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. 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, Kirk Tanner, will give a business update, and our Chief Financial Officer, Gunter Plush, will review our second quarter results and share our financial outlook. From there, we will open up the line for questions. With that, I will hand things over to Kirk.

Thanks, Nick. Good morning, everyone. During the second quarter, our restaurants across the globe continued to deliver system-wide and same restaurant sales growth, reaching 2.6% and 0.8% respectively. Our performance was competitive in the U.S., with our dollar and traffic share holding steady with the QSR burger category during the quarter. This performance was driven by sales growth at the breakfast and late-night day parts and our focus on surrounding our customers with their Wendy's favorites, exciting innovation and compelling value done the Wendy's way with fresh, high-quality ingredients. The international segment delivered another quarter of strong system-wide sales growth, reaching over 8% driven by continued same-restaurant sales growth and net unit growth across each region. Turning to our digital business, everything we are doing in this space is with the goal of creating and building loyalty and personalized experiences for our customers. Our digital business continues to perform well, and we've made really good progress. We grew global digital sales by over 40% year over year in the second quarter, delivering 17% global digital sales mix. Global digital sales growth was driven by the U.S. segment, which grew sales dollars over 40% year over year, and international, which grew over 30% year over year. Our focus on driving sales through our Wendy's app and loyalty platform continues to be successful and our loyalty business is now almost as big as our third party delivery business. You will see us continue to focus on improving the experience for customers. We are confident that this will drive loyalty even further and create more growth for the brand in the years to come. Finally, our Q2 development progress achieved our expectations. We have now opened 99 brand new Wendy's restaurants through Q2, a more than 20% increase versus the first half of 2023. Looking ahead, the team has made meaningful progress towards solidifying our sales growth plan for the second half of 2024 and setting us up for unit growth acceleration in 2025 and beyond, driving our confidence in delivering strong results over the near and long term. Before diving into our year to go plans, I'd like to briefly touch on the leadership and structural changes that we recently announced. With the elevation of Abigail Pringle and EJ Wunsch, to the roles of President US and President International, we now have a structure that drives focus and clear accountability for accelerated unit growth and operational performance in both segments. This evolution also provides one voice for the franchisees in each segment, streamlining our communication and enhancing our engagement. I am confident this change will accelerate progress across our strategic focus areas, including franchise profitability, unit growth, customer satisfaction, and executional excellence. Now let's turn to our plans to drive growth during the rest of the year and beyond. We are leaning in even further across the growth pillars to drive sales while expanding restaurant margin. Our balanced approach focuses on elevating our craveable core menu, delivering impactful innovation, and offering relevant value. We believe we are in a position of strength. offering menu items that deliver across this spectrum. When it comes to our craveable menu, our fresh, never frozen beef, fresh produce, and full customization of every sandwich on the menu are key differentiators for us. We will continue to capitalize on opportunities to drive impactful innovation. In the second quarter, we launched Triple Berry Frosty and Saucy Nugs, both resonating with consumers, and you can expect to see a continuous stream of innovation from us in the second half of the year. As it relates to value, consumers continue to seek relevant value. Wendy's is the original when it comes to bundle value meal deals in QSR, and you'll see us continue to lean into this competitive advantage. Breakfast remains an incredibly important day part. It is highly profitable, and we have not yet reached our potential. We continue to outperform competitors by driving breakfast dollar growth ahead of the category in the second quarter. We have now optimized the level of our investment in 2024 to allow us to extend our existing breakfast advertising investment horizon beyond 2025. We continue to expect that breakfast sales growth will outpace rest of day at Wendy's, and those sales continue to be accretive to overall restaurant margin for the company and franchisees. Turning to our overall sales outlook, as we assess the current consumer and category, We now expect to deliver global same restaurant sales growth of one to 3% for the full year. Now let's turn to the great momentum we've built towards achieving our development goals. The team has made great progress solidifying our new restaurant pipeline as we continue our mission to bring more Wendy's to more fans across the globe. We remain on track to deliver global new restaurant openings of 250 to 300 units. providing a strong foundation to accelerate from in 2025 and beyond. Additionally, I am pleased to share that we have added more than 250 global new restaurant commitments year to date. Our European expansion is accelerating. We recently announced that the brand will enter the Republic of Ireland and Romania with strong franchisees who will begin opening restaurants in 2025. Ireland is a natural expansion of our current footprint, and we intend for Romania to act as an anchor for further expansion across other areas of Europe. These new development agreements layer on top of an additional increase in our UK franchise commitments, all supporting our plans to build hundreds of restaurants on the European continent in the coming years. Now turning to New Zealand. We recently shared that the Flynn Group has acquired the current New Zealand restaurants with plans to further expand the market in addition to their existing development agreement for 200 restaurants in Australia through 2034. The Flynn Group continues to be an outstanding operator and we are confident in their ability to grow these high potential markets beginning with new restaurants in Australia in 2025. In Asia, our franchisee in India has increased their development commitment with a mix of both traditional locations and delivery kitchens. This will build upon our current footprint of 150 open restaurants. Finally, in Canada, we have finalized a new agreement in Quebec with plans to double our footprint in the province this year. We have also recently announced an enhanced incentive program to appeal to franchisees of all sizes and increase the reach of our new restaurant development program. We expect that these incentives, along with our continued focus on expanding restaurant margin and improving profitability, will boost new build returns and further build out our long-term restaurant pipeline. As a result of the team's work, 100% of our new build goals through 2025 are tied to development commitments, which is up from 90% we previously disclosed. We are well on our way towards rapid expansion over the long term. I'll now turn it over to GP to share our second quarter financial results.

Thanks, Kirk. In the second quarter, our global system-wide sales grew 2.6%, 9.5% on a two-year basis, supported by global same-restaurant sales growth across both our U.S. and international segments and continued global net unit growth. Our U.S. company restaurant margin reached 16.5%, decreasing 80 basis points year-over-year. This was primarily due to an increase in labor costs driven by rate inflation and customer count declines. partially offset by the benefit of a higher average check. The decrease in G&A was primarily driven by a decrease in incentive compensation and lower outside professional services as we lapped implementation costs for the company's human capital management system in the prior year. These were partially offset by an increase in employee compensation and benefits. Adjusted EBITDA decreased 1% to approximately $143 million, resulting primarily from an increase in the company's incremental investment in breakfast advertising spending and a decrease in U.S. company-operated restaurant margin, partially offset by higher franchise royalty revenue and lower general and administrative expense. The decrease in adjusted earnings per share was driven by lower adjusted EBITDA, an increase in depreciation, and higher cloud competing amortization cost. These were partially offset by fewer shares outstanding as a result of the company's share repurchase program and lapping a decrease in investment income in the prior year. Finally, the decrease in free cash flow resulted from the increase in the company's incremental investment in breakfast advertising and an increase in capital expenditures. These were partially offset by a decrease in cash paid for cloud computing cost. Now let's turn to our expectations for 2024. After flowing through our year-to-date results and refining our category forecast for the remainder of the year in the United States, we now expect full-year global system-wide sales growth of 3 to 5 percent, made up of 1 to 3 percent same-restaurant sales growth and 2 percent global net unit growth. Our trusted EBITDA outlook of $535 to $545 million remains unchanged. The impact of our updated system-wide sales outlook is offset by lower expected G&A of $255 to $265 million, primarily driven by lower expected incentive compensation and optimization of our investment in breakfast advertising, as we now plan to spend approximately $22 million this year. As a result of the updated system-wide sales outlook, we have now widened our U.S. company-operated restaurant margin expectations to 15% to 17%. We are reaffirming our outlook for adjusted EPS of $0.98 to $1.02, and capital expenditures of $90 to $100 million. Finally, we now expect free cash flow of $275 to $285 million, driven by the impact of our updated system-wide sales outlook. To close, I'd like to highlight our capital allocation policy, which remains unchanged. Our first priority remains investing in profitable growth and our continued investments across our growth pillars showcase exactly that. Secondly, we are committed to sustaining an attractive dividend. We announced today the declaration of our third quarter dividend of 25 cents per share and continue to expect a full year dividend of a dollar per share in 2024. Lastly, our capital allocation policy gives us the flexibility to utilize excess cash to repurchase shares and reduce debt. Year to date through July the 25th, we have repurchased approximately 2.9 million shares and have approximately $260 million remaining on our $500 million share repurchase authorization expiring in February of 2027. Due to current share price levels, we now expect share repurchases in 2024 of approximately $75 million. We are fully committed to delivering our simple yet powerful formula. We are an efficient growth company that is driving strong system-wide sales growth on the backdrop of positive sales and expanding our global footprint. This is translating into significant free cash flows, which supports meaningful return of cash to shareholders through an attractive dividend and share repurchases. With that, I will hand things over to Nick to share our upcoming IR calendar.

Thanks, GP. To start things off, we will hold an investor call hosted by Bernstein on August 27th. On September 12th, we will attend the JPMorgan Conference in Miami. We'll then head to Canada for an NDR with Stifel in Toronto on September 24th. If you are 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 third quarter earnings and host a conference call that same day on October 31st. As we transition into our Q&A section, I wanted to remind everyone that due to the high number of covering analysts, we'll be limiting everyone to one question only. With that, we're ready to take your questions.

Thank you. Our first question for today comes from Jeffrey Bernstein of Barclays. Your line is now open. Please go ahead.

Great. Thank you very much. I just had a question on the U.S. comp trends. Two parts, I guess. The first part is just you mentioned the the quick service category, discounting, and I know you talk about your $5 biggie bag. Just wondering if you could talk about any change in consumer behavior you've seen. I'm assuming the mix of that have gone up and how you differentiate when it seems like everyone has a very similar $5 offer. And the follow-up was just on the franchisee feedback from those conversations. I'm sure the conversations have been active with, I know, some pushback in terms of making sure everything's profitable, but just wondering how the conversations are going with franchisees as you talk about being more aggressive from the value side of things. Thank you.

Yeah, good morning, Jeffrey. This is Kirk. I appreciate the question. Very relevant right now, of course. Yeah, look, the first thing I would point to is we've got this nationally recognized, famous platform called Biggie Bag. that we've had on the menu prior to others coming in and doing something similar on the menu. So we have traction with that value proposition that's relevant. Our franchisees are certainly on board with that. Of course, that is a concern for everyone, but our franchisees are on board. They helped build this platform over the years. This has been a very effective tool. And it is in line with the rest of the things that we offer on our menu. You know, we're very focused on three things, delivering our core, having exciting innovation that drives traffic, and relevant value. The balance of our portfolio and our menu allows us to work really hard in times like we're in. And, you know, we're really excited about the traction that we have and the balance that we have across our menu.

Thank you. Our next question comes from Brian Bitzner of Oppenheimer. Your line is now open. Please go ahead.

Thanks. Good morning, guys. I just wanted to ask a question about your updated same-store sales guidance for 2024. It's now 1 to 3%. And I think the math suggests that this assumes a kind of 2 to 5% comp range in the second half of the year. which is obviously a meaningful acceleration from where your trends have been the last couple quarters. I know you're expecting to stimulate some breakfast growth, but is the easing comparisons a big enough factor to drive this acceleration that you're baking into the outlook? Or what does drive your confidence that the second half can showcase this acceleration?

Good morning, Brian. Yeah, we are confident with our 1% to 3% guidance range. Clearly, easier comparison is one part of the story. Second part of the story is that we definitely expect that the category is going to slightly, slightly improve in the back half. And thirdly is confidence in the programming we have out there. As Kirk just said, our programming is focused on showcasing our core and all the goodness we have in there, plus you will see a meaningful stream of innovation in the second half, plus our national recognized Biggie platform and our digital offerings and acquisition strategies. The combination of all three will, as you point out, drive a slight acceleration on a one-year basis. If you look on a two-year basis, it's actually very, very comparable.

Thank you. Our next question comes from John Ivanko from JP Morgan. Your line is now open. Please go ahead. John, your line is now open. Please go ahead.

Sorry about that. I don't know what happened. Hopefully this number is correct. It's what I have in front of me, so please correct me if it's wrong. Um, your prime costs, food and paper plus labor running 63%, you know, generally investable in the industry, you know, companies kind of want to be around 60, even lower, um, you know, obviously negative traffic. And, you know, the, the question that I ask is, um, you know, not just in terms of unit development, but as we kind of think about. The system over the next couple of years in terms of rent renewals, if you will, of, you know, properties that are coming up to their 20 year term. You know, how are we feeling about just overall capacity, you know, in the U.S.? I mean, you know, the economics would certainly suggest that you keep stores open, but in some cases, it's actually not the choice, you know, of the tenant. It's the choice of the landlord. So I just really wanted to get a sense as we think about, you know, the U.S., not just in 25, but a couple of years after 25, you know, just kind of how we're thinking about net overall unit count in this important market. Thank you.

Well, good morning, John. Yeah, we are very confident and bullish about the U.S. market. We are highly underpenetrated. We have a lot of interest from U.S. franchisees to continue to expand. We announced it in the first half. We added about 250 development agreements. It was a good amount in international, but there's also additions in the United States. As you might have also picked up, I think two weeks ago, we issued a new FDD. And in the new FDD, we launched an optimized incentive program. So our commitment to keep working on the restaurant economic model plus the incentives that are out there, making the decisions for franchisees to build much, much easier. So we think we have not reached our potential in the United States. We are helping with incentives. that we just launched continue the incentive program around bills to suit and feel confident that the contribution of the US markets to the overall unit growth, which is about 30%, is very feasible for us.

Thank you. Our next question comes from Alex Slagle of Jefferies. Your line is now open. Please go ahead. All right, thanks.

I guess to follow up on that, about Canada, your biggest international market, and you talked to the new commitments and plans for accelerated growth in Quebec, and I know the profitability and economics there have improved significantly versus 2019. So curious if you think there could be even greater opportunity to expand that development beyond just Quebec, maybe look at Ontario, Alberta, just perhaps you feel pretty well penetrated at this point, but curious if you think there's greater opportunity there.

Yeah, Alex, good morning. Uh, we were very excited about the Canadian market. We have a very engaged franchise base. As you pointed out, uh, they're making great progress on sales and profits right back in 2023. They grew sales by 9% and the system, it was up in profits by about 25%. So obviously great economic environment. Uh, we definitely expect that Canada on its own. is going to double their growth rates. Very attractive AUVs. Therefore, economics also very good. So very excited about that, combined obviously with all the other international markets that we continue to highlight. But yeah, there is definitely a lot of growth to be had.

Thank you. Our next question comes from Eric Gonzalez of KeyBank. Your line is now open. Please go ahead.

Hi, thank you. Maybe if you could talk about how same-store sales trended throughout the quarter. I know it's not something you typically do, but there were a lot of competitive cross-currents during the quarter, and I suspect the month-to-month trends were a little bit lumpy. So maybe it could be helpful if you could explain how the quarter unfolded and some of the things that were done to lift sales when trends softened. And while we're at it, if there's anything you could tell us about the exit rate in June or how you fared in July, it'd be very helpful. Thank you.

Thanks. Good morning. Yes.

The sales over the quarter, there was some ebb and flow overall, but pretty consistent. I would just say if you look at our business, we continue to compete extremely well in this environment. We talked about holding share and the proposition that we have for consumers on our balance across value, our core business innovation. I think that kept our business fairly steady through that cycle that we just went through. That's critically important. The other thing that I think is helping us is our digital performance. We're continuing to lean into our digital. We added about 6% more loyal users to our platform, our loyalty platform, taking us to 42 million, which I think also is really important as we build a personal relationship with our customers.

Thank you. Our next question comes from Andrew Strzelczyk of BMO Capital Markets. Your line is now open. Please go ahead.

Hi, this is Jared Ludzinski on for Andrew Strzelczyk. Thank you for taking the question. I was hoping you could walk us through the drivers behind the updated 2024 U.S. company margins guidance, and if you could also provide us with an update on food costs and your visibility there as we look out to the balance of the year. Thank you.

Good morning. Yeah, on the restaurant margin, since we obviously widened the guidance range for sales, we consequently obviously also widened the range for company restaurant margin to 15% to 17%. So the midpoint is about 16%. As you might have seen, our year-to-date margin is also 16%. We are expecting flat commodities for the year. Labor inflation, that's unchanged. Labor inflation in the 3% to 5% range, that's also unchanged. And we definitely expect with the slight acceleration of sales lift in the second half, plus a small price action we took at the end of the second quarter, all of that gets us very comfortably into the guidance range we have just issued. The picture on commodities hasn't really changed. Beef and fries are inflationary for us. Chicken is deflationary. We obviously made now progress in the last quarter to lock down price visibility on the commodity basket. We are slightly north of 90% 9-0 locked down. It's comparable of the visibility we had last year at the same time.

Thank you. Our next question comes from Dennis Geiger of UBS. Your line is now open. Please go ahead.

Great. Thanks, guys. Wondering if you could talk about breakfast performance in the quarter a bit more. Seems like the advertising, the offers, and the innovation has been resonating. But just curious if you could speak to any more observations around breakfast, around your breakfast customer, and sort of how that's shaping your breakfast growth goals going forward. Thank you.

Yeah, Dennis, good morning. Yeah, breakfast is really an important opportunity for us. We've talked about this in the past as reaching our full potential, and we're about halfway there, which is the exciting part. It is certainly a tailwind in our business right now. It's growing faster than the rest of our business, and it's growing faster than the category. We're gaining share in this day part. We continue to invest. You know, when we will continue to invest through the horizon of 2025 and beyond in breakfast. And I just, what I really like about breakfast is it's more profitable, it's incremental to our business, it leverages the restaurant's labor model, and we've got a great menu. So it is something that, you know, we'll continue to stay focused on, we'll continue to build momentum on, and it'll be a tailwind for our overall SRS performance.

Thank you. Our next question comes from Danilo Garguillo of Bernstein. Your line is now open. Please go ahead.

Thank you. JP, I wonder if you can give us a little bit more context on the development incentives that you have announced, specifically your expectations on the cash-on-cash returns on a maybe unleaded basis that you're expecting franchises to be getting out of it. And if you can also put that into context versus the other programs that you're running and their utilization rates. Thank you.

Good morning, Danilo. Yes, we are happy with the incentive programs we have just launched. So remember, you've heard us talk about built to suit and about the pace setter. The pace setter actually has expired and is one of the driving forces for the additional development commitment that got signed. So we worked in the last couple of months with the franchise community on terms of renewing the incentive program. It's a little bit different now. So it's a tiered system. The basic idea is the more you commit from a building point of view, the higher of an incentive you're going to get. So it's obviously a win-win. We have to deal with less builders that are building more per franchise unit. and the franchisees that want to build more obviously get rewarded for a bigger incentive. I'm not looking that much on cash-on-cash returns. I look at levered payback periods. The Build to Suit program, which is unchanged from a design point of view, is still our best program. The levered payback on that one is about two years. The Top Builder, which is our richest incentive, 9 Exchange, you need to sign up for about 15 units, you get a levered return of about three and a half years. So very, very attractive. The franchise community that we worked the program with was very excited and were confident that as we're rolling this out that we'll get the franchise base excited and sign up for development agreements. I'm sure we're going to give an update on the signups on these programs in the next couple of quarters.

Thank you. Our next question comes from John Tower of City. Your line is now open. Please go ahead.

Thanks for taking the question. Just maybe circling back to the breakfast conversation, Kirk, I think you had mentioned in your prepared remarks the idea that this year you're only going to be spending about $22 million in breakfast spend or incremental spend. from the company contribution side. I think it was closer to 27 previously, maybe I'm mistaken, but you also made some comments about extending it potentially beyond 25. So are you contemplating incremental investment above that 55 million you had originally outlined earlier this year?

John, good morning. Thanks for the question. Yeah, to clarify, breakfast is something that, again, we're very bullish on. We do think that it's important to look at the horizon, the investment horizon, a little longer than we originally communicated. So I think about it as pushing that same investment, some of that into beyond 25. That's how we're thinking about it. I think this is one where we're going to build it over time. Again, our potential is at about $3,000 a week per restaurant over our horizon. We're going to be We're going to be very diligent about doing that, but it's prudent to push that investment past 25. We'll continue to build it past then.

Thank you. Our next question comes from Gregory Fransville of Guggenheim Partners. The line's now open. Please go ahead.

Hey, thanks for the question. Kirk, I think in the prepared remarks you made a comment about increasing the pace of innovation. Can you maybe help frame up, obviously without tipping your hand too much, what that's going to look like? Is that just going to be shorter calendar windows, greater number of new products? Just any thoughts there. Thanks.

Innovation is such an important part of what consumers are looking for and our customers expect from us. You've seen us do things like saucy nugs. We've also been very successful leveraging our frosty It's a brand that consumers love, and we've continued to innovate off those platforms. You'll see us innovate in the second half of the year. We'll innovate off of our core. We'll continue to innovate on platforms like Frosty. I think innovation is an important part that kind of celebrates both our core business and our you know, new to this world consumer propositions that have some breakthrough. I think that's really important right now. We talk a lot about value, and value is critically important. Innovation is also important. Customers are looking and loving innovation, so we are going to stay focused on that.

Thank you. Our next question comes from Brian Mullen of Piper Sandler. The line is now open. Please go ahead.

And thank you. Just a question on the efforts to expand the digital menu boards at the drive-through. You know, where are you in that, in the rollout at the company stores? And just maybe remind us how much of the franchise system has that capability today? Is there anything you could do to potentially accelerate that process across the franchise system? Thanks.

Good morning, Brian. Yes, digital ecosystems are super important, and that's what the consumer expects. As you know, we have set aside $20 million in capital to complete the digital menu board rollout in the company restaurants in 24 and 25. We are currently 30 to 35 units installed. We're obviously accelerating in the second half. We like what we see. It's a good experience for our consumer. It's a good experience for our crew members since you obviously don't have to go out anymore and change our menu boards between restaurant day and the breakfast menu. So, yeah, committed to the investment. It's contemplated in the cash flow and capital forecast.

Thank you. Our next question comes from Lauren Silberman of Deutsche Bank. Your line is now open. Please go ahead.

Hey, just on the guide, I want to confirm the EBITDA and EPS being reaffirmed. It's primarily due to less breakfast advertising contribution this year. And then specific to the advertising, how did you come to the decision to reduce the level of investment this year? Are you not seeing the returns as high as you would have expected?

Good morning, Lauren. Just to clarify, our EBITDA and EPS guidance, so it's unchanged versus previously. So obviously we had headwinds on the sales side, since obviously the midpoint of the guidance range shifted down a little bit. It's not because we are not competitive, right? We're maintaining share. It's because the category is a little bit softer than we expected. How did we overcome the profit headwinds coming out of the sales shortfall is the optimization on the breakfast advertising investment of $5 million, and we also shifted the G&A outlook range down to $255 to $265 million. A good portion of that was incentive comp accruals and a little bit of timing of new hires. Your specific question around the breakfast investment levels, we're obviously winning in the category. We have outgrown the category in the first half, so we're happy about that. But in the context of the whole environment, we absolutely believe, and we worked this a little bit with the media agencies, we believe that in that environment we are better off stretching their investment over our planning assumption is now three years into 2026. And obviously the reduction this year allowed us to stretch the investment out.

Thank you. Our next question comes from Brian Harbor of Morgan Stanley. The line is now open. Please go ahead.

Yeah, thanks. Good morning, guys. Just a quick one on the development side. I think you said 2Q was in line with your expectations. Was that also true of just the closures that you had in the U.S., or could you kind of comment on that?

Good morning, Brian. Yes, absolutely. It's in line with our expectations, right? As I said in the prepared remarks, our sales guidance for the year is 1% to 3% SRS and 2% net unit growth. That's unchanged. versus what we have told you previously. We have reaffirmed again our gross openings are 250 to 300 units. So it's all kind of where we thought it would be.

Thank you. Our next question comes from David Palmer of Evercore ISI. Your line is now open. Please go ahead.

Thank you. Good morning, guys. I'm wondering if we could maybe take a step back and think about the biggest opportunities and challenges, Kirk, that you see for the brand in the U.S. What are you hearing from franchisees about what you want to improve upon and they want to improve upon? And what are you seeing about these changes that can be made this year versus perhaps some longer-term changes that you see the brand making? Thank you.

Yeah, David, thanks for the question. Look, the team is focused on this positive flywheel, right? And I think that makes a lot of sense for both the brand and our franchisees. That positive flywheel starts with being very relevant in the present, which is right now we're competing well in the marketplace. We have to stay focused on delivering and gaining share, working – what Wendy's is famous for. So that's certainly a big part of it. But you'll see us, we're working very diligently on driving the economic model at the restaurant level, improving our margin performance, because we know that is critical. We're very focused on our long-term unit performance and building new restaurants. I think that, you know, we talk about the 99 new restaurants we built this year and the 250 to 300 restaurants we'll build in 2024. Those are all very brand building. They perform and outperform current restaurants. So those are the big things. You think about this business, it's top line, growing share, improving our margin, and building new restaurants. Those are the critical things that we are focused on and working side by side with our franchisees to make that happen.

Thank you. Our next question comes from Sarah Senator of Bank of America. Your line is now open. Please go ahead.

Great. Thank you. One clarification and then question, please. The first is on, you know, you mentioned that the industry was perhaps a little softer than you had expected with the holding share. Could you talk about any of the sort of underlying dynamics there that you saw, which is to say, Is it traffic that's a bit slower? And if so, if there are specific groups, or is it ticket, you know, some of the promotional activity, perhaps dragging on that. So that was just a sort of clarification. And then with respect to the restaurant mobile margins, I know you talked about a wider range of sales. Is there any change or any impact that is from the, like the UK restaurants? I know that they had previously been a diminishing drag, but anything there that may be changed? Thanks.

Good morning, Sarah. So a little bit of the composition of our sales growth in the United States. So we have realized, the system has realized about 4% pricing. We have seen traffic down about 2%, a little bit less than 2%, and with slightly negative mix of a little bit more than 1%. So a little bit of context. So again, traffic down is a function of the category being down as well, right? As we said in the prepared remarks, our traffic and dollar share, we are in line with the category. I want to point out also within the income cohorts, right, our research company splits them into below and above $75,000. We see the same trend that we have seen the last couple of quarters. The lower income consumer is reducing the frequency. The higher income consumer is increasing the frequency. We are competing with both income cohorts and maintaining share there. In terms of mix, actually the biggest headwind, a little bit more than 1%, is driven by the fact that we drove last year relatively hard and made to create premium sandwich, which we didn't do this year. And secondly, we continued our digital acquisition strategy this year, but it resulted in a 6% increase in our loyalty base, and that created a little bit of mixed headwinds for us. Our value offerings piggyback year over year had no material impact. on our mix and profitability year-over-year since Oberslea is nationally recognized. We have it for several years. It was obviously sitting in the base already.

Thank you. Our next question comes from Jim Solera of Stevens. Your line is now open. Please go ahead.

Hi. This is Tyler Prowse. I'm for Jim. Thanks for taking the question. Several peers in the industry have mentioned headwinds at same-store sales in California due to the recent price increases. I was just going to see if you could give us an update on the market and if you had any particular call-outs. And then I had one follow-up.

Yeah. I think that clearly the consumer across the country has been well-documented. There's certainly certain cohorts consumer bases that are under pressure and more discerning in their decisions. As far as California goes, this is something that is unfortunate from a wage and labor standpoint, but the team is working against it. We've focused on driving more productivity and delivering the Wendy's promise in this light. These are opportunities where we feel like we still have to win, and we have a plan in place to do that. We have a proposition on our menu to do just that. But I think that if you look at where consumers are, you know, our focus is on winning in this environment, winning, um, and competing well in this environment. And we do, we're doing that just with that, uh, that strategy, including places like California, it goes to delivering our core, having compelling innovation and having relevant value. And this relevant value has allowed us, uh, to stay very competitive and win in this marketplace.

Thank you. At this time, we currently have no further questions for today. So that concludes today's conference call. Thank you all for joining. You may now disconnect your lines.