Q1 2022 Wendys Co Earnings Call
Good morning, welcome to the Wendy's Company earnings results Conference call.
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 simply press star followed by the number one on your telephone keypad, if you'd like to withdraw your question press the pound key.
Greg Levin check.
Director of 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, IR 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 that certain information we may discuss today is forward looking.
These 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 are president and Chief Executive Officer, Todd Pentagon will give a business update and our Chief Financial Officer, Gunther Flash or review, our 2022 first quarter results and provide an update on our outlook for the year from there we will open up the line for questions. As a reminder, we will walk through our long term strategies in detail as part of our upcoming.
Investor Day in June .
That I will hand things over to Todd.
Thanks, Greg and good morning, everyone.
I am extremely pleased with the meaningful progress we made against our three strategic growth pillars in the first quarter reinforcing the strength and resiliency of the Wendy's brand.
We achieved a second consecutive quarter of double digit two year global same restaurant sales, reaching 15, 4% as we lapped one of our best quarters of all time in the prior year.
This was an acceleration versus Q4 on a two year basis, which highlights the momentum we have in our business across the globe.
Our international business achieved another outstanding quarter with widespread success, we have truly shifted past recovery into a compelling growth story with substantially all our markets achieving sales growth versus 2019, our Latin America and Caribbean region is leading the charge with two year same restaurant sales results approaching 30%.
Alongside continued strength in Canada, where we continue to take market share and solid results in our newest market the U K.
In the U S. Our growth continued despite rolling over stimulus benefits from the prior year and the impact from bad weather early in the quarter.
This was on the strength of a few things craveable innovation in our hot Honey chicken sandwich and biscuit funding distinctive advertising on one of the biggest stages in the world at March Madness continued positive customer response to our core improvements like our hot crispy fries, and an improved operating environment with increased staffing levels and more.
Dining rooms open throughout the quarter.
As we sit here today, we have almost all our dining rooms open across the U S.
We are also pleased that we competed very well in the quarter versus our peers as we grew dollar share once again in the quarter.
This keeps our streak of growing or maintaining our <unk> Burger dollar share to an outstanding 11 consecutive quarters.
Now, let's take a look at our three strategic growth pillars.
We achieved one of our best quarters in our history for unit growth opening more than 90, new restaurants, which is a significant acceleration compared to Q1 and Q4 of last year.
This was right on plan and with the strong pipeline we have in place we remain on track to grow our net new units by 5% to 6% in 2022.
We're also very excited about our recently launched on your opportunity campaign, where we have over 400 parties, who have expressed interest in becoming a new wendy's franchisee.
Our digital business accelerated to over 10% of total sales driven by gains across the globe.
Internationally, our digital mix reached approximately 17% as our Canadian digital business, which recently launched in App offers continued to grow in.
In the U S. We reached approximately 10% digital sales mix shattering records along the way.
Our March madness promotion proved to be a huge success they not only drove more people into our app, resulting in over a 10% increase in both total and active users versus Q4, but also an increase in customer frequency and digital sales during the promotion.
Rounding out our growth pillars, we delivered solid results at the breakfast day, part, where we were able to grow our morning meal dollar and traffic share in the <unk> Burger category proving that our strong offerings continue to resonate with our customers.
The breakfast environment was no doubt challenged across the industry in Q1 impacting our full year breakfast sales growth expectations. We believe that these are short term headwinds and our performance relative to the industry gives us confidence in our ability to hit the low end of our goals to grow breakfast sales by 10% to 20% for the full year and reach.
Weekly U S breakfast sales of approximately 3000 to $3500 per restaurant by year end.
As of last week, we also officially launched breakfast in our Canadian restaurants, we are thrilled about the excitement we're seeing in the market and we have gotten off to a great start.
Finally at the start of the second quarter, we announced an increase in our share repurchase authorization to $250 million. Following the successful completion of our $500 million debt raise transaction, which highlights our commitment to returning cash to our shareholders getting this deal completed in this tough market was an incredible feat that highlights investor confidence.
And our long term growth plan.
As we look ahead, we are committed to driving our restaurant economic model, which supports the success of our long term growth initiatives and is evident in the financial health of our franchisees.
We are laser focused on our mission to build our breakfast day part accelerate our digital business and expand our footprint across the globe.
We are confident that we have the plans in place to reach our goals and I could not be more excited to share more about our strategy is to deliver a new gear of growth at our Investor day on June the ninth with that I will pass it to GP to talk through our first quarter financial results.
Thanks, Todd first quarter results highlight the strength of our financial Formula in a challenging macro environment showcased our continued sales momentum and an improvement in our company operated restaurant margin as we exited quarter, one driven by strategic pricing increases alongside an improving labor environment.
<unk>.
Our global system wide sales grew four 2% supported the footprint expansion and very strong global same restaurant sales growth driven by another remarkable quarter from our international business and continued momentum in the U S.
The year over year company restaurant margin decrease was driven primarily by higher than expected commodity and labor inflation in the high teens and mid teens, respectively customer counts declined as we encountered some tough weather early in the quarter and leftover stimulus benefits from last year.
And the impact of investments to support our entry into the U K market. These impacts were partially offset by the benefit of a higher average check driven by pricing that was just below food away from home inflation of 5% to 6%. We also benefited from the net favorable impact of the acquisition and disposition.
<unk> of restaurants in 2021.
The increase in G&A was in line with our expectations. It was driven by higher salaries and benefits as a result of investments in resources to support our development and digital organizations increased travel expenses as we lapped COVID-19 restrictions are highest stock compensation accrual and.
Technology costs, primarily related to our ERP implementation.
Adjusted EBITDA decreased to $107 million.
Primarily driven by higher G&A expense and the decrease in company operated restaurant margin. These decreases were partially offset by higher franchise royalty revenue.
The decrease in the charge to do earnings per share was driven primarily by lower adjusted EBITDA, partially offset by fewer shares outstanding from our share repurchase program and a decrease in interest expense as a result of our successful debt refinancing completed in the second quarter of 2021.
Decrease in free cash flow resulted from an increase in payments for incentive compensation for the 2021 fiscal year paid in 2020 to lower net income and cash paid for cloud computing arrangements, primarily related to the company's ERP implementation.
Let's turn to our outlook for 2022.
Our financial outlook for 2022 remains unchanged from the update provided following the completion of our debt raise in April .
We believe we have the right mix of pricing strong marketing programs continued acceleration of our digital sales and global unit growth to support our financial targets.
We continue to expect strong global system wide sales growth of 6% to 8% with over half driven by same restaurant sales and the remainder driven by our 5% to 6% unit growth.
Our adjusted EBITDA outlook of $490 million to $505 million remains unchanged.
Expecting a slightly lower company operated restaurant margin of 14, and a half to 15 and 5% for the year driven by higher commodity inflation, which we now expect to be in the mid teens for the full year.
This is being partially offset by higher expected pricing in the mid to high single digits.
We know we are not alone in facing rapidly rising inflation, but we believe we can manage through this with the right pricing levels to ensure that we maintain a strong value perception, while protecting the restaurant economic model.
Finally, we are reaffirming our outlook for adjusted EPS of <unk>, 82% to 86% capex of $90 million to $100 million.
And free cash flow of $215 million to $225 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 continuing to showcase this.
Today, we announced the declaration of a second quarter dividend of $12.05 per share, which aligns with our capital allocation policy to sustain an attractive dividend payout ratio of more than 50%.
Lastly, we plan to utilize excess cash to repurchase shares and reduce debt with.
Previously announced the addition of $150 million to our existing share repurchase authorization following that waste transaction.
This brings our total authorization to $250 million expiring in February of 2023.
We intend to utilize the remaining proceeds from our debt raise transaction in accordance with our capital allocation policy.
We are fully committed to continue delivering a simple yet powerful formula.
An accelerated efficient growth company that is investing in our strategic pillars and driving strong system wide sales growth on the backdrop of positive same restaurant 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.
As we previously announced we will be hosting a virtual investor day on Thursday June 9th during this event, we're planning to provide an update on our long term strategic vision and reintroduce our long term outlook, including updates on how we believe our U S and international businesses will deliver a new gear of growth across our three strategic growth pillars.
The presentations will begin at 930 am eastern time and will be followed by a one hour live Q&A session, concluding at approximately 12 P M Eastern time.
The event will be accessible through our Investor Relations website, IR Wendy's dot com.
Now turning to our second quarter Investor outreach events. Please note that at the end of this week, we will enter into a quiet period as we prepare for our Investor day in June .
The day after our Investor Day, we plan to do in endear with Evercore in New York on Friday June 10th we will then attend the Oppenheimer Virtual conference on June 15th followed by an Investor call on June <unk> with Cowen ASCII equity research finally will round out the month with two west Coast <unk>. The first in La with Piper Sandler on June 21, followed by one in <unk>.
Francisco with Morgan Stanley on June 22nd.
If you are interested in joining us at any of these events. Please contact your respective sell side analyst or equity sales contact at the host firm.
Lastly, we plan to report our second quarter earnings and host a conference call that same day on August 10th.
As we transition into our Q&A section I wanted to once again remind everyone on the call that due to the high number of covering analysts we will be limiting everyone to one question only.
That we are ready to take your questions.
Thank you.
And as a reminder to ask a question. Please press star one on your telephone keypad.
Your question breast Bankey baseband, while we compile the chaos.
Your first question comes from Andrew Charles from Cowen Your line is open.
Great. Thanks, It looks like the breakfast mix of sales based on what was disclosed in the Q ticked down closer to 7% in the quarter from about seven eight.
In the fourth quarter. So was wondering if you could talk a little bit more about the breakfast headwinds that you called out in the quarter, that's leading you to target the low end of 10% to 20% full year guidance.
Yes. Thanks for the question Andrew as we looked at the breakfast business in Q1, the category was a little bit softer than we had anticipated.
Clearly weather in January and February had an impact on the breakfast business Omni Kron early in the quarter had had an impact on the breakfast business and while we did see as the category.
And a bit on the breakfast day part.
As said, we gained dollar and traffic share in the <unk> Burger category in Q1 at the Breakfast day part we were one of very few to do that so we're seeing some nice momentum within that breakfast day part there is some seasonality every year to breakfast.
And we're feeling really good about the plans that we have in place for the rest of the year to continue to drive awareness to drive trial and you've seen that as we started Q2 with the bump biscuit promotion, which has brought some folks back into the breakfast day part as we move past kind of the winter months.
People are starting to return into their morning routine. So we're feeling very confident that we can get to the low end of that 10% to 20%.
On a full year basis, and really be squarely in that 3000 to $3500 per week per restaurants by the end of the year.
Your next question comes from Gregory <unk> from Guggenheim Securities.
Hey, Thanks for the question.
Any update on kind of how <unk> kitchens is going and the plans to accelerate.
Units there this year in the next couple of years.
Just any thoughts generally on kind of maybe how those are performing.
It would be helpful. Thanks.
Yes, just a few thoughts on <unk>, so as we sit here coming out at the end of the first quarter. We have over 60 reef units open as you know we're opening them in the U K, Canada and in the U S.
We look at where some of our best performing REIT kitchens are they had been in the international locations and we continue to have great momentum there and we're starting to build out their footprint here in the U S and are very confident that they can provide access to our brand.
And a lot of the urban locations, where we don't have restaurants, yet today.
Building the sales in those restaurants were still building awareness, but we're partnering closely with what's the right team to continue to make sure that they are in a position to win.
And they are really focused on reallocating their resources towards a profitable restaurant businesses to ensure that they grow with us and support our growth moving forward.
Your next question comes from Brian Bittner from Oppenheimer.
Thanks, Good morning.
My question is on first quarter results and the outlook as it relates to the first quarter results.
Were slightly below the analyst community <unk> forecast, specifically on EBITDA, but I also realize you don't have specific first quarter guidance out there. So the question is where the results.
In line with your expectations or did you need to raise your internal expectations for the remainder of the year in order to keep your full year EBIT guidance in place any color on that would be helpful.
Yeah, I'll start with the top line and then have GP talk a little bit about the bottom line on the top line notwithstanding some of the impacts that we saw on weather in January and February we were on our plan. So net net a little bit below the plan because of those weather impacts.
But on track with what we thought we would be doing internally and that was on the topline on the bottom line I'll, let GP comment, but we did see a little more headwind early on in the quarter from from commodities out of the gate, but we had some nice progression on the margin enhancement throughout the quarter GB, Yes. Good morning, Brian Yes, the first quarter from them.
Margin point of view.
<unk> fully go to plan.
We missed slightly that obviously created leverage pressure, but more importantly.
Commodity and labor inflation was a little bit higher than what we expected.
So whether you call it on the prepared remarks.
You have.
Commodity inflation.
High teens and labor inflation in the mid teens. So it is a decent amount of headwind that explains the majority of the margin progression versus the prior quarter behest taken pricing in <unk> three that translated or ready the next generation in our rest.
On margin in <unk> as you've seen our margin for the quarter was 11, 6%.
Three margin was actually 14%.
In order to get to our outlook, we are taking more pricing in the second quarter.
Therefore, I have somebody from a fiscal year point of view the pricing you're stepping up from.
Kind of mid single pricing expectations, we talked about last time to mid to high single digit.
That is then translating clearly in margin improvement starting in the second quarter. So we would expect to sequentially improve combined price increases with.
Less.
<unk> pressure in the year to go we are comfortable with the margin guidance of Fortinet into half 215 at 5% to be clear the margin guidance is not counting on any new pricing after the quarter tool.
Seem to be have actually more pricing power left.
Obviously inflationary pressures are going to accelerate further we will be stepping in to take more price has to say we are taking a long term on the long term view on the business. We wanted to make absolutely sure be attracting new traffic into our restaurants, and we seem to be doing a good balancing act.
On managing inflationary headwinds with restaurant economic model and it's really reflected in our March.
<unk> guidance as you as you might have picked up from the prepared remarks. The guidance includes a headwind for our UK restaurants, and the investments we are making there of about 50 basis points. So actually if you back that out the U S margin is sitting between 15 and 16%.
So this is basically in line with the pre Covid margins, we had back in 2019, the only differences.
<unk> basically weigh more margin pressure.
Maybe more commodity pressure and labor pressure than what we had back in 19 to complete the picture with all the work that we are very confident on the margin big chunk of the margin outlook, we have tightened the G&A outlook, a little bit we havent changed the range, but we have shifted it down a little bit.
Also have a little bit more income on net franchise fee income due to a little bit more franchise flip activity. So that hopefully was a long answer hopefully explain stick with two questions.
Thank you.
Your next question comes from Jeff Farmer from Gordon Haskett.
Thank you.
On the last call you noted that I think it was roughly one third of your customers are making less than 45000 per year I'm just curious what you've seen from this guest segment in recent months.
And as this customer income mix similar to what you've seen or what you would see from your other quick service peers, meaning.
Do they also see roughly one third of their customers under $45000.
Yes on the consumer segmentation, it's roughly the same across all the <unk>.
We've seen in the first quarter and kind of bucket again as the under $75000.
Cohort of customers, we have seen some of those folks start to slow on the traffic within the category, but thats been made up for by the folks making over 75000. So on whole we're hanging in there pretty well with some of the shifts between the two and that's really why we're working so hard on our calendar to make sure that we've got digital.
<unk> offers in our App continue to work to make sure that we have a four for four offering out there trade folks up into the five dollar biggie bag, which has compelling value.
So we need to do on the innovation front to continue to keep our menu fresh and <unk>.
And on top of mind for consumers to come in and even drive things like the Buck biscuit trial promotion that was in the market to start the year to make sure that we.
We can continue to have our customers back bring them in and make sure that we're focused not only on driving dollar sales, but driving traffic and what we're really pleased within in Q1 with all of that backdrop is we did again gained dollar share in the first quarter. So we're now 11 consecutive quarters of holding or gaining dollar share.
And in the quarter were able to hold traffic share all day <unk> Burger segment.
Thank you.
Our next question comes from Chris <unk> from Stifel. Your line is open.
Thanks, Good morning, guys.
Todd how are you S franchisees reacting to the margin pressure and even rising interest rates I'm just trying to understand how these factors might affect their willingness to open new units or even just make investments in the business.
Yes, no. If you think about the partnership that we've always had with our franchise community. It's really tight and we are regularly meeting with them to make the race calendar adjustments to make sure that we're still focused on our one more visit one more dollar strategy. So we've got that good high low calendar in place.
To drive folks into into our App and really partner with them to drive a lot of profit enhancement actions along the way what we need to do on price. While we continue to hold in there nicely on mix, how do we trade folks up with great innovation and the rest of the day part as well as breakfast.
And then a lot of work to really take out some of the complexity in the back of the house or the restaurant to continue to drive op simplification to make sure that.
We manage the profitability story as GP said earlier, we're starting to build margin you talked about <unk> talked about additional pricing actions.
Into Q2, and as we think about the last two years.
Had a lot of momentum in our business, we talked about record profits in 2020, we're collecting our franchise financials right now and I'll, let <unk> talk to you that yes, I would call. It we have.
We have preliminary financials, we will finalize it in kind of showed a full detail at the Investor day, but the headline is record profits for the U S franchise system in 2021 Thats positive.
Average ratios on their balance sheets are basically unchanged and as we look at our benchmarks.
Jesse has a less levered.
And then the industry benchmark. So as a result of it we feel comfortable that would be really going into clearly a tougher time.
Very healthy balance sheets record profits.
Therefore, instilling confidence in the growth algorithm for our brine inflow system. So net net what you're really seeing is we've had some great momentum on new unit development in Q1.
Feel comfortable with a strong pipeline that we have in place.
The commitments that we have to deliver on the new restaurant openings. This year that our franchisees are in a position to get to that 5% to 6% net unit growth. During the course of the year supply chain is a little more challenged.
The team has done a great job really getting ahead of making sure. We've got all the components to get to those openings this calendar year.
Yeah.
Thank you.
Next question comes from Danny Stagner from UBS.
Great. Thank you I was wondering if you could talk a little bit more about the implied same store sales growth for the rest of the year from from here. It sounds like you. Todd you said kind of <unk> sales, where we're basically in line, excluding weather and I know you called out a solid calendar for the rest of the year, but wondering if there's any more color you could provide on thinking about rest of the year dry.
Or is there a cadence to anything with stimulus slops any anything else on the kind of rest of the year sales. Thank you.
Yes ill give you a few thoughts on that and what we're really proud of from Q4 into Q1, we saw our two year same restaurant sales accelerate nicely and we would expect it to accelerate even further into into Q2 as we lap over a very strong comp from year ago, but when you look at the two year stacked we expect another build into.
Into Q2, we always thought that our one year same restaurant sales would be a little softer in the first half as we lap over those big comps and then start to accelerate in the back half of the year.
That's still our expectation and even in the back half of the year, we will still see double digit two year comps maybe not to the full extent that we saw in the front half of the year is just balancing out against.
Year on year.
Comps that we're managing against and as I look at the rest of the year.
The reason why we have so much confidence is just a tremendous amount of opportunity moving forward right. We're starting to get more dining rooms open. We've got most of our dining rooms open as we stand here today, we're starting to see extended hours of operation pick up nicely here in the second quarter. So we're getting a little bit later into the into the evening with our restaurants open.
Calendar.
As Chuck full with some good innovation against made to crave in the back half of the year, We've got some new innovation coming on the breakfast day part as we've talked about in the past.
We continue to have a great partnership with the franchise community to make sure. We have digital offers to drive folks into the digital arena and we're really working hard to make sure that we got a better mobile takeout better mobile delivery play moving forward by getting wraps into the restaurants. So we can get our consumer in and out quicker to really have an efficient.
Takeout experience in our restaurants, so those things really line up to give us a lot of confidence that we can continue to drive the business moving forward.
And we've been growing share.
I've talked about earlier and our expectation is we're going to continue the momentum throughout this calendar year with those initiatives.
Dennis I would say on top of all the <unk> that <unk> talked about we definitely expect also acceleration in pricing as I talked about in the previous answer positive mix why would we have actually seen positive mixing.
In the first quarter.
Really positive mix on top of a positive mix. So marketing programming as Todd said is working well and as you know second of maybe launch Canadian breakfast, we do expect on the year, that's to lift the international Sos, but 3% to 4%. So obviously.
Back in loaded mechanically it creates even a little bit more tailwind for the year to go.
Thank you.
Next question comes from Jeffrey Bernstein from Barclays.
Great. Thank you.
As you mentioned earlier it seems like perhaps we're looking at a slowing macro.
I think most investors think quick service is well positioned versus the rest of the industry and that type of environment I'm. Just wondering how you think about wendy's.
Within quick service when these orphan positioned at the higher end of <unk>.
And especially I think you noted that the lower income consumers slowing in their visitation. So I'm just trying to.
Better understand your outlook for the rest of the year in that environment. And then you mentioned you think you have confidence in further pricing power just wondering how you can maybe track elasticity.
Trying to get a sense for your confidence in that comp acceleration in what will likely be a slowing macro.
Jeff We continue to watch a lot of metrics and one that we're really focused on is worth what you pay.
It's not just kind of the price of our goods, but it's the overall experience. It's the quality of the innovation that is the news that we bring to the category every single day and as you say <unk> is the place to be U S. Demand is generally strong wage growth still their savings are still higher than historical levels, but inflation is being noticed by the consumers and that's why we can.
To construct our calendar with things like our focus around a $5 biggie bag nice trade up from four for four helps drive consumers into our restaurants, but we will also continue to have some great news on the rest of the day part to drive a lot of innovation to move our business forward speed convenience affordability of why folks continue to come back to <unk>.
We say that consistently time and again, but we've done a lot of work to really differentiate around the quality of what we deliver in the restaurant. The work we've done on the Hutton.
Crispy fried guarantee.
Work that we're doing the rollout new DSG to point out is to have hotter and juicier hamburgers.
Work that we do to continue to improve our speed of service leveraging our digital initiatives and putting racks into the restaurant and get our dining rooms open those are all things that have us well positioned.
With relative value.
Not just in the <unk> space, but relative value to fast casual mid scale casual when you think about the quality that we deliver for all of the affordability and convenience that we provide.
Good morning, Jeff and to your question on elasticity.
A pretty good understanding which parts of the menu or more or less dig in vitro are less elastic to price changes, but obviously trying to balance that as best as we can I can tell you a flow through rate on pricing is pretty high so about 85%. So I can tell you that I will let Dave elasticity for sure, but it's actually probably.
And you think is going with the flow through of 85%.
Thank you.
Your next question comes from Sara Senatore.
Bank of America.
Okay. Thank you very much I wanted to ask about traffic.
You mentioned youre, taking traffic share, but obviously.
Traffic was negative and.
Industry traffic, therefore, assuming negative.
I know you mentioned positive mix as some of that may be still seeing order aggregation and that type of dynamic.
<unk>.
I was just wondering how you think about this dynamic.
Persistence and in particular.
Given that youre going to take more price.
And you'll still see that menu mix benefit implicitly I guess traffic could be even more negative in the second quarter. So could you just talk through that please.
Whether they're kind of limits.
The German check.
Yes, Sarah is as you mentioned the owned traffic was negative for us.
In the first quarter and in the category and the good news is we held traffic share within that dynamic I think there are some unique things that happened during the first first quarter clearly has started out with omni kron lot of folks staying home.
Impacted traffic you had a lot of weather impacts to start this year versus last year in January and February .
And then you had a consumer that had to get adjusted to.
Some of the high inflation that hit, especially at the fuel pump when they filled up for that first time in March that they've now adjusted too. So I think some of those dynamics have had a bigger impact outsized impact on traffic in the category. In Q1, we are starting to move into the summer months are relative value food at home versus food away from home.
The gap has widened to over 300 basis points of more inflation for food at home versus food away from home, which is a positive for us. So I do think as we start to move into the summer months, we start to get more dining rooms open and we start to get staffing in a better position.
We start to have more extended hours in our restaurant.
That bodes well to start to continue to win in the.
And the traffic arena.
And as GP said earlier, we're going to be really smart on our pricing, where do we take pricing where do we deal it back where do we have the promotions that we need where do we have the high low menu to make sure that we have our customers back. So we manage through the near term pressures, but still continue to have a loyal customer base on the other side of the near term headwinds.
Headwinds that we're seeing today.
Thank you.
Your next question comes from Brian <unk> from Deutsche Bank.
Okay. Thank you just a follow up on the.
Breakfast business in the U S.
For some reason you werent able to quite reached that 3030 $500 per week target by the end of this year or even if you do is there a scenario where it could make strategic sense to support that business with continued corporate advertising beyond this year.
Is that within the context of what is a large and important long term opportunity for wendy's.
Good morning, Brian .
<unk> actually pretty happy with our breakfast business as we gained market share both in traffic and dollars in it.
In the debt tender tough category the category was down high single digits and to actually get growth out of it we are pretty pleased with.
The plan is that having no company investments in 2023 on the U S business, we absolutely believe it has enough scale sustaining.
Sustained on its own feet Canadian business will definitely has a little bit investment, but the big step down versus what we are investing in 2022 and.
For me the biggest proof point is still our legacy your estimates but.
The legacy restaurants sitting in the four to four 5000 range, so more than 10% of sales I see no reason that in the rest of the country, where we started a little bit delayed.
With the breakfast day entry, we shouldnt get to the same number so I view I view. The first quarter results really is a little bump is towards the end stage a lot of things to like about our breakfast business.
I don't think and we don't believe it needs incremental P&L investments in 2023.
Thank you.
Our next question comes from Jon Tower from CD <unk>.
Great. Thanks for taking the question just a.
Couple of clarifications and then a question if I may.
In terms of the.
G&A guidance for the year is that still intact from last call and then in terms of the commentary around same store sales in the U S. I know last year, you were lapping some noise around calendar shifts <unk> and thinking about that on a multiyear basis, how we should think about that ourselves.
Given some of the calendar shifts in.
In the model and then specific to the question itself I was hoping you could get into how loyalty users are digging into the brand and if you've seen any shifts I think Todd you had mentioned the lower income or excuse me those consumers that are making about $75000 and below are coming less frequently than than in the past are you seeing that.
Similar similar they play out for the loyalty users or are those still.
Running above the rest of the average customer thank you.
Good morning, John just your technical questions on G&A, yes that G&A guidance is unchanged at $250 million to $260 million what are within this range the internal forecast kind of steps down a little bit with.
With with some efficiencies on the asset front do you have a good memory.
First quarter over last year due to the first.
Due to the 50 <unk> week, there was a two 5% shift they didn't need to take into.
Consideration as you do your calculation and assessment of the business I think Todd is going to answer the question on loyalty.
The loyalty front, we are really pleased we were the official breakfast official hamburger.
<unk> March Madness tournament, we had a lot of awareness out there driving consumers into our App, we saw a nice 10% increase in total loyalty.
<unk>, we saw a nice 10% increase in monthly active users and what we're really pleased with is the folks that become our active user within our app. The frequency increased nicely for those folks during the course of the first quarter. So once we get folks into our loyalty program. They as we would've expected become a much more.
Our frequent customer and that does cut across all demographics. So we're feeling really good that we have to continue to drive awareness get folks into the app. It helps speed up the drive thru helps drive order accuracy helps with quickness of payment.
And then ultimately provides a lot of benefit for us over time as we get all that information to better connect to a consumer on a one to one basis. So a good investment to continue to do moving forward for us.
Thank you.
Our next question comes from Nicole Miller from Piper Sandler.
Thank you good morning, just a point of clarification. Please on the margin of 14, five to 15 and a half is that for the second quarter or the full year and if the full year with the second quarter be markedly different site.
<unk> for that clarification in my question.
He is around market share gains, it's great to hear about breakfast when you think about the other day parts outside of breakfast.
Where can you win or seed share in terms of legacy <unk>, maybe the broader informal eating out market and actually just curious about convenience stores for example, kind of what's happening now and as you take.
Some price what might happen and I'm sorry, we should include at home too because maybe people start to eat there. Thank you.
Good morning, Nicole lets say through a lot of numbers out there in my margin <unk>. So the guidance for the year is 14 into half 215, 5% that is a global margin guidance for the year.
U S margin.
Is basically 50 basis points higher because of the UK investments of about 50 basis points. The previous guidance was 15 to 16 into half percent global margin guidance as well I totally expect Nicol.
That margin is going to starting to step up in the second quarter and again, we have seen the signs of this already in PS three ESP took off.
Price increase as we are taking another price increase in the second quarter plus in the second half.
Inflationary pressures going to ease mainly because of comparisons.
We feel comfortable with the margin guidance that we pass over to you Todd Yes, as you think about where do we have the opportunity to continue to build sales. So clearly as we drive trial drive awareness and continue to build a strong calendar not only in disruptive promotions at the breakfast day part to bring folks into trial us but to bring some news with <unk>.
<unk> throughout the year, that's an opportunity to keep growing our business and as we get dining rooms open and have a more seamless digital experience and do the things we're doing with our racks in the restaurant to take some pressure off the drive through throughput at lunch.
And dinner continue to be opportunities for us to grow and most importantly, as we continue to expand our hours of operation later into the evening as a big opportunity for us across the system to continue to grow our business relative to where we're taking pricing and what would be happening at C stores. We do still think we have a nice relative.
Advantage, there's a lot of inflation happening at the grocery store, which means a lot of inflation happening at the C stores. So when you think about what they need to do to hold their margins and take pricing I believe our relative value our scale and how we're managing things with supply chain put us in a position to have much better value than.
The choices that folks would have it at a C store for instance, with a heck of a lot more convenience with the drive thru.
The mobile ordering that goes along with our experience.
Thank you.
Your next question comes from Andrew the strategy from BMO.
Hey, good morning, Thanks for taking my question.
I'd ask you another one on breakfast you mentioned that the lowered breakfast outlook was related to the first quarter not the rest of the year, but it seems like getting consumers to branch out into a new day part may be more difficult.
Spending environment and softer so I guess I'm just curious for your perspective on that maybe you have some evidence that that would not be the case and how do you think about the levers and flexibility of the breakfast strategy. If it were to play out that way.
Yes, I think there'll be a couple of nice tailwind I think early in the quarter, we talked a lot about books staying at home and the impacts of omni Kron Youre starting to see a lot more folks return to the office feel comfortable getting into their routines, having that mobility really start to pick back up.
It gives us an opportunity to showcase our great breakfast. We know it is still our highest customer satisfaction day part we've got great speed of service. We know we can get good repeat when when we drive the trial into that breakfast day part.
So we're feeling very optimistic that as folks get out.
And look at convenience.
A hot quickly prepared breakfast on the go that we can serve that need quite nicely moving forward.
We will continue to do things like we've done the disruptive promotion that we had here in Q4 to start the quarter to drive folks to trial, our great offering. It's one thing we will continue to do.
And we will continue to innovate both on the food and the beverage front moving forward. So.
To bring that news not only drives awareness, but it drives trial and gets folks into the routine and brings in more of the <unk> family rather than just an individual that's heading into the office in the morning. So we think we've got all of that playing out nicely. The way our calendar is constructed moving forward with plenty of support to deliver that.
Thank you.
Your next question comes from Brett Levy.
Kim.
Thanks for taking the question.
When you look at when.
When you look at the mix and what Youre seeing across the different cohorts could you try to unpack a little bit more how you're how much you're seeing in terms of deal transactions value transactions, just I guess overall or by the.
Above or below $75000 cohorts. Thanks.
Good morning, Brent so.
Q as our business is always competitive.
Obviously, everybody tries to do a little bit of value promotions, we're doing it our way with platforms tend to be absolutely one right. They're trying to migrate currently they fulfill for user and create lift upside into into a five dollar biggie bag. It is one of us to either choose you see various activities to obviously attract.
Users into the loyalty databases. So there's a lot of digital offers out there probably way more than kind of two to three years ago.
Why do we do this because we obviously lost a digital customer.
Average check and lower cost to fulfill their respective orders for us.
But I would not characterize the situation as well, which is from a value point of view.
Have a good spread.
Of of kind of checks between the low income into high income consumer the low income consumer that buys to fulfill for still gets to a pretty decent and respectable check that'd be make a lot of money on so I think we are well balanced.
Promotional approach is balanced and I think dedicated is.
No.
Kind of saying BBB notes driving kind of crazy price points that affect profitability and a lower income consumer does make choices then throughout the quarter right at the beginning of the pay cycle, it's nicely trade up too.
<unk>.
Three day offering or our made to crave offering later in the cycle. They trade into the four for $4 five dollar Biggie bag. That's why it's important to have those options.
Make sure that we're there to have their back because they are loyal and consistent customer for our brand.
Thank you.
Your next question comes from Jared Garber from Goldman Sachs.
Good morning, Thanks for thanks for taking the question I just wanted to look back on two questions. One on digital and then one on breakfast.
Digital trends I think you said loyalty rather digital in Canada was about 17% of the mix while in the U S. It's about 10%. So just wanted to get a sense of maybe what's driving the delta in those two markets and if theres any sort of learnings from the Canadian market that you can bring over to the U S and we get that number to accelerate a bit more or if there's just different differences.
And the market that's driving that organically.
Organically and then on breakfast I wanted to just get an update on what Youre seeing in terms of your core customer trying.
Trying on offering I think last update we heard was about I think it was less than 50% of the core customer and try and breakfast I just wanted to get a sense of what the.
The remaining opportunity there to get your most loyal customers into the day part. Thank you.
Yeah on the digital mix its been around 10% in the U S of 17% across international and Canadian a big driver of.
That business.
In Canada, we have a really big delivery business, we got more of an urban footprint in many in many instances.
Great partnering with skip the initiatives, we've added Uber eats we continued to build out the delivery business to drive the convenience in that market. We did add offers too to the experience in Canada, which has helped to accelerate things, but quite honestly, there's more tools that can come to the digital experience and international.
That are already in place in the U S to accelerate international even further so we got to continue to drive awareness that you can get food delivered from from Wendy's, whether thats in the U S or international that we do have a great app that we do have a loyalty program and Thats. What you saw US do in Q1 with all the support that we had during the <unk>.
Madness.
<unk>.
On the breakfast side.
We deal students still do have the vast preponderance of our customers that join us for lunch join us for dinner that does still have the opportunity to trial a set breakfast. So we've got a lot under our control to continue to get folks to bounce back to drive awareness at the restaurant level before we even have to start to attack folks across the rest.
<unk> that are already into the breakfast day, part and Thats why youll see the calendar as we've talked about many times on this call a combination of some disruptive promotions combination of equity advertising around breakfast. Some news that will continue to bring to the category throughout the year to continue to make sure that we drive that awareness drive.
That trial, our awareness levels are in a great spot. They continue to be right, there with where Burger King is has been in the industry and the breakfast business for over 30 years. So we feel good about that we just got to continue to make sure that we built the routine.
We're feeling good that we have.
Got the tools in place to make that happen to have a very successful business that grows for the long term.
Thank you.
Our next question comes from Jim Sanderson friend, Mike Goss.
Thanks for the question I just wanted to for you to comment on whether your outlook for U K or broader European development has adjusted given the conflict in Russia, and if you could also remind us what type of unit growth you expect out of the Canadian market going forward. Thank you.
Good morning, Tim So as you know Europe is clearly one of our focus areas is one of the few markets, where we're doing white space expansion as part of our global growth goal to reach 800, <unk> 9000 restaurants globally.
Question indirectly, obviously used the Ukrainian bore via directly not impacted.
From a couple of restaurants in Georgia and Kazakhstan.
But it's small.
Material. It has obviously an impact on.
Inflationary pressures in Europe , having said all of that.
There is huge interest by franchisees.
European expansion plans.
<unk> signed up now several franchisees already for the UK market. They are very excited to join a company restaurant footprint.
As you know we are expecting by the end of this year between 50 and 60 restaurants in the U K a combination of company restaurants.
It's deliberate kitchen, so reef.
So overall that is a positive overall for international for this year.
Expecting about a 20% unit growth rate, mainly focused India, Philippines, obviously in the UK.
We have not given out a specific number for Canada, we might do that at Investor day, maybe definitely expecting acceleration again, especially driven by the <unk> Ghost kitchens, where we again penetrating urban markets, where we have good presence at the moment.
Sure.
Thank you.
Your next question comes from Rahul.
Jpmorgan.
Good morning, guys. Thanks for taking my question I, just wanted to check on the chicken contract.
Thank you guys discussed was finalized earlier. This year you said it comes at a cost but wasn't this factored into the previous highs.
In the previous high single digit inflation guide already or does this have like a cost component in this contract.
Gone or something what's influenced us, but chicken costs and also looking at the 52019 that look to be stabilizing here. So I was curious if there are any more drivers you could point us to.
He was sent to the mid teens guide for full year on Cogs.
Good morning.
Yes, Youre right.
Chicken did not significantly contribute to our revised inflationary outlook.
Inflationary outlook was driven really mainly by beef beef went up significantly.
Several items.
We didnt have coverage yet that increased sharply.
Out of it we had to revise our commodity guidance.
With.
Mid teens for the year definitely did not expect that.
But it moved rapidly on us and we have taken the appropriate action from a pricing point of view.
No I'd be willing to do both we wouldn't be successful onto a six year and dollar share performance. So we have taken pricing action, but we have not attempted in the short term to offset all the inflationary pressures with pricing. This is why we are taking the restaurant margin guidance down.
So slightly without changing our EBITDA or free cash flow outlook, because we are in this for the long hold but we want to make sure that we are attracting more consumers and continuing a streak of holding or building and expanding our dollar and traffic share in the category.
Okay.
Thank you.
Our next question comes from Eric <unk> from Keybanc capital markets.
For the question and good morning can you talk about maybe the breakfast mix or the average weekly sales as you exited the quarter and then maybe the timing of that $16 million in advertising spend that's planned for the year was there an opportunity to pull back on that spending in the first quarter as the Covid headwinds became more apparent and if not maybe you could just give us some color on the timing of the total advertising pressure for the Descartes as the year progresses. Thanks.
As you think about our total pressure not just the incremental dollars that we put in place, but the dollars that we use from the we have contributions on the on the AD fund, it's pretty evenly spread on the breakfast day part and we get way ahead of.
Our marketing plan, so it's hard to make those short term quick adjustments.
As the plans are laying out the promotions are set in place.
Pretty evenly split if you think about where our breakfast business had gone clearly it was impacted a lot more in period, one period too as I said, whether folks staying at home with with omni Kron, starting to see some acceleration into <unk> and <unk>.
Clearly as we get into how we lap that big comp that we have year ago. In Q2 breakfast plays a role in that and what's the Buck biscuit promotion that was out there at <unk> four that's contributing to the ability to accelerate our two year same restaurant sales in Q2.
Yes.
Thanks.
Thank you.
Our last question comes from Peter Saleh from <unk>.
Great. Thanks.
I just wanted to ask if you guys could give an update on the new Grilles that you were installing some of the company owned.
<unk>.
Any update there on the labor savings that youre seeing or maybe menu innovation that you can execute on these grilles and then just lastly.
Is there a franchisee appetite to implement these as well or is that something for a later point in time.
Good morning, Peter Yes, we're very excited about the double sided grills northwest to be as the company and franchise, so but actually our entire system.
Pretty strong order book out there for these double sided grilles across to two suppliers that are supplying dose.
A decent amount has been installed already.
There's a lot of excitement and buzz in the system about that investment.
Your suspicion is right. It actually also allows additional innovation, obviously don't want to disclose things at that point in time.
And so we think it will contribute to better quality better customer satisfaction. So it's really an attempt to do two things first increase the food quality of our burgers to that being cooked on the grill and gives us a chance to actually free up a little bit of <unk>.
Because times are much much shorter so and that's the reason why why we behind this to be clear we are not.
Funding for the system any of those investments the franchisees stepping up and making the investments themselves because they absolutely believe its an investment with a great financial return.
Thank you Pete that was our last question of the call. Thank you Todd and GP and thank you everyone for participating. This morning, we look forward to speaking with you again at our Investor Day on June nine and have a great day you may now disconnect.
Okay.
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