Q1 2021 Wendys Co Earnings Call
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 speakers' remarks, there'll be a question and answer session I'd like to ask a question during this time.
Star followed by the number one on your telephone keypad, if you like to withdraw your question press the pound key thank you Greg Levin check.
Actor and Investor Relations and corporate SG&A 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.
And our Wendy's dot 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 at certain information we may discuss today is forward looking.
Various factors could affect our results and cause those results to differ materially for the projections set forth and are forward looking statements on.
And also some of today's comments will reference non-GAAP financial measures and 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 are president and Chief Executive Officer, Todd Pentagon, and our Chief Financial Officer, Gunther Plush will give a business update including some highlights from our corporate responsibility report and share our 2020, one first quarter results and provide an update on our financial outlook from there we will open up the line for questions and with that.
And I will hand things over to Todd.
Thanks, Greg and good morning, everyone.
We could not be more pleased with our momentum and our business. The continued and the first quarter of 2021 and sales significantly exceeded our expectations and fueled our restaurant economic model, leading to outsized profits we'd.
We delivered another double digit two year same restaurant sales growth result on the strength of our rest of the day business, our breakfast day part and our growing digital business.
Our digital business grew to approximately seven 5% of sales and the quarter and our breakfast business showed growth that was ahead of plan.
This sales momentum led to significant year over year restaurant margin expansion of almost 700 basis points to 17%.
Our focus remains on ensuring we have a strong restaurant economic model across our system and we are executing.
We also continue to make great progress and the area of development, because we are seeing strong interest and our new incentive program that we launched earlier this year and we remain on track to deliver on all of our long term development targets.
As a result of our strong topline performance, we are meaningfully increasing our old book for 2021 on all of our key financial metrics, which GP will talk through later in the presentation.
Lastly, we remain fully committed to our long term growth initiatives and we continue to make great progress against these.
We are confident that we have a lot of growth ahead of us behind these initiatives.
Our goal remains the same which is and to invest and driving efficient accelerated growth and we are delivering on that commitment.
Our global same restaurant sales growth of 13% debt, we delivered and the first quarter exceeded our expectations and highlights the strength and momentum of both our U S and international businesses.
And the U S. We once again posted one of our best one and two year same restaurant sales numbers as we were up 13, 5% on both metrics.
The strength of our rest of day business.
<unk> digital and stimulus payments boosted the results that were slightly offset by inclement weather and the quarter.
This was our third consecutive quarter of double digit two year same restaurant sales growth, which showcases the underlying strength and our business.
Internationally, we saw same restaurant sales growth turned positive at seven 9%.
We attribute this to the strength of our Canadian business, which continues to see digital acceleration and to the business and Puerto Rico, which is firing on all cylinders and they've had and many of our U S breakfast items to their menu.
This translated into six 3% international growth on a two year basis, and a significant increase from our fourth quarter results as our international markets are continuing to emerge from severe COVID-19 restrictions to pace ahead of plan in 2021.
The strong start to the year and the momentum we are seeing and our global same restaurant sales has given us the confidence to take up our system wide sales guidance for 2021 to 8% to 10%.
Our franchise system is engaged across the globe and we are excited about the plans we have in place for the remainder of 2021.
Let's spend a few moments talking about our U S same restaurant sales, which accelerated nicely and the first quarter on the strength of our rest of day business we.
We launched two new products within the quarter and the jalapeno poppers chicken sandwich, and salad, which were extremely successful.
Our salad business size substantial improvement is the result of this launch which we are very pleased with.
Our recently renovated classic chicken, which was a key component of our two for five promotion within the quarter is selling more than twice as much as our previous version and continues to drive very strong large sandwich sales mix and higher average checks alongside the continued strength of our made to crave platform.
The strength of the classic chicken along with the success of the Jalapeno Papa has allowed us to compete very well and the chicken sandwich category.
In fact, our share of breaded chicken sandwiches within <unk> grew in the month of March despite significant competitive activity.
We wrapped up the quarter with a fan favorite and the five dollar biggie bag, which drove very strong results to close things out.
As we look forward to the rest of 2021, we are very excited about our marketing calendar, which will continue to include a nice balance between our core items and some new product offerings to ensure that we continue to drive customers into our most craveable products.
We have now officially entered our second year of breakfast and we could not be more excited and the same sentiment is echoed by our franchisees as their energy and excitement is at an all time high and the first quarter all our key breakfast metrics improved breakfast sales dollars grew awareness increase and we continue to see.
Higher customer repeat.
Breakfast was fueled by our continued marketing pressure, most notably with our presence as the official breakfast of March madness, which drove a ton of awareness around our business and our successful two for for promotion, which drove a significant amount of trial. We also continued to see our customer satisfaction scores and b our highest at the breakfast day part is customer.
Our loving the offering that we have.
Lastly, we are seeing some great results out of our legacy breakfast restaurants that had the day part before the national launch they have already grown their breakfast businesses to over 10% of sales, giving us confidence and our long term targets.
Our results and the quarter were ahead of our expectations and we remain fully committed to our breakfast advertising investment putting us on a great position to grow our breakfast sales by 30% and 2021 and reach our goal of 10% of sales coming from breakfast by the end of 2022.
Our digital business once again saw acceleration across the globe and the first quarter internationally digital grew again this quarter to more than 10% of sales on the strength of our Canadian delivery business, which continues to grow rapidly.
And the U S. We exited the quarter at approximately 8% of our sales up from just over 6% and the fourth quarter.
This growth has been driven by increases in both delivery and mobile ordering.
And on the delivery front reran several successful promotions in the first quarter to continue to drive awareness and trial <unk>.
Delivery has remained strong and markets that have reopened which is very promising.
Our mobile ordering business, which is powered by our loyalty program continued to grow as we now have 13 million total members enrolled in the program.
We continue to see positive benefits from our loyalty program in terms of higher frequency and we are seeing more and more people take advantage of this program.
In addition, we are starting to leverage the consumer data that we are seeing and have begun to engage with customers on a more one to one basis, which we believe will play a major part and us reaching our digital goals.
As consumer behaviors continue to change along with the technology investments, we are making as a brand we are well on our way to achieving our goal of reaching 10% of U S sales coming through digital channels by the end of this year.
Our third strategic growth pillar is expanding our footprint and just like the other two pillars, we continue to make great progress.
As announced earlier this year, we launched a new incentive program and we are seeing substantial interest in it.
As a reminder, our new incentives reward franchisees for new restaurant growth accelerated timing and making multiyear commitments to grow their operations.
Franchisees have until the end of June to sign up and we are confident that we will see a meaningful uptick and commitments.
We are also seeing some new franchisees build their way into the system through this program behind the strong economics, which is exciting to see speak.
Speaking of new franchisees, we continue to see our franchise recruiting pipeline growth significantly on the heels of the investments we made last year to drive our recruitment efforts.
We currently have about 150, new potential franchisees globally at different stages of our process, including over 20 that we are evaluating in the UK.
On that note we remain on track to open our first UK restaurant on June the second which will be operated by the company.
We also recently signed new development agreements with franchisees and Central Asia to opened over 50, new Wendy's restaurants by 2030, and then Quebec, Canada, which we expect will double of our footprint and the province.
These are more examples of where we continue to sign large development agreements to significantly grow our international footprint.
The solid development Foundation that we have built the strong pipeline, we have in place and the progress we have made thus far and 2021 gives us confidence that we will deliver on our goal of reaching about 7000 restaurants and globally by the end of 2021 and accelerating to approximately 8000 and by the end of 2025 on.
Our playbook of investing to drive accelerated growth behind our three long term pillars to meaningfully build our breakfast day part drive our digital business and expand our footprint across the globe remains the same and we are making great progress.
These initiatives remain deeply rooted in the foundation of the restaurant economic model the.
The combination of strong sales and restaurant margins that we displayed and the first quarter will fuel reinvestments into people technology re imaging and new development, which drives our confidence in growth for the future.
One of our three foundational items as good done right, which is our commitment to do the right thing and the area of environment, Social and governance. We recently launched our 2020 corporate responsibility report and I wanted to cover a few of those highlights.
Good done right is the simple phrase that grounds Wendy's approach to three critical areas of our business food people and footprint.
We made tremendous strides and 2020 and part because we completed our first ever comprehensive ESG materiality assessment to inform our overall strategy.
We engaged nearly a thousand diverse stakeholders to identify wendy's most material topics that provide the greatest opportunity to make a positive impact.
These findings informed of existing goals and helped us to create new ones.
We recently released new ESG specific goals and alongside these we are sharing a new set of metrics based on established reporting frameworks to track and report our progress.
We're committed to transparency through our corporate responsibility journey, and we will continue to benchmark our progress against globally recognized frameworks such of SaaS Mi and Gi.
For further information. Please go to the what we value section of Wendy's Dot com or the ESG section of our IR website.
Everything we do at Wendy's is focused on bringing our vision to life, which is to become the world's most thriving and beloved restaurant brand with the momentum that we have on our business and the partnership we have with our franchisees that has never been stronger we are well on our way.
I will now hand things over to GP to talk through our first quarter financial results.
Thanks, Todd we are very proud of our first quarter results as our business continues to accelerate to start the year showcasing same restaurant sales and earnings growth that we are well ahead of our expectations.
And our global system wide sales grew 12, 5% and on a same restaurant.
On sales reached 13% and quarter, one well ahead of our initial expectations.
Sales momentum has continued into the second quarter, whether you're expecting on a same restaurant sales and the U S to grow 12% to 14%. Please.
Please note that our U S same restaurant sales and the second quarter will be negatively impacted by a shift related to the 50 <unk> week that we had in 2020 after accounting for this shift we are expecting our strong sales results to continue in quarter, two with another quarter of two year of double digit Srs growth.
Year over year company restaurant margin increased almost 700 basis points to 17% driven by sales of leveraging from our 13% company operated Srs growth and lower commodity cost.
These benefits were partially offset by higher labor rates.
The increase in G&A was primarily driven by higher incentive compensation accrual as a result of our improved outlook for 2021 that was partially offset by reduced travel expenses.
I've talked at EBITDA increased approximately 35% to $121 million.
This was primarily driven by higher franchise royalty revenues and fees as a result of increased same restaurant sales the company's new technology fee implemented in 2021, and an increase in company operated restaurant margin.
These benefits were partially offset by the company's incremental investment and breakfast advertising.
Adjusted earnings per share increased over 120% to 20 <unk>.
Driven primarily by of a higher adjusted EBITDA for.
Finally, our free cash flow and the first quarter increased significantly to approximately $98 million day year over year increase was primarily related to a higher net income a decrease in accrued compensation and related items, the timing of receipts of franchise rental payments and the timing of it.
On the incentives.
All of timing effects had already been contemplated in our original guidance for the year.
Our strong quarter, one results and continuing momentum and the business have resulted in a meaningful increase to our 2021 outlook. We are raising our global system wide sales growth outlook to 8% to 10% based on our outperformance and quarter, one and an improved full year sales outlook.
We continue to expect that the majority of our sales growth will come through core growth with the remainder coming from our anticipated increase at breakfast business and net global unit growth.
At this improved sales outlook is the major driver and and increased our adjusted EBITDA outlook by $10 million.
To approximately $455 million to $465 million.
We are also now expecting a company operated restaurant margin to be 16% to 17% in 2021, which is being driven by the improved sales outlook and the benefit from average checks remaining elevated longer than we had originally anticipated.
These increases are being partially offset by an increase in G&A to approximately $235 million, which is driven by high incentive compensation accrual as a result of our improved outlook.
Finally, as a result of a higher adjusted EBITDA expectations, we are raising our free cash flow outlook to approximately $250 million to $260 million.
To close I would like to highlight our capital allocation policy, which remains unchanged.
Our first priority remains investing in profitable growth and we are showcasing this through the investments we are making across our three strategic growth pillars.
Today, we announced at the exploration of our second quarter cash dividend and debt, we are increasing at about 11% to <unk> <unk> per share.
This is on the heels of of 30% increase we announced in the first quarter.
Our strong liquidity position along with the momentum we are seeing and our business support this increase while still leaving flexibility to invest and growth.
Lastly, we plan to utilize excess cash to repurchase shares and reduce debt on the share repurchase front end.
Added an additional $50 million to.
Our existing share repurchase authorization, increasing the total to $150 million after exhausting our authorization due to favorable market conditions.
We are fully committed to continue delivering our simple yet powerful formula.
And on accelerated efficient growth company that is investing and our strategic pillars and is driving strong system wide sales growth on the backdrop of positive same list on sales and expanding our global footprint, which is translating into significant free cash flows with that I will hand things back over to Greg. Thanks.
Due to the ongoing travel restrictions all of our investor meetings will once again be virtual events. This quarter to start things off we will be doing and India are focused on the west coast.
With Morgan Stanley on May 26, following the endear, we will be attending two conferences, which will be at the Stifel Conference on June eight and the Evercore conference on June 16th.
We will also be hosting an investor call on may 19th with MK and partners and doing a virtual headquarter visit with Longbow on June 23rd.
If you are interested in joining us at any of these events. Please contact your respective sales side analyst or equity sales contact at the host firm.
Lastly, we plan to report on second quarter earnings and host a conference call at that same day on August 11th.
As we transition into our Q&A section I wanted to remind everyone on the call that due to the high number of covering analysts will once again be limiting everyone to one question only and with that we're ready to take your questions.
And once again, ladies and gentlemen, if you would like to ask a question simply press Star then the number one on your telephone keypad.
If you would like to withdraw your question press the pound key.
And I'll pause for just for a moment of compile the Q&A roster.
And your first question comes from the line of John at Banco with J P. Morgan.
Hi, great. Thank you.
A follow up at and secondly at the question first and in terms of the.
And the additional franchise fees year over year is there a way to think about.
How much of that is going to be recording may be as a percentage of franchise sales related to the technology fee and then secondly, the part of that that was I guess at.
<unk> franchise fee recognition, having to do with MPC when does that run off and Thats I guess, the first clarification and then secondly, the real question is about lapping the average ticket gains that obviously drove much of co.
Quick service spending in 2020, I mean, how was that lap and kind of ongoing as we come in here and can they are are you able to basically comp that comp from and average ticket per.
<unk> and how do you kind of see average ticket flowing throughout the year relative to your traffic. Thanks.
Good morning, John Yes at the net franchise fees were up about $8 million was probably a year and maturity of debt is definitely driven by the implementation of the new take fees that we have implemented successfully together with our franchisees.
Couple of other things that drove the increase year over year end of the quarter first we also.
And acceleration of of developers.
Development funds difficult canceled with MPC and that drove a little bit of favorability and to stuart's level of favorability EPS breakfast and investments in the base. If you obviously didn't have this year round as a result of its right to be at a lot of discussion and the fourth quarter about the provision.
Said.
He would be a net increase of 10% to 15% the of lifted this fab out of seismic and online and our range. So thats kind of hopefully explains what's going on on expenses.
Yes, John and then average ticket and we now expect average ticket to stay elevated through the better part of the summer and into the fall before mobility fully returns on.
Our average ticket has remained about the same as it was in in Q4, which is encouraging and we're seeing average party size up still about 10 per average items per transaction up about 10%.
And in the quarter sales.
But we're also seeing beyond just the.
The party size and the items per transaction and we're seeing strong mix.
About how our calendar is paced out two for $5 driving mix five dollar biggie bag is driving mix and a lot of success on our most craveable items made to crave continues to get folks to trade up into our best tasting highest quality, most craveable sandwiches, which is quite healthy for the business. So we feel good debt that can continue throughout the year.
And we continue to build strong calendar to bring news to the party during the rest of the year is as last year, we really didn't do a lot of innovation and we're really focused on the core and we'll have more news throughout this year.
And your next question comes from the line of David Palmer with Evercore ISI.
Thanks, I'm, just going to squeeze and two quick ones.
With regard to technology, what are you, saying to your franchisees that they will.
We will be getting from tech investments and what are you thinking more broadly I struggled with that myself about how tech really marries with the drive thru and then separately do you see your breakfast order incidence building is that really even going to end up being the story of 2021 or is there something else that you.
Well remember the strength being driven by this.
And this year. Thanks, so much.
And I'll start on technology, I think Theres, a couple of things David I think as you think about people going into mobile ordering we're seeing folks with higher average checks, 15% to 20% so strong economic equation to get folks into mobile ordering we're creating more.
Experiences and our restaurant when you think about mobile grab and go you think about curbside those all help with speed and getting folks through the line much more convenient along the way and then delivery as we continue to drive that side of the business. We're seeing average checks of up 40% to 50%. So a lot as we work to turn our parking lots into frictionless transactions.
Centers to continue to drive throughput, but more importantly to continue to drive nice average checks of nice flow through for our business, creating better customer experiences and creating better employee experience is quite honestly and those restaurants. So a lot to like and a lot more we can continue to do to make that experience, even more frictionless and our restaurants.
For both the consumer and the and our employee and if you think about breakfast. We're really excited about how breakfast has been performing at.
And you think about dollar sales continuing to grow you think about our system B and all in on breakfast you'd think about awareness continuing to increase even if it's just slightly with very high customer satisfaction, which is driving strong customer repeat the name of the game is trial, we got to get this great food and consumer as miles and we know we can continue to build this business throughout the year.
Are between the quality of the food offering that we have and.
We look at all of our growth legs as part of our Big story of this year. When you think about the business that we have bring and breakfast of life and how that can continue to grow for years. The digital journey that I, just highlighted and what we're doing and provide more access to our brand not just in and North America, but across the globe. There's a lot of growth still out there in front of us with the momentum we have.
And your next question comes from the line of Andrew Charles with Cowen.
Great.
Dig in on the <unk> guidance and Tulsa.
<unk> percent very obviously continued.
And the overall business, but if I look at at versus <unk>, it's a bit of of deceleration.
And I was wondering can you disclose what that headwind is from that one week shift and perhaps related to that and just kind of kind of talk a little bit more around the philosophy of guidance. It does imply that bit of deceleration.
And the strong into <unk> is there anything else that perhaps there was everything and April government stimulus rolling off that we should be thinking about.
Andrew.
And it's a little bit of my prepared remarks of the shifting of the 50 <unk> week going on so most of the.
Realignment of weeks what happens when you opened new deal will be at the 50 <unk> week and normally you don't know Tuesdays.
And obviously because of COVID-19 and what we are seeing now is that.
The most negatively impacted we could be heading Kobe and last year shifted from the second quarter into the first quarter and as a result of at days actually more of a headwind.
And then you would expect so when you're at trust for that shifting.
Actually coming out.
With two year double digit Sos and none of them.
And your next question comes from the line of Brian Bittner with Oppenheimer and company.
Thanks, Good morning.
As you look at your stores that are mark instead of fully reopened or where consumer habits have indeed become more normalized.
What are you seeing from both an average check perspective and of breakfast perspective that can help shape. How we should think about how the system performance and when we're fully reopened as is the average check staying really elevated and these reopened markets and is that shaping how youre thinking about average check throughout the year and.
Just talk about at breakfast is outperforming the system and reopened markets.
Yes, if you look at.
Across breakfast and rest of the day as markets continue to reopen.
And the ones that have reopened versus the ones that are a little slower to reopen and we haven't seen a discernible difference across all of those markets. We're seeing very similar behavior on on how customers are reacting we've seen very similar behavior on on average checks. The only exception to that would be on the breakfast day part where you've got some pockets had been slower to recover with.
50% of the folks still working from home and a little less.
Mobility in the morning, and mobility picks up it's more of a <unk>.
Point to point mobility, rather than a couple of stops along the way.
So we're seeing that to be a little bit slower in some respects, which gives us a lot of confidence that there could be even more opportunity as that mobility starts to come back in the morning day part for the rest of the year, but.
I feel very confident with the outlook that we laid out there across at breakfast and rest of the day and how we're looking at the average check dynamics at least through the fall.
And your next question comes from the lineup, Eric Gonzalez with Keybanc capital markets.
Hey, Thanks, and just another one on on breakfast I think I recall your breakfast mix being in the mid six range and you exited the fourth quarter and accelerated at the first quarter and then I look at you and you are filing it says that your breakfast was at three seven point lift at same store sales growth can.
Can you help fill on the blank in terms of how the breakfast mix trends for the quarter and into the first part of the second quarter. I know you said the dollar contribution per case increase but just maybe you could talk about how that.
That mix trend and the comp trend at breakfast.
Yes, if you look at our breakfast mix at remained pretty darn steady and the first quarter at around that 7% and.
And we feel good about that because rest of the day business grew very very strongly is as you noted in the and the release, but what we're most proud of is the average weekly dollars across our breakfast business continued to build throughout the first quarter and if you look at the guidance that we had and the second quarter, we're seeing a nice build between breakfast and rest of the day.
So we're seeing strong growth across the board on the elements contributing to that growth.
And your next question comes from the line of Jeffrey Bernstein with Barclays.
Great. Thank you very much.
Just a broader question on franchise profitability and discussions with franchisees. Obviously is at 95% franchise system there are critical.
It seems like the sales of strong, but the cost pressures seem to be ramping up.
Quite what your restaurant margin and showcase so I'm just wondering what of your discussions like in terms of profitability.
Whether it's perhaps pricing optionality or other initiatives to mitigate cost pressures you didn't really discuss it but any color in terms of.
Commodity outlook for the rest of the year based on what we've seen thus far this year.
Labor inflation relative to the shortages everyone's talking about any thoughts around those inflationary pressures that you of franchisees are seeing and how you might hope.
Help mitigate that whether on the franchise side or even on your own restaurant margin. Thank you.
Yes, I'll start with the franchise sentiment and turn it over to GP on some of the elements of of the and restaurant economic model, but when you look at how we performed during the course of 2020 and strong brand alignment with the franchise community a lot of confidence and our growth initiatives moving into the future.
End of the year with stronger balance sheets, they had very strong profitability two to finish 2020 and with the fast start this year, we're seeing strong profitability across the system, which really allows us to continue to reinvest as we said on the prepared remarks into our people into technology and.
For the re imaging and is a new development and we have momentum on all of those items. Yes. There is headwinds out there labor is a little more challenged at the moment, we're blessed with better turnover across our system as we worked and continue to make sure of restaurants are fun and energizing to work and.
But we got to continue to work hard to get those restaurants fully staffed as we work into the summer season, and we're focused on that as a system.
But the good news is with the strong start and the health that we have and it gives us some time to continue to work against.
The outlook for the year as we think about where labor may be go on which could be a little inflationary.
Commodities are which we're not seeing a lot of come on.
A lot of inflation on commodity, but on the GP talk about that and little more detail on the labor inflation front of your forecasting total of 3% unchanged because of what we said a quarter ago also of commodity outlook at actually unchanged, we're expecting about flat.
And just to point out.
You've actually deflation yet on the commodity front in the first quarter was worth about two basis points. So for the rest of the year, we expect slight inflation is going to be at.
A little bit choppy.
Expecting inflation and quarter, two and in quarter for mobile clean quarter for you guys at massive spike on the beef inflation.
And what do you expect for Shire.
And your next question comes from the line of John Glass with Morgan Stanley.
Thanks, Thanks, and good morning all.
We haven't talked about the image activation and a while you're about two thirds of the fleet is now remodel some of those stores performed versus I guess, it's a smaller base now, but if you can provide some details on that how is the digital mix and are you starting to evolve that at all as you think digital and since you initiated that digital has become a bigger piece of your <unk>.
So how does these thought about adding new elements of those AI remodel, which maybe you didn't initially.
And good morning, John.
Image activation, we are progressing well glad you're sticking at the end of quarter at about 66% image activated.
And at a tailwind so rest of about 30 basis points. So basically thats code word for.
Mid to high single digit.
We see depending on the investment levels for franchise inputs into the into the image activation of project, especially if Yoshida and.
People have debates together with it and we keep seeing these OLED over again.
And we do expect of finishing this program for 2024 for that outlook.
Unchanged, which is actually quite remarkable that I'd seen so through COVID-19 <unk> to me given at.
While at the franchisees to actually slow down a little based and so on the accelerating.
For me in terms of design point of view, obviously, including new design cues and new opportunities for more digital point of view and as you know and we've gone through the process of separating water from pick up that's a key enabler to do this and and maybe do that and execute it and Ot.
And we are seeing at <unk>.
For our customers for delivery drivers and deluxe.
And your next question comes from the line of Chris <unk> with RBC capital markets.
Hi, Good morning. Thanks for the question. So I wanted to ask you about the dining room reopening in the Q you noted that I think 85% of the dining rooms are now open across the system with some offering dine in services. So I'm curious as to what Youre seeing in terms of dining room utilization by guests to what extent youre seeing drive through a transaction.
<unk> shipped to walk in and how Youre thinking about those changes and guest behavior in relation to the margin impact from dining room of reopening.
Yes, Chris we've been pleased that we've been able to tick up our dining room reopening through the first quarter. We've now got 85% of our dining rooms open for.
For the folks that are actually coming into the dining room.
We're at about at.
10% mix between dine in versus drive through a long ways away from where we were pre COVID-19 at about a third of our mix being in the and the dining room and even in the dining room, we're seeing a split between about 50% of those customers coming into the dining room or for takeaway and about 50% our dining.
At this stage, we would expect that to continue to build as more folks get to get vaccinated and we start to get to the other side of the pandemic.
But it will take a while to get back to that third dining room mix over time and Thats why we continue to really focus on how do we make our parking lots of frictionless transaction centers and continue to drive speed at the drive through and get more folks into mobile ordering so they can get through that line faster complement that with mobile grab and go and curbside and all of those initial.
Lives are underway to continue to make sure that we're driving speed at the drive thru.
And we're very pleased and the first quarter is at the perception of speed from our consumer feedback has improved and our overall speed of stayed relatively flat.
But but that's with 10% more items per transaction.
And that we're managing per customer at this stage. So we feel good about that GP I think you had a couple of other thoughts yes. So from a profitability point of view of <unk> always got off to a range of season.
So really only particular restaurant economic model and I think our franchise of franchisees have followed at advice be debt.
And the C. Penny profit accretion at the dining rooms are open, but if it would compare profitability from a percent of sales point of view that we have now versus pre COVID-19 levels at probably a little bit depressed because we don't have at the same amount of sales going through and pre COVID-19 level. So if the economy improves.
And you'll see EBIT of it gets back to the full utilization of at Houston.
And your next question comes from the line of Lauren Silberman with credit Suisse.
Okay.
Thank you.
On digital at your Investor Day, you target at the digital business.
At 10% by 2020 for you've accelerated that and are on Patheon and present by the end of 'twenty, one and sitting here today, where do you think that debt and growth you by 2024, and then can we assume the majority of at seven 5% of digital sales.
Livery and how do you see that evolving.
And as you think of where we ended the quarter exiting at at 8% digital mix. We're very pleased with the momentum we're building and gives US a lot of confidence that we will get to 10% digital mix by the end of this year.
Historically, it's been really driven by delivery, but we're starting to see at now be and deliver and driven even more by mobile ordering especially as we have the loyalty program and there to complement that so we're seeing nice growth between mobile ordering and and delivery here in Q1, we've had a lot of awareness programs out there.
And is still a big opportunity for both delivery and mobile ordering and our loyalty program quite honestly.
But we do see 12 million users and.
On the loyalty program 3 million active users and there every single day.
We're starting to see that continue to build which is driving frequency for our business, which was the key for that so I think we're starting to see a nice balance between both of those elements to continue to grow our business. We will have to see how high digital can go over time, we do think it will continue to be a nice tailwind to our business into the foreseeable future.
And your next question comes from line of Dennis Geiger with UBS.
Great. Thanks for the question and Todd and GP. Thanks for the latest update on the international performance and the growth outlook and just wondering if you could talk a bit more about the international development opportunity I think certainly a big number of announced this week that for the UK and you highlighted Canada and some of the agreements and Central Asia, just now but just.
Wondering if anything more to add on sort of the discussions with existing international franchisees, how they are thinking about the growth as well as those new partner discussions debt that you mentioned and I'm curious if the COVID-19 challenges at all have have impacted those discussions or the pace of opens and any other kind of guideposts that we should be looking out for.
Thank you.
Yes, and it's good morning of Youre, making steady progress on our development as you know at one of the three of strategic growth pillar and.
We talked to you last time at weeks ago. Since then basically it's on the new development agreement and Central Asia with about 50 of SQL of yoga enabled at famous.
Net slipping and Quebec, Canada at actually allows us to unlock that part of Canada, which is totally underpenetrated for us sort of creates growth for us and we're getting more and more excited about the UK that UK consumer seems to be ready for us. We've built a robust franchise of pipeline, we said at on the prepared remarks.
Above 20 franchisees put up at their hand, and say like I want to help you Wendy's growing day U K and with that.
Development of this.
And then one of the interviews in the UK debt.
And so we can do believe why the long term potential of the UK for us so it shouldnt be 400 restaurants.
Just to be clear there is no development agreement signed for the U K.
It's our belief that we have and that will be co ops and that's what we're going to be going.
And your next question comes from the line of Jeff Farmer with Gordon Haskett.
Thank you briefly touched on it but what is your current staffing levels look like across the system and what are some of the common themes of those franchisees that have had the most success with staffing and the current environment.
And as I mentioned, a little bit earlier staffing has gotten a little bit tighter out and in our restaurants. We are really focused on ensuring that we're creating restaurants that are fun and energizing leveraging technology to make them simpler to operate.
To make sure that our employees have a great experience. So in turn our customers can have a great experience. So the focus is really on on retention of the employees. We have we haven't seen folks paying a little bit more we have seen folks doing things like paid time off or seeing folks do things.
Free lunches and we're really trying to make sure that we're taking care of our existing employees.
We're leveraging a lot of technology and tools to go out there and recruit even more folks to come into what we believe is a very great culture at Wendy's to work on our restaurants and re imaging certainly helps.
Recruit employees into and the new restaurants, whether that's a new develop restaurant and <unk> inch restaurant, certainly helped along the way.
But it will be tight for a little bit for a variety of reasons and we're managing through that.
As we look at where we're staffing folks and the restaurant and how were positioning folks to drive the most throughput with how were staffed.
And.
And your next question comes from the line of Brian Mullan with Deutsche Bank.
Hey, Thank you just another question on development when you think about achieving 3% net unit growth next year. If you could just comment on the on the U S piece of that sitting here in may our franchisees responding how you'd hoped for the incentives and do you have a good sense already today or do you need to wait until the end of June which was the deadline and I. Thank you.
Cited and the prepared remarks and are you seeing good response to the conversion piece of those incentives in particular.
Really I'm just asking if you still feel confident about domestic net unit growth acceleration next year.
Hey, good morning, Brian and yet we feel very confident about our development pipeline.
Up to 3%.
And do broad based fees on international and North of 10%. We also expect at the U S is going to step up slightly from the 1% net growth of you're expecting this year.
Really encouraging signs on the new incentive program and the U S.
Can't give you a couple of Nuggets, the first nugget is debt.
Definitely we have no several franchise that have never built before starting to show interest and I think it's because of the compelling incentive and the pulp and have a little bit more confidence, especially difficult, though and very viable breakfast business that is clearly improving returns so VSO completed yet.
At the process. So we give ourselves until the end of two of the big stock and then should be going to report out as part of second quarter earnings, albeit for total debt.
And your next question comes from the line of Nicole Miller with Piper Sandler.
Thank you good morning on the.
Labor inflation could you maybe talk a little bit about what is structural or mandated elements versus ops and all of our proactive measures and then when you just think about your company operated stores and the labor line what percentage.
Of that is related to hourly employees. Thank you.
Good morning, Nicole so.
If you step back and when you operate at company restaurants, we always want to be competitive in the marketplace, otherwise you cannot tell and so.
And the average labor rates that we have is a function of ease of minimum wage and in several states. We are clearly above media above minimum wage to actually be competitive and the tweaks the tail end.
And you need in terms of.
In terms of the labor line and itself. The majority of the cost is clearly on crude at the majority of the people clearly element of dress shoes managers and assistant General manager.
I of course to offset at the lion share of accrual.
And your next question comes from the line of Chris <unk> with Stifel.
Great. Thanks, guys. This is Patrick on for Chris.
I was hoping to dig in just a little bit more to the loyalty program and specifically the 13 million members and I know you mentioned.
One on one marketing opportunities and your prepared remarks, but could you dig into that a little bit more about either what you're seeing in terms of effect of levers of getting people to come more frequently here and maybe what you think you have got in terms of opportunity going forward and.
And maybe even a little bit of color around how much that's closed that visitation GAAP you mentioned in the past to key competitors on an annual basis and what that might tell us about what we can how we can think about.
The impact of that as customers and that program growth. Thanks.
Yes, it's still early in the program when you think about having 3 million active users fully engaged and the App day in and day out we are seeing redemption and start to increase we're seeing those be scanned. So thats of digitally enabled order when folks come in for for that redemption and where.
Are seeing frequency uptick among our loyal consumers. So our opportunity is to continue to drive awareness get more folks into the app get more folks to actively be using and earning points along the way.
And give them another reason to want to be digitally engaged with the Wendy's company.
We've been relatively flat on on our awareness.
Around digital activity, whether that'd be delivery.
Our mobile ordering and those are opportunities ahead of us to continue to get more customers aware of that.
You can have a digitally enabled order from from from the Wendy's company, which gives us a lot of confidence that we can continue to build on the program the customer satisfaction for the folks that are in the loyalty program is quite high and they like the program. They like the ease of use of it at the restaurant level.
And our opportunity is to have our crew even engage more to.
To drive awareness, even at point of sale.
And your next question comes from the line of James Rutherford with Stephens, Inc.
Yes, good morning, and thank you I wanted to follow up on breakfast that mix I think was steady sequentially, even with mobility, increasing nationally and I think he was at March madness promotion and two for for as well I'm. Just curious Todd what are the main levers that you want to pull to achieve the breakfast mix growth up to 10% by 2020 end of 2022 is at.
At more a function of frequency of existing we're driving new customer trial and the second part of that is do you envision breakfast innovation being a component of the growth between now and the end of 2022. Thank you.
Yes, I'll start with innovation and right now we have such an opportunity to drive awareness drive trial of existing offerings, we don't need to bring a lot of new news because we want to continue to introduce the great offerings that we have today that said, we have a strong pipeline and when we need to bring innovation we will.
And the opportunity and we're starting to see that start to play out is really getting our existing rest of day wendy's customers to try our breakfast business and those that have have become our most loyal and most frequent consumer at.
And Theres still a high percentage of the existing wendy's consumers that have not yet tried on food.
And then our opportunity beyond that is just bringing in new users into the portfolio, but it really is a true.
Trial game.
Our getting awareness to tick up a little bit within the quarter.
But we will we need to do is continue to get folks to come in and try our food and we're confident as mobility, especially in the morning comes back even more and more and we start to get into those morning routines again later this year and into 2022 net cash.
And can really help fuel the habits of Wendy's for breakfast and the morning.
Yeah.
And your next question comes from the line of Jared Garber with Goldman Sachs.
Thanks for the question I wanted to circle back on the loyalty program. I think this is the first quarter that you guys have given us the actual rewards members at I think and and the.
Presentation at shows $13 million and 3 million active can you give us some color on what those 3 million active members like what the frequency of looks like are those customers largely breakfast customers.
Are you seeing people transition more from that $13 million into the kind of the 3 million active.
Loyalty members as of reopening plays out thanks.
Good morning, Joe.
Okay.
And in 13 million and reduced.
Exclusive of the basin.
And this quarter.
So and stayed above of changed until the new number is given these out of the fourth quarter.
And we don't get ready to prepare to give you a little bit more detail so on.
For us can be sticking with the color that Todd.
And given you're seeing exactly playing out of what we have seen and test, which is higher frequency and higher check size, which is exactly strategically why we invested in assets because as you know is our brand because of opportunities of frequency of consumers into our restaurants.
And Thats what.
We're working on and it's gone.
And to be one of the drivers.
To reach 10% digital sales and beyond.
Yeah.
And your next question comes from the line of Andrew <unk> with BMO.
Hey, good morning, I just wanted to follow up on the commodity outlook you provided I guess on a little bit surprise and a good way.
Contained and the guidance understanding it's supposed to get a little bit worse as the year progresses, but.
Given what we've seen and kind of a paycheck markets et cetera.
I guess I look at fault that maybe it was going to be a little bit worse going forward. So I'm just trying to understand is that of function of your contracting is there something that you are pointing to do around mix.
And as kind of moderating that kind of inflationary outlook, just trying to understand kind of at the visibility of the risk is and as of the year possesses.
Good morning, Andrew Yes, we have very good visibility into commodities the majority of our acquisitions for the year of locked.
From a protein point of view, there's obviously a lot of chatter at the moment about chicken chicken contracts actually $6 for the year. So we have price certainty there what actually creates a little bit of and open position for us is fresh beef.
Theres not a lot.
Loan market for debt, we announced securing supply and pricing and the middle of the third quarter now in terms of at visibility and so far the trends of supporting.
Thanks for trains and supporting our guidance for Visco.
And then in addition, I am very pleased with our partnership with <unk>, which is our purchasing co op.
We're working hard to make sure that we've got supply continuity and protecting the brand and.
In conjunction with with our longstanding supplier partners have been great to work with us to make sure that we can continue to support and fuel the growth that we're seeing at the restaurant level.
And your next question comes from the line of Peter Sally with BT and EE.
Great. Thanks for taking my question.
Wanted to come back to the conversation around development.
Primarily and the U S, but maybe international as well.
One of theirs.
There's been a lot of conversations around all of the shortage of labor, obviously rising construction costs and.
Now there's a lot of conversation around rising commodity costs is that having any impact on the franchisee psyche and willingness to grow and invest either here in the U S or internationally.
Yes, Peter those headwinds are out there, but with the momentum that we have and the brand and the fundamentally strong restaurant economic model that we are delivering along with the development of incentives.
The returns are still compelling and our opportunity is to continue to grow and build this business right now as we go on to provide more access to fast convenient high quality food. So we're leaning in and we've got more franchisees that are coming into the pipeline that even want to build their way into the system.
And so we're feeling good that despite those headwinds.
With all of the tools that we have both from the restaurant economic model to hiring to driving digital to truly engaging our employees and customers that we are well positioned to start growth GP any other thoughts, yes, and one of them.
One of the tools, we have is design to value and you have us let's talk about it.
And we're constantly working in terms of how can we actually.
And get the best of full growth.
On the designs of the function of and then trying to offset.
Relation to keep David and returns for Newbuild elevated.
And your next question comes from the line of Jon Tower with Wells Fargo.
Great. Thanks for taking the question just I wanted to follow up on a comment Todd you've made earlier I think you'd suggested that the greatest opportunity for your breakfast business is drawing and.
Customers that are already using the rest of day business to try breakfast. So I'm just curious do you know if there.
Customers are already doing and EDI.
Breakfast away from home and where they might be going today, essentially I'm just trying to figure out do you need to build of new habit with this customer or are you just moving them from our competitors sale.
As you know John Breakfast is very habitual. So we've got to continue to build the habits of use the brand for breakfast rather than just just dinner, but they already know that they've got high quality offerings. During the rest of the day and when they get introduced to the even higher quality are as high quality offering that we have at that breakfast day part they quickly become.
And very loyal very frequent and it becomes a new habit quickly. So we got to continue to create awareness of the bounds of those folks back from lunch and dinner into breakfast, which then drives incrementally to our business because it's another visit another frequency that.
Picked up along the way.
And your next question comes from the line of Brett Levy with <unk> partners.
Great. Thanks for taking the call.
On the G&A front, you obviously have talked about.
Just the addition of stock based comp.
And also some costs that have set.
At a state of the books.
How should we think about your G&A not just.
As it flows through this year, but.
Where do you think you can be more aggressive and more conservative and the back half of the year end and into 'twenty two.
Either greater investments for greater leverage opportunities.
Good morning, Brad, Yes, and as part of this outlook revision of <unk> significantly increased our EBITDA range basically underlying between restaurant margin and sales by about $25 million that was offset by about $15 million of increase in G&A and maturity of debt and sizes.
Most of that is our financial outlook is going.
<unk> grades that are obviously benchmarked with the industry.
Ill kicking in and view and needing.
Needing to protect the P&L for debt the way to think about it seems to be of always said the outcome at Kona is one 5% of sales at all predicated on continuing to accelerate our sales and performance the other.
Nugget that would give you is obviously at <unk>.
AIDS and earnings tailwind next year as we are resetting the incentive comp payout based 100%.
And your next question comes from the line of Jim Sanderson with Northcoast research.
Hey, Thank you for the question.
Just wanted to follow up on breakfast I think you mentioned earlier that and legacy stores for breakfast was offered you'd actually achieved at about 10% sales mix can.
Can you remind us where these stores are located if theres a regional issue there and if what share of total company stores. They represent and then of breakfast currently is contributing to or creating a headwind on your strong sales and margin or store margins excuse me. Thank you.
And you.
Good morning, Tim Yes, the legacy restaurants are the ones that were hanging in there from prior experiments. So they have created somewhere.
<unk> already.
About 300 restaurants, they're spread across the coordination day, if achieved now obviously with the switch to the new breakfast.
We'd be delighted to customers and their TV sales north of of.
And consent and so thats why we are confident that we can get to a kind of.
And sales number percentage of sales number for 2022, because it seems to play out what we always talk it's a matter of time to break the habits and the matter of investments right. So that's why we're investing $15 million.
Here to make sure we have doing the right thing driving awareness of VNS and leads to trial trial at least to repeat trial and the repeat leads to me at.
Leads to growth.
In terms of profitability really happy.
Profitability for the breakfast day part is playing out as designed which is basically.
Rest of day, so at that business continuing to grow.
And it provides a tailwind to our restaurant margin for our franchisees and for our.
And your final question comes from the line of Jake Bartlett with true of Securities.
Great. Thanks for taking the question.
And as on.
Traffic and.
On the potential desires for competitors to focus more on rebuilding the traffic and just wondering if you can frame the risk that we.
As the year goes on.
And the environment promotional government becomes more promotional.
I know everybody will be out there fighting for traffic as folks get back into more normal patterns, but we feel like we've got a lot of compelling value already across our menu. We've got the ongoing for for for program that performs quite well. We've got five dollar Biggie bag and then we commented debt is off to a nice start.
And things like two for five of have created compelling value and the consumers' minds, but also having a highly craveable high quality food items like our made to crave lineup has value and it says it's worth what you pay so we feel like we've got a lineup that is very competitive and will always continue to look across the whole spectrum of our menu and to make sure that.
We continue to compete where the competitive set is but we're trading folks up into our best highest quality food items, and we will continue to do that and what I'm really pleased about is we did take a hiatus last year with with innovation as we focused on the core our made to crave platform plays so well on the innovation into chicken innovation.
And of the Hamburger business and Youll see a little more news coming this way this year, you've already seen at with all of the Pinot Popper Youre seeing at with Bourbon Bacon Cheeseburger, and we got a great pipeline of opportunities to continue to bring worth what you pay consumers into a restaurant with with great food.
Thank you Jake that was our last question of the call. Thank you Todd and GP and thank you everyone for participating at this morning, we look forward to speaking with you again on our second quarter call in August of <unk>.
Right day, you may now disconnect.
Okay.
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