Wendy’s Q1 2024 highlights include a commitment to achieving 2024 goals and unlocking full potential of the brand.
Emphasis on customer experience as the primary business driver.
Plans for delivering profitable growth focus on same-restaurant sales growth, global net unit growth, and restaurant-level profitability improvements.
Sales and Development
Global same-restaurant sales grew by 0.9%, with a 2-year basis growth of 8.9%.
International segment saw 3.2% same-restaurant sales growth, marking the 12th consecutive quarter of double-digit 2-year growth.
U.S. same-restaurant sales growth was 0.6%, holding dollar and traffic share within the QSR burger category.
Breakfast strategy contributed to high single-digit year-over-year growth in U.S. breakfast sales.
Digital sales momentum continues, with nearly 17% global digital sales mix and over 30% year-over-year increase.
Opened 35 new restaurants globally in Q1 2024.
Financial Outlook
Global system-wide sales grew 2.6%, with U.S. company restaurant margin increasing to 15.3%.
Adjusted EBITDA increased 1.8% to approximately $128 million.
Free cash flow decreased due to incremental investment in breakfast advertising.
Reaffirmed 2024 financial outlook includes strong global system-wide sales growth of 5% to 6% and adjusted EBITDA outlook of approximately $535 million to $545 million.
Capital expenditure outlook remains at $90 million to $100 million, with free cash flow expected to grow to approximately $280 million to $290 million.
Capital Allocation and Franchise Health
Continues to invest in profitable growth, maintain an attractive dividend, and utilize excess cash for share repurchases and debt reduction.
Announced a second quarter dividend of $0.25 per share, expecting a full year dividend of $1 per share in 2024.
Year-to-date through April 25, repurchased approximately 0.6 million shares, with about $298 million remaining on a $500 million share repurchase authorization.
U.S. and Canadian franchisees achieved 4% and 6% year-over-year sales growth, respectively, contributing to EBITDA dollar growth.
Upcoming Investor Relations Events
Wendy’s will attend the Oppenheimer Conference on June 11, the Evercore Conference on June 12, and host an investor call with Guggenheim on June 18.
Plans to report Q2 earnings and host a conference call on August 1.
Question and Answer
Wendy’s Value Proposition and Competitive Positioning
Question
How is Wendy’s positioned to compete in a potentially more value-focused environment, and what strategies and platforms will the company utilize?
Answer
Wendy’s emphasizes everyday value through its popular “Biggie” platform and leverages digital communication to drive loyalty and engagement.
The company maintains a balanced menu offering, spanning from premium to value propositions, allowing it to cater to various consumer segments.
Wendy’s Unit Growth Outlook and Franchisee Demand
Question
What are the early conversations with franchisees regarding the unit growth outlook, and how is franchisee demand for expansion?
Answer
Wendy’s is on track with its unit growth outlook, targeting 250 to 300 new units in 2024 and 3% to 4% growth in 2025.
Franchisees are enthusiastic about new restaurant openings due to the positive performance of new units, with higher average unit volumes compared to legacy restaurants.
Wendy’s will continue to invest in platforms to accelerate unit growth and partner with franchisees to capitalize on expansion opportunities.
Unit Closures and Their Impact on Growth Outlook
Question
Will unit closures subside throughout the year, and how do they factor into the unit growth outlook?
Answer
Wendy’s experienced unit closures in line with expectations, with 35 new restaurants opened and a projected 100 closures for the year.
These closures are not unusual and are accounted for in the company’s growth guidance.
Franchisee Cash Flow, New Unit Returns, and Building Costs
Question
What is the franchisee cash flow per restaurant, and how does it compare to pre-COVID levels? What are the returns on new units before considering incentives, and how have building costs evolved?
Answer
Wendy’s does not disclose cash flow per restaurant but monitors lease-adjusted leverage ratios, which have improved significantly, indicating a healthier system.
The company expects franchisee EBITDA performance to follow the trend of company restaurants, with a 100 basis point expansion in the U.S.
Wendy’s has effectively contained building cost inflation and offers competitive returns on new units, with levered returns ranging from 3.5 to 6 years depending on the level of incentives.
Franchisee Excitement and Opportunities
Question
What are the areas of excitement and opportunity expressed by franchisees during roundtable discussions?
Answer
Franchisees are particularly excited about building the breakfast daypart, which offers significant growth potential and profitability.
The key area of opportunity identified is driving restaurant-level profitability through operational efficiency, productivity improvements, and meaningful partnerships with franchisees.
Impact of Soft Start and Burger Traffic Trends on Outlook
Question
Does the soft start and potential negative trend in burger traffic have an impact on the company’s outlook, and what are the incremental offsets and flexibility in response to these trends?
Answer
Wendy’s is comfortable with its unchanged global same-restaurant sales outlook of 3% to 4%, supported by an accelerated 2-year stack in the first quarter.
The company’s marketing plan, including investments in breakfast, digital, and innovation, provides confidence in the outlook and offsets any potential challenges.
Breakfast and Daypart Performance
Question
How much of the incremental investment was deployed in the first quarter for breakfast, and how did the other dayparts perform compared to industry growth rates?
Answer
Only $2.5 million of the breakfast investment was deployed in the first quarter due to the need for system-wide alignment and menu item additions.
Wendy’s saw positive momentum in the evening and late-night dayparts, which is expected to continue, and the company held share across all dayparts in terms of traffic and sales.
Consumer Interaction with the Brand by Income and Daypart
Question
Can you provide an update on how consumers are interacting with the brand based on income cohorts and dayparts?
Answer
Consumers, particularly those with incomes below $75,000, are still under pressure, leading to reduced frequency and visitation.
Higher-income consumers exhibit higher traffic and frequency, and Wendy’s maintains share with this income cohort.
These trends are consistent with those observed in the fourth quarter and are expected to continue throughout the year.
Digital Strength, Value Offers, and Future Strategies
Question
Were you surprised by the digital strength in the quarter, and what does it mean for future value digital strategies and attracting customers to the app?
Answer
Wendy’s is delighted with the digital performance, which was in line with expectations, and sees significant runway for further growth.
The company will continue to invest in its app and loyalty platform to drive engagement, understand customers better, and capitalize on the larger order sizes associated with digital orders.
Commodity Basket and Margin Outlook
Question
Can you discuss the commodity basket for the balance of the year, including the impact of hamburger prices, and the outlook for margins?
Answer
Wendy’s experienced flat commodity inflation and labor inflation of approximately 3.5% in the first quarter but still managed to enhance U.S. company margins by 60 basis points.
The commodity outlook remains unchanged, with beef and fries expected to be inflationary and chicken remaining deflationary.
Same-Store Sales Outlook and Regional Differences
Question
Does the 2-year stack same-restaurant sales outlook imply a significant 1-year acceleration throughout the year, and are there any regional differences in performance?
Answer
Wendy’s expects a step-up in 1-year basis performance in the second and third quarters, leading to an acceleration in the 2-year stack.
While there are always regional differences, the company is satisfied with its overall performance across the system.
Breakfast Advertising Investment and Performance
Question
Given the high single-digit U.S. breakfast sales growth in the quarter, do you anticipate the need for additional investments to achieve the 50% sales growth target, and how are you monitoring the financial returns on the current investment?
Answer
Wendy’s perspective on the required investments for breakfast remains unchanged, with a planned $55 million investment over two years.
The company is closely monitoring the performance and financial returns of these investments and is confident in its current approach, which focuses on value offerings, innovation, and driving trial and repeat purchases.
Pricing Strategy, Franchisee Margins, and Value Definition
Question
How does your pricing strategy, which is below that of direct competitors, impact franchisee margins and the broader value proposition? What is your definition of value, and do you anticipate a need for price point or bundled value offerings?
Answer
Wendy’s implemented pricing slightly below food away from home inflation, and franchisees are content with the financial progress made in 2023, indicating good alignment.
The company will continue to pursue pricing carefully, with low single-digit increases expected this year, and will prioritize maintaining franchisee profitability while also driving system-wide growth.
Wendy’s believes it is well-positioned with its current value offerings, including the “Biggie” platform, a balanced menu, and digital value strategies.
U.K. and Europe Expansion Strategy and Performance
Question
Can you provide an update on the U.K. operations, including the number of units and performance, and discuss the potential for a more scale-driven strategy? How are you thinking about Continental Europe and the contribution of the U.K. and Europe strategy to future growth?
Answer
Wendy’s had 12 restaurants in the U.K. at the end of the first quarter, with plans to have approximately 45 to 50 restaurants by year-end.
The U.K. is a key strategic market and a beachhead for European expansion, with the potential to reach 400 restaurants over time.
The company is also exploring opportunities in Continental Europe, particularly in Ireland and Spain, and believes that the U.K. and Europe strategy will be a significant contributor to future growth.
