%, as sales growth drove P&L leverage and commodity inflation eased. We also continue to make progress against our development goal, opening 41 new restaurants across the globe, totaling 80 new restaurant openings year-to-date through the second quarter. We remain fully committed to driving the restaurant economic model and delivering global growth alongside our franchisees crew members and employees. I am confident that each of our growth pillars has significant runway ahead of us our plans remain deeply rooted in the foundation of the restaurant economic model. This is highlighted by our significant profit expansion year today, which our franchisees are also experiencing. Our growth and success would not be possible without the partnership, we have with our franchisees. And I am confident that our systems continued alignment will allow us to achieve our near and long term goals. Our focused approach to driving same restaurant sales momentum powered our strong results in the second quarter and gives us confidence in extending our track record of sales growth. First, we are committed delivering a restaurant experience that delights our customers and brings them back more often. In the second quarter, we once again drove improvement in our customer satisfaction scores and speed of service versus the prior year and prior quarter. This momentum was supported by both speed of service initiatives in our restaurants and continued improvements in the staffing environment. Providing a great customer experience supports every other sales driver and we will continue driving speed, consistency, and accuracy in our restaurants every day. Second, we continue to promote products across a variety of price points and occasions. The launch of the Ghost Pepper Ranch Chicken Sandwich and the return of Strawberry Frosty, alongside continued profitable value with our Biggie Bag lineup, contributed to our second quarter growth. We will continue utilizing our ownable platforms like Made to Crave, Biggie, and Frosty to break through with our customers in new ways across the rest of the year. Third, we know there's significant growth ahead of us at the Breakfast Day part. In the US, we achieved our highest quarterly breakfast sales volumes of all time, supported by our $3 croissant promotion resulting in mid single digit sales growth versus the prior year. We expect to continue building on this momentum with our recently launched frosty cream cold brew additional menu innovation launching soon and more consistent promotional activity to drive trial and repeat. All in, we continue to expect the breakfast day part will deliver outsized sales growth in 2023 and beyond. Finally, our recent push into the late night day part paid off with double digit sales growth versus both the prior quarter and prior year. Up to 90% of our US restaurants are now open until midnight or later. And as expected, we're seeing higher average checks and a skew towards delivery, which further supports the restaurant economic model. We continue to see room to grow our share of this day part versus our QSR competitors and are excited to continue advertising late night during the third quarter. We believe the day part will expand even further as customers come to know that Wendy's is reliably open for the high quality late night experience they deserve. The success of the second quarter and our strong plans for the remainder of the year drive our continued confidence that these four initiatives will ladder up to mid single digit global same restaurant sales growth in 2023. We held our strong digital momentum in the second quarter achieving over 12% global digital sales mix well digital sales dollars grew over 25% year over year. starting this quarter our digital sales definition includes in restaurant mobile scans in order to more accurately reflect our full digital portfolio and align our reporting with others across the restaurant industry internationally we continue to see strong adoption of digital channels leading to a digital sales mix of over 17 in the u.s we are pleased that the digital gains we draw with our march madness programming proved sticky into the second quarter Our US digital sales mix held relatively steady versus the prior quarter at over 11% while digital sales grew over 25% year over year. US digital performance also benefited from our late night advertising and expanded operational hours. Our US loyalty monthly active users held strong at over 3.5 million supported in part by continued strides and our one to one marketing Program. We have now activated more personalized user experiences and expect our progress in this area will accelerate over time, ultimately driving frequency check and operational efficiencies. Additionally, we are proud to remain on the forefront of testing new technologies alongside our key partners, we are committed to staying nimble and finding innovative solutions to maximize the restaurant economic model. are strong year over year sales growth rate expectations for delivery mobile order and kiosks have not changed. But with our updated definition, we now expect our global digital sales will reach over $1.5 billion this year. We are pleased to have opened 41 new restaurants in the second quarter, including our first global next-gen restaurant, bringing our openings for the first half of 2023 to 80 restaurants. We continue to make headway in our key international growth markets this quarter, including net unit growth in Canada, the UK, India, and the Philippines. We also further solidified our long-term international restaurant pipeline with new restaurant development commitments in Canada. Our significant sales growth across these key markets and continued improvements in our UK restaurant margin support our expectations for outsized growth of our international footprint over the short and long term. Additionally, we are excited to share that we have entered into a new master franchise agreement with Flynn Restaurant Group to develop 200 Wendy's restaurants in the Australian market. Flynn Restaurant Group is the largest restaurant franchise operator in the world and operates nearly 200 Wendy's restaurants in the US. We are thrilled to expand our relationship with them in this key market. Our development pipeline continues to be supported by our suite of development programs, which provide compelling incentives and support to new and existing franchisees. In the event that restaurants under agreements are not open on time, The company receives a monthly fee, which builds an additional layer of certainty into our development pipeline. We made progress during the quarter on converting franchisee interest in our suite of development incentives into new agreements, with an uptick in commitments across the Pacesetter, Groundbreaker, and Build-a-Soup programs, and now have approximately 60% of our development pipeline through 2025 committed under a development agreement. We expect additional commitments across our system throughout 2023 and beyond as we continue to market these programs. Sales momentum continues and inflationary pressures subside. In addition, we continue to lean into the build the soup program to ensure that all the new franchisees entering the Wendy's system can be up and running with new restaurants as quickly as possible. We expect 2023 global net unit growth of approximately 2% as we continue to navigate substantial permitting delays in the U.S., which have intensified and are pressuring our new restaurant opening timelines. All U.S. restaurants facing permitting delays in 2023 have fully secured sites, so to the extent that restaurants cannot open in 2023 due to permitting, it will be a timing shift into 2024. Our 2023 outlook continues to include a significant step up in traditional net unit growth is we have transitioned our development focused into higher AUV formats. This shift substantially increases the long-term financial benefit of our 2023 unit growth versus the units we delivered in the prior year. It is also important to note that our new traditional units are opening with AUVs almost double that of our restaurant closures, which is driving sales growth and building an even stronger system. Looking further out our progress towards solidifying our restaurant pipeline keeps us on track to achieve our long term global net unit targets of two to 3% in 2024 and three to 4% in 2025. We know there is substantial runway for the Wendy's brand and continue delivering meaningful global growth. And we believe our momentum and strategies across our three growth pillars will drive shareholder returns for years to come, I will now hand it over to GP to share our second quarter financial performance.