Q4 2022 Wendys Co Preliminary Earnings Call
Good morning, welcome to the Wendy's Company preliminary earnings results Conference call.
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After the Speakers' remarks, there will be a question answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
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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 <unk> 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 made a call today forward looking various factors could affect our results and cause those results to differ materially from the projections set forth in our forward looking statements also saw today's comments will reference non-GAAP financial measures.
First of all refer to our reconciliation 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 kind of war and our Chief Financial Officer got surplus will briefly review, our preliminary Q4 and full year 2022 results and provide an update on our capital allocation actions from there we will open up the line for questions with that I will hand things over to.
Todd.
Thanks, Kelcey and good morning, everyone I'm pleased to speak with all of you a bit earlier this quarter to announce are preliminary fourth quarter financial performance and revisit our capital allocation policy.
Before diving into our strong results I did want to take a moment to comment on Trian partners amended 13D that was filed this morning.
We look forward to continuing our partnership with Trian partners with a shared goal of delivering value for all shareholders.
Wendy's continues to make meaningful progress against our three strategic growth pillars, and we are pleased with triad partners confidence in our growth strategy.
Today's call will be focused on our preliminary fourth quarter and full year 2022 results and the capital allocation actions, we announced earlier. This morning, I look forward to sharing the detailed drivers of our 2022 results and providing our 2023 and long term financial outlook as part of our full earnings release on March the first.
Now, let's turn to our preliminary fourth quarter and full year 2022 results, which highlight the strength and resiliency of the Wendy's brand as we continue to deliver compelling growth.
2022 global system wide sales grew six 8% supported by a second consecutive year of double digit two year global same restaurant sales as well as over 275, new restaurants, we opened across the globe. The sales strength along with the step down in inflationary pressures underpinned the almost 300 basis.
Point improvement in company operated restaurant margin over the course of the year.
This momentum alongside the hard work and dedication of our restaurant crews franchisees and support center staff drove our full year adjusted EBITDA of approximately 498 million, a six 6% improvement versus the prior year the.
The strength, we are driving in the business alongside our robust liquidity position supports the capital allocation actions, we announced this morning.
We have achieved our 12th consecutive year, our global same restaurant sales growth, which is a streak we plan to keep alive in 2023 and beyond 2022 also marked our second consecutive year of double digit global same restaurant sales on a two year basis, which is truly remarkable.
This growth extended across the globe with double digit two year same restaurant sales in both our U S and international segments.
Our sales yourselves have enabled the wendy's system to whether the unprecedented headwinds over the last few years and set us up for further growth next year.
Our sales momentum picked up even further to close the year as our two year same restaurant sales results accelerated in Q4 versus the prior quarter.
Our international business continued to achieve outstanding results supported by growth across all our regions. The sales strength further bolsters our confidence in accelerated international expansion in the coming years.
The acceleration in our U S business same restaurant sales was supported by our strategic mix of craveable innovation and compelling price points across a variety of occasions, we launched the decadent Italian mozzarella sandwich isn't garlic fries delivered another exciting extension of an iconic product with the peppermint frosty and continue to promote our honorable.
Five dollar Biggie bag.
At the breakfast day part, we entice trial with our $3 croissant promotion and continued to see our French toast sticks resonate with customers.
I'm excited to share more about our strong sales results, including updates on our breakfast and digital pillars at our full earnings call in March.
I am proud of the new net unit growth our team was able to deliver in 2022, despite ongoing development challenges across the industry. We opened over 275, new restaurants globally, reaching 2.1% net unit growth and made marking a second consecutive year of net unit growth accelerate.
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This growth was spread across the globe with the U S and international segments, making up approximately 40% and 60% of our net unit growth respectively.
Turning to the U K, we have grown the market to a footprint of almost 30 restaurants and well under two years as.
As of year end. This includes 12 company operated restaurants as well as our first traditional franchise operated restaurant.
We are excited for all the growth. That's ahead for this market in 2023 and beyond including our first drive through restaurants expected to open in the coming weeks.
Finally, our focus on franchise recruiting has paid off with nearly 40, new franchisees joining the wendy's family across the globe in 2022 <unk>.
This signals just how much excitement there is in the investment opportunity of the Wendy's brand and.
In addition to the new development commitments that come along with these new franchisees. We are excited by the wealth of experience and growth mindset that they bring to the system.
We are committed to bringing wendy's to more of our fans and are excited about the strong foundation. We've set for further growth ahead.
We remain committed to driving accelerated growth across our three strategic pillars building, our breakfast day part accelerating our digital business and growing our global footprint.
Before turning it over to GP to walk through our capital allocation updates I want to take a moment to comment on the redesign of the company's organizational structure that we communicated this morning.
The redesign is being made in an effort to better support the execution of our long term growth strategy by maximizing organizational efficiency and streamlining decision making.
Following this change we intend to embark on a broader redesign of our organizational structure as we see an opportunity to operate as a fully global brand with a unified voice approach and operating model.
We anticipate that our 2023 and 2020 for G&A will be relatively flat versus 2022, despite elevated inflationary pressures as a result of the redesign. We are now beginning in service of accelerating our growth even further with that I'll turn it over to GP to walk through our capital allocation actions.
Thanks, Todd as Todd mentioned in his opening remarks, our board of directors recently had the opportunity to revisit our capital allocation plans in order to address how our cash balance which remained elevated at approximately $780 million as of year end 2022.
Our capital allocation policy is unchanged and our first priority remains investing in the business for growth, which we will continue to do while remaining true to our asset light model.
We are committed to maintaining an attractive dividend our continued business momentum supported by the large investments in our strategic growth pillars over the last several years and our strong liquidity position support a 100% increase in our quarterly dividend to <unk> 25 per share we expect that.
Full year dividend to reach $1 per share and then TC paid similar strong dividends moving forward is supported by the expected strong free cash flow growth and that would affect us subject to the discretion of our board of directors.
Lee, we will utilize excess cash to repurchase shares and reduce debt, we announced today, a new $500 million share repurchase authorization expiring in February of 2027. This replaces the previously approved $250 million share repurchase authorization, which was set to expire in February .
Sorry of 2023.
Additionally, we repurchased $20 million of our debentures, so far in the first quarter under an existing board authorization, we will continue to assess opportunities to reduce our debt in alignment with our capital allocation policy.
We continue to deliver on our simple yet powerful formula we are an accelerated efficient growth company and we are committed to returning cash to shareholders is the momentum in our business continues to grow with that I will hand things back over to Kathy.
Please note that we plan to report our audited fourth quarter and full year earnings on March 1st and host a conference call that same day at that time, we will answer questions regarding our 2022 results and share our 2023 and long term outlook.
We transition into our Q&A section. Please keep your questions focused on the capital allocation actions that were announced this morning. Additionally, execute at a high number of covering analysts.
We will once again be eliminate everyone to one question with.
With that we're ready to take your questions.
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Our first question comes from the line of Brian Bittner with Oppenheimer.
Ian Your line is now open.
Thank you good morning, good morning, and thanks for the question.
As we focus on on the capital allocation strategy and clearly the significant increase in your capital returns to shareholders that you've announced this morning.
It seems like a pivot from the last couple of calls GP when it sounded like you were pretty focused on putting capital towards deleveraging the balance sheet. So could you just talk about how the board came up with this balance and to increase the dividend so dramatically and on the buybacks.
It's a long tail on the buybacks going out to 2027, but can you talk about maybe the near term buyback strategy are you looking at doing some some sort of ASR, particularly with that cash balance being so heavy still thank you.
Yeah.
Good morning, Brian that we're under a lot of questions in there. So again, if the first and most important point is our capital allocation policies unchanged, yes, what we have definitely decided with the elevated cash balance we had of around $780 million. It's obviously a time now to put this cash to work in <unk>.
Tony back to shareholders.
Our second most important priority both ways.
<unk> bought two to issue attractive dividends, so we felt with.
The high cash balance we have the high visibility we have in growth the high visibility we have in future a strong cash flow growth that it is the right action to actually be a little bit more attractive on the dividend side, we are balancing that with our third priority, which is returning cash to shareholders.
Through share repurchases and debt reduction on the share repurchase side, the $500 million Youre right. It goes out for four years.
We're not going to comment how that is going to faced out annually. You can expect for us to be at least going to spend about $70 million a year two men. The job dilution. The rest is going to be on our discretion, we will see how things develop over the next couple of years.
Yeah.
Our next question comes from the line of Andrew Charles with Cowen Andrew Your line is now open.
Great. Thanks, I know the lines of questions you want to be capital allocation related but Todd I was wondering if you could help contextualize your strong <unk> U S sales results relative to Q S. Our Burger category dollar share you typically do that with earnings calls I'm, just giving you released for good comps I think that would be helpful made.
My other question just on capital allocation was for GP and could you just speak to your ability.
Beating your your growth priorities, while reducing our or limiting G&A keeping those dollars flat from 23 and 'twenty four and just your confidence and your ability to really reach you achieved your priorities, while keeping those dollar slot.
Okay.
Andrew on the sales front, a little too early to have all of the fourth quarter share data. So we'll share a lot of our share performance as we get together on March 1st with our.
Full earnings release, but when you look at the momentum that we had in third quarter and the step up in momentum that we had on.
On a two year basis into the fourth quarter, both U S and international you know my sense is we performed very well relative to the competitors within that within our space. I mean, we had a strong calendar as I said on the prepared remarks, you know our breakfast business behind the continued momentum on French toast sticks to $3 breakfast steel to drive trial.
We did all of that lapping the bug fixes get promotion from a year ago from a debt a strong numbers in place and then you look at the rest of our day calendar very balanced with a five dollar biggie bag on the value side iconic pepperman frosty out there and the continued success of made to crave with the pretzel Bacon cheeseburger and Italian mods done a nice job balancing that.
Olander and <unk> continues to be place the place to be and we're performing well within that segment GP. Yes. So on your G&A question. Yes, we are confident that we can keep our G&A relatively flat versus 2022 in both 'twenty three 'twenty four I mean, there will be some inflationary pressures.
As you know via an efficient company.
And into 2022 with about one 9% of global sales and I think with the redesign actions to streamline our decision, making I will give us.
Enough tail veins, and our G&A to offset inflationary pressures and keep as a result of it G&A relatively flat over the next two years.
Yeah.
Our next question comes from the line of Dennis Geiger with UBS Dennis Your line is now open.
Yes.
Great. Thank you another one that maybe stray a little bit from from capital allocation, but just wondering if you'd be able to speak a bit more to the organizational restructuring and.
Any kind of additional detail on some of the benefits that you spoke to as it relates to streamlining decision, making and sort of how that.
How that enhances growth potentially going forward guys I appreciate it. Thank you.
Great News is we're starting from a position of strength right. We've got a lot of momentum in our business to finish the year. We feel like we have strong plans in place that will share as we get into the March one discussion around 2023 guidance and our longer term guidance, but as you think about where I wanted to go to to evolve the org structure.
It was really around how do we actually think more global and all we do how do I really make sure that we're focused on driving global unit growth are we driving more of a focus on digital activation leveraging our technology with a global mindset and as he takes some layers out of the organization that allows us a speed of decision made.
We can drive focus it'll drive efficiency O'brien productivity.
And as GP just commented it also helps us on the on the G&A front too.
But ultimately the way the resources will be reallocated and focused it is around driving traditional new restaurant development without any distractions and things that we chase during the course of this past year.
We need to drive more digital demand and really raised the bar on the operational excellence.
Of everything we do at the restaurant level, we continue to build our breakfast business. So it's as simple as that.
Our next question comes from the line of Chris Carroll with RBC capital markets. Chris Your line is now open.
Hi, Thanks for the question.
Could you expand a bit more on your latest thinking on the long term development outlook.
And then would you expect the org redesign to result in any changes to the development strategy pacing or targets.
Touched on that a little bit Todd just now but but.
Any other further details would be great. Thanks, so much.
Yeah on the long term development outlook. Unfortunately, we'll have to wait until we get guidance put out there on March the first I will talk through that in the context of our our guidance for 2023 on March one we'll give you a little more flavor on an update to our long term targets as we get to that date also but as we think about the org redesign.
We did test and learn and a lot of places during the course of this year you know we looked at it <unk> kitchens, and we did some things around hamburgers stands and frosty carts, what I really want to do is make sure that we've got a dedicated focus to drive the U S development plan drive the international development plan with most of our time energy effort on traditional.
New units with our global Nextgen to point out design, which we're really excited about.
Our next question comes from the line of Jeffrey Bernstein with Barclays Jaffray. Your line is now open.
Great. Thank you very much just following up on that org structure redesign suddenly encouraging debate a whole G&A flat in this environment over the next few years, but Todd I presume. This means you'll be more intimately involved perhaps in the day to day as youre, removing a layer of management in there I'm just wondering if you could.
Sure any color in terms of.
Any changes expected in terms of primary focus or initiatives or what we can expect from that perspective, as you're presumably streamline the the global structure. Thank you.
Great question, Jeff as we sit around the table operating as a senior leadership team you know the last couple of years I had two business unit presidents that had a lot of autonomy.
That we're driving their business and it served as well I mean, we've got a lot of success in the U S. A lot of success in international but.
But we do need to have that global mindset and it will put me a lot closer to the business and as we sit around the table as a senior leadership team.
Our global marketing mindset I was talking about operations with a focus on the U S and international.
Will help speed of decision, making we will make sure that we got one message to the entire organization, both U S and international.
I do think it will make us a lot more effective so we can go faster to continue to drive and accelerate the results that we've seen behind our key strategic growth pillars that we've been very focused on the last couple of years. So I see a lot of benefit from all of that.
The next question comes from the line of Noah <unk> with Bernstein.
Your line is now open.
Hi, Good morning, I was just wondering if you can comment on the timing of the announcement essentially your your your comps are still continued to see outperformance.
The G&A seem to be relatively more elevated compared to last quarter, but I'm wondering.
Whats propelling your decision to announce the organization redesign today when you are seeing kind of sales continue.
Continuing to be elevated.
I think just a function of how we're looking at managing our business moving forward.
We start the year fresh here in 2023.
I personally thought it would be good to have a fresh look on how we operate as a leadership team.
And as we embark on some of the work to make sure that we can hold our G&A relatively flat in 2023 and 2024 as GP just alluded to having the senior leadership design in place certainly helps enable that work so as we work through.
The next layers look like how does that org design fully flow out what is our G&A actually come out to look like we'll have all of that work done to be able to share with you as part of our 2023 guidance and our 2000 and our longer term outlook. When we reestablished that in March the first.
Our next question comes from the line of Chris <unk> with Stifel. Chris Your line is now open.
Thanks.
My question is regarding the capital allocation the companies use more capital to repurchase stock and pay dividends on average I guess over the past several years.
And it looks like it's going to change going forward and could you talk a little bit about how the company came to this decision and then I had a follow up.
Good morning, Chris Yes, it's obviously, an active dialogue with our board of directors that different point of views that we discussed in terms of what options do we have to return the excess cash that we currently are sitting on to shareholders and at the end of the day, we would I think reading.
Sided is is in line with the kind of capital allocation policy, but number two he's an attractive dividend now obviously that the stance. We are taking on dividend is very very attractive and we wanted to signal to the financial markets that we have high confidence in growth high confidence in.
High cash flow generation, and that's basically a little bit to the adjustments that we made.
On the dividend side of things.
Again, all combined if you do if you do the calculation.
You are getting to capital returns over the next several years of more than $1 billion.
So if you are signaling that.
Cash flow generation is going to stay very strong.
Your next question comes from the line of John <unk> with J P. Morgan John Your line is now.
Hi.
The question is on the comp if I can in the fourth quarter I mean can you talk about.
How much of that was price how much of that was ticket.
If you are kind of seeing different consumers behave different ways with the brand. If you. If you think there's anything really instructive in the data that youre seeing in the fourth quarter.
Specifically in yes, I guess there'll be a little cheeky and see if you address this I mean can you talk about what you think your you know your average pricing will be for 'twenty. Three if you think you might take more pricing and there've been so many movements in commodities since we last spoke and if there's even a soft update you know that where we can kind of consider commodity inflation realm.
The pricing for 'twenty, three if youre willing to address that thanks, so much.
Sure.
Hey, John a lot of good questions in there and I won't address those today, we'll save a lot of that detail and discussion for our March one release. When you start to think about where we are on price, where we are in customer calling side, what we're seeing on mix.
We're looking at the health of the consumer I mean, we continue to see a consumer that's a little more strapped.
We're in the right segment of the restaurant business <unk> continues to place to be the place to be there is continued trade down into our category and as you see from our results on a one and two year basis, we're competing and performing very well so we're happy with that.
Yes, just to add on this chart on the right.
Really happy about quarter four right, we told you in quarter three.
Going to grow double digit on a on a two year basis across all segments and we have done that actually exceeded that.
Uh huh.
More than 13% growth on a two year basis in the fourth quarter.
Our next question comes from the line of Gregory Frankfurt with Guggenheim Gregory Your line is now open.
Yes.
Hey, Thanks for the question I just had one on the unit growth in the U S side.
It looks like you guys had a bit of outsized closures I mean.
That something we should read into on a go forward basis or was there anything specific to the quarter.
Just in terms of I think it was the first quarter in a while with net closures during the quarter's figure I'd ask the question.
Good morning, Greg, Yes, we are happy with our outlook performance EBITDA performance on new units. What we told you it's going to be two to two 5% for this year and.
We ended up in that range, secondly, I would say.
Between growth is 40% in the U S. 60% in international we kind of told US as we've looked out through the year that we will have elevated closures this year.
In the past between 130, <unk> hundred 42, Stefan the elevated versus what you have seen in the past from us.
That's what basically happens this year as you might remember a lot of it has to do with reef and cleaning that.
Adventure up for us.
I'm not going to comment on.
Lower rates on a go forward basis, we do it at the beginning of March.
Your next question comes from the line of David Palmer with Evercore ISI.
Your line is now open.
I think so I don't know if you've mentioned this but what what is your leverage target now and then I'm just curious how are you.
Perhaps weighed using our cash for buying back stock against debt reduction or other sort of business related spending, perhaps incentivising unit growth or even.
Even if that cash is used on an expense basis I'm wondering how you weighed those options. Thanks.
Good morning, David.
From a leverage ratio point of view, we haven't really issued at target as you know at the end of the third quarter, we were about five times levered.
We're going to do the final numbers once we issue the full audited results.
From a debt structure as you know we have securitized debt that is really nicely letter.
The first time.
We need to get into kind of refinance mode is probably in 2025 or 2026. So we have some time to think about it.
Domestically, we definitely are taking that down in line with our capital allocation policy about you've seen it.
<unk> bought back in.
In the quarter already $20 million of debentures.
No.
Due for repayment in December of 2025, so there's $70 million to go and we'll see whether we can reduce debt on a go forward basis is the balancing act.
Between share repurchases and debt, but I think we're demonstrating that we are doing both.
Our next question comes from the line of Eric Gonzalez with Keybanc.
Rick Your line is now open.
Hey, Thanks for the question and good morning.
What about sales if I can you know one of your biggest competitors has been on air quite a bit lately, it's been mostly brand messaging, but also a little bit of value.
From your strong fourth quarter results. It does seem like it didn't have much of an impact or perhaps even benefited from the higher level of media attention on the category. So maybe if you can comment on how you think the highest heightened competitive messaging affected your business in the fourth quarter and what it can mean for the trend going forward in 'twenty three.
Yes, I think we continue to do a great job of having a very balanced calendar and when you think about what we continue to do on five dollar biggie bag to bring folks in for affordable great tasting food that is a great offer. The news we continue to bring on made to crave continues to allow folks to trade up and through their purchase cycle in the course of the month you can buy on the low side.
Of the menu and the high side of the menu and things like bringing ever made frosty and to enter the restaurant really is something that drives our iconic frosty brand, but actually a great halo to the rest of Wendy's you know there is a lot of activity a lot of folks out on are no different than we've always seen we're out there on air.
Actively at the moment, we've got strong messaging going on as we start the year. So we feel like we're really well positioned to continue to compete.
Both from the perspective of where our momentum was as GP just commented on the fourth quarter.
But with the plans that we have in place moving forward, we feel really strong that we are well positioned to continue to win in the category.
Yeah.
Our next question comes from the line of Alex Slagle with Jefferies. Alex Your line is now open.
Hey, Thanks, Good morning, just looking for any additional color on the org redesign just on the timing what led to the realization that there was no more efficient path I'm sure there's something continually you've been reviewing in.
And then back on the confidence you can contain the cost if you could just reflect on where you stand now with building up the teams and capabilities to deliver on the digital and growth plans.
Comfort that youre sort of cresting the peak investments here.
Yes back to.
I said, a little bit earlier, the timing was one that we had to make some of the senior structural changes first to get that out. So we can continue to do the work to look at the organizational redesign that we said we were embarking on to make sure. We can lock down our plans over the next 30 45 days. So we can kind of share all of that outlook is part of.
Our 2023 guidance and have that thinking factored into our longer range targets, but we're absolutely committed to holding our G&A.
Relatively flat in 2023 2024, we think we can reallocate a lot of those resources to ensure that we've got the right focus on traditional net new net net unit development across the globe.
We think we can leverage a lot of our great marketing thinking even better across the globe and clearly we can continue to drive digital with a global mindset, which we've had to date, but I think we can be even more focused on it. So I think all of those things set ourselves up to build off of a very strong foundation and a business that has a lot of momentum to take us to a whole new gear of growth.
Our next question comes from the line of Joshua Long with Stephens Joshua Your line is now open.
Great. Thanks for taking the questions I was just curious within the context of the new capital plan, how you think about carrying.
Cash balance going forward, obviously, we can work through the implications for the.
Share buyback or a dividend, but just curious as you think holistically or maybe philosophically just but the amount of <unk>.
Cash that you'd like to carry on your balance versus historical periods.
Good morning, Josh.
As you know the last several quarters, who obviously were very elevated from from a cash balance point of view as I said in the prepared remarks, we ended up this year with about $780 million, obviously with the actions that we are taking now the cash balance is going to get it reduced it will take a little time.
To kind of work these down as you know.
Because we can run our business very conveniently at about $300 million of cash.
Definitely belief that will stay a little bit elevated over the next couple of.
Why is that.
Heading into kind of uncertainty and volatility from a macroeconomic point of view. So we definitely believe to be a little bit more prudent on cash balances as appropriate.
Our next question comes from the line of Lauren Silberman with Credit Suisse. Lauren Your line is now open.
Thank you very much. Thanks for the time my question is on the organizational restructuring keeping G&A flat or the efficiencies primarily going to be realized through head count are there any other projects or investments you might pull back in are you considering you know things like more outsourcing of technology. Thank you.
Okay.
Yes, a lot of work to do on the on.
The org redesign and we had.
Contemplate in several investments that we put in place the last couple of years and we're thinking about an investment posture in some of the G&A for the next few years, but as we ran into this economic cycle. We are re looking at we're replacing some of those resources. We're looking at some of the existing head count in light of the Org changes that were announced this morning.
With the senior team on the U S side with a few folks moving on.
All of that is yet to come so we got a lot of work to do now to really define how do we get to those savings how do we made sure that they are structural so they stick and hold us relatively flat on the G&A. The next couple of years, but most importantly, we got to make sure. Our resources are focused where they matter. The most as I continue to say driving traditional new unit development driving our digi.
Demand raising the bar on operational excellence and continuing our momentum in breakfast.
Our next question comes from the line of Peter Saleh with B P. I G. Peter Your line is now open.
Great. Thanks, Thanks for taking the question just two quick ones. One a clarification I just want to clarify that the G&A guidance is for flat dollars going forward in 'twenty, three and 'twenty four and then.
Just on Capex.
Color on Capex in 'twenty three 'twenty four is there any are there any expenses that we should be expecting to be shifting out of G&A into capex or as capex.
Relatively consistent on a go forward basis as well thanks.
Good morning, So as you know we finished G&A in 2022, it's $255 million via saying flat relatively flat. So they are not seeing flat so there's going to be.
A little bit of inflation, there is to one clarification I have.
On capital not yet ready to give you any color on that as you have noticed we actually not yet done with even the cash flow for this year, so that needs to settle and digest that one and beginning of March we will give you a little bit more color how that number develops.
Our next question comes from the line of Jake Bartlett with Chile.
Your line is now open.
Great. Thanks for taking the questions I have two follow ups, which I hope just equal one question.
The first is could you just give us an update on where you stand with the wheat the reef closures.
I'm wondering how many clothes for instance, maybe in 'twenty, two or the fourth quarter and how many you expect to close in the next year.
And then I had a question on the dividend payout. So you know as I can.
Calculate it looks to be.
About over 100%.
Payout.
Thank you GP you made the comment that this is going to be consistent given so I think that would mean that youre going to grow it from here, but if you could just comment on the targeted payout things, obviously, but double.
I'm kind of calculating what you had previously talked about.
Good morning, so on your risk questions.
We finished the year with about 50 reefer units across the globe kind of equally split roughly between the UK, Canada and the U S.
Again, as we said the partnership is life of negative.
You will hear more how that develops.
When you do a unit guidance.
In terms of dividends.
Again, the exact payout ratios and what have you obviously going to be clear when we issue our guidance for next year and if you'll note. It's clearly well north of 50% I also want to make sure that people absolutely understand that this is not a special dividend it's a regulator.
With an increase and again you can also expect that.
That that dividend will annualize to a dollar and you can also expect that.
Similar elevated dividends will be paid out.
In the coming years, obviously that is all subject to the discretion of the board of directors.
Our next question comes from the line of Nick <unk> with Wedbush Securities. Nick Your line is now open.
Thank you.
Obviously, just given the long tail on the buyback through 2027, how are you thinking about.
The timing of cross.
The next four years or so is it going to be relatively balanced.
And then also what was the unit level margin ex the UK.
Good morning, Nick So, yes, youre right. The authorization is for four years. It gives us a little bit flexibility as I said at a minimum.
You can expect us to spend $70 million a year just to simply manage dilution in terms of how we then manage the rest, which I would call discretionary share repurchases is going to be the function in terms of what is the outlook on the fair value of the company.
What is the timing on when it makes sense for us to make the share repurchases. So we are going to make their decisions on a quarterly basis and decide together with the board.
How are you going to pay to pace and sequence those share repurchase programs.
Yeah.
I didn't fully understand so can you repeat that one.
Q3.
Alright, I think we can move to the next question.
Certainly our next question comes from the line of Jim Sanderson with Northcoast research.
Your line is now open.
Thanks for the question I wanted to follow up on the cash balance issue you had mentioned about a $300 million minimum cash level necessary, how has that changed in there given the lower G&A spend in the stronger sales shouldn't that start to narrow improve going forward potentially freeing up more discretionary cash flow for share repurchases.
Yes.
Yes, Tim Youre not wrong right. If you step back pre Covid. If you go back to our balance sheet pre Covid, we would manage the company at around $200 million in cash and obviously Covid happened remember we had to do the famous released working capital relief package for franchisees and.
We realized maybe we are living in the volatile world and basically said look we know what we want to be a little bit more prudent and to try to target around $300 million.
Before it really becomes down be moving to something between 200 and $300 million to comfortably manage what we need to manage is definitely an option and youre absolutely right. Its been clearly means there is a little bit more cash available for capital allocation actions.
Our final question comes from the line of Jared Garber with Goldman Sachs. Jared Your line is now open.
Great. Thanks for the question and squeezing me in.
Can you kind of mentioned it but just wanted to get a sense of on the dividend was a discussion around doing a special special dividend in the fourth quarter and the first quarter here.
And maybe how you came to the decision to increase at a 100% versus maybe maybe doing a special and then just a quick follow up on the company restaurant margins. Maybe you can help frame, where you saw a little bit more favorability.
In the quarter was it was it lower beef costs.
Labor I understand any incremental color on the line items there would be helpful. Thanks, so much.
Good morning, Jared, Yes, so I don't want to get into the details of the inner workings discussions on board level special dividend versus a regular dividend versus share repurchases I think collectively with the board we landed on a very attractive I think capital allocation action.
Basically increasing the dividend by 100% in making these regular dividend action and to the famous half a billion dollars of share repurchases. So.
Yeah, I don't want to get into the discussions around all the details how we got there.
But I think the outcome is positive.
On the restaurant margin really happy as you have seen in the consolidated numbers.
Landing flat on prior year, if you actually Peel this back a little bit the U S company restaurant landing actually at 15, 2% and they were actually favorable so up versus prior by a quarter prior year's quarter by about 20 basis points. So that's the way it.
So that tells you we are really starting to truly approach pre COVID-19 margin level might remind you. It was in 2019, our U S Company restaurant margin was 15, 5% and that despite really.
Still relatively elevated inflationary pressures, we had in the fourth quarter.
More detail in terms of what happens to labor pricing mix will give all of that out when we are fully analyzed in detail our results beginning of much.
Thank you Jerry that was our last question of the call. Thank you Todd and GP and thank you everyone for participating this morning.
All lines have a great day.
Uh huh.
Okay.