Wendy’s(WEN)2023-11-02 14:16Financial Data and Key Metrics - Global same-restaurant sales grew 2.8% YoY, with a two-year result of 9.7%, representing an acceleration of almost 100 basis points [6] - US company-operated restaurant margin increased by 80 basis points YoY to 15.6%, driven by sales growth and easing commodity inflation [7] - Adjusted EBITDA increased 3.5% to approximately 139 million, supported by higher franchise royalty revenue and lower G&A expenses [20] - Year-to-date free cash flow increased over 35% to approximately 226 million, primarily due to higher net income and lower incentive compensation payments [22] Business Line Performance - International same-restaurant sales grew 7.8% YoY, marking the 10th consecutive quarter of double-digit growth on a two-year basis (18.6%) [6] - US same-restaurant sales grew 2.2% YoY, with a two-year result of 8.5%, showing acceleration compared to Q2 [7] - Digital sales mix reached 13% globally, with total digital sales growing 30% YoY, driven by the loyalty program [7] - Breakfast sales accelerated in the latter half of the quarter, supported by new value offerings like the 2 for 3 Biggie Bundles [10] Market Performance - International markets led growth, with strong results in key regions, including Canada and the UK, where digital sales mix reached over 90% [12][13] - US digital sales mix grew to over 12%, with loyalty members reaching over 35 million and monthly active users growing almost 40% QoQ [13] - Late-night sales increased mid-teens YoY, surpassing pre-pandemic averages, with expectations for continued growth through 2023 [11] Strategy and Industry Competition - The company remains focused on driving global growth through operational excellence, digital acceleration, and compelling restaurant economic models [8] - New restaurant openings totaled 72 in Q3, with 152 openings year-to-date, tracking towards the 2023 global net unit growth target of approximately 2% [8][15] - The company secured incremental development agreements in key markets like the UK, Japan, and Mexico, with 70% of the long-term development pipeline under agreement [15][16] Management Commentary on Operating Environment and Outlook - Management expects mid-single-digit global same-restaurant sales growth for full-year 2023, with Q4 same-restaurant sales projected in the low single-digit range [12] - The company reaffirmed its 2023 adjusted EBITDA outlook of 540 million and adjusted EPS of 1 [23] - Long-term outlook includes mid-single-digit annual system-wide sales growth and high single-digit to low double-digit annual free cash flow growth in 2024 and 2025 [24] Other Key Information - The company declared a Q4 dividend of 1 per share in 2023, representing an over 100% dividend payout ratio [25] - Year-to-date, the company repurchased approximately 8 million shares and 70 million of debt, with plans to continue share repurchases in light of the current share price and cash balance [25][26] Q&A Session Summary Question: ROI for new units and development pipeline [30] - New build designs (Next Gen) reduced costs by 10%, with levered payback periods ranging from 3.5 to 6 years depending on incentive programs [31] - Confidence in future growth is supported by 2% net unit growth in 2023 and 70% of the development pipeline under agreement through 2025 [32] Question: Consumer behavior and competitive environment [34] - Higher-income consumers (over 75,000) remain healthy, while lower-income consumers are more stressed, leading to some trade-down from mid-scale casual dining to QSR [35] - The company maintains a balanced calendar of promotions to support both income cohorts [36] Question: Drivers of mid-August sales improvement [38] - Sales improved following the launch of premium products like the Loaded Nacho Cheeseburger, new breakfast offerings, and promotions like the 2 for 3 Biggie Bundles [39][40] Question: Value promotions and restaurant margins [42] - The company has shifted from 600 million, with flexibility to invest in growth, repurchase shares, and reduce debt [54] - Leverage is expected to naturally decrease, with potential for additional debt repurchases and continued share buybacks [55][56] Question: Late-night and snacking opportunities [59] - Late-night sales continue to outperform the category, with significant growth potential and improved staffing supporting operations [60] Question: Pricing strategy for 2024 [62] - The company expects low single-digit same-restaurant sales growth in 2024, driven by flattish traffic, slightly positive mix, and moderate pricing [63] - A small price increase is planned for late 2023 to set up for 2024 [63] Question: Company vs. franchise store performance [66] - Company stores are performing in line with franchisees in key markets, with higher AUVs contributing to strong cash profit per restaurant [67][68] Question: Loyalty program profitability and customer lifetime value [70] - Loyalty program growth is driving higher frequency and check sizes over time, with early offers being margin-neutral but contributing to long-term value [72][73]