Q2 2023 The Wendy's Company Earnings Call
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Good morning, welcome to the Wendy's Company earnings results Conference call all lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and 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. If you would like to withdraw your question Press Star followed by the number two thank you.
<unk> director of Investor Relations 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 <unk>.
Sure.
Various 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.
<unk> 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 <unk> will give a business update and our Chief Financial Officer, Gunther <unk> will review, our 2023 second quarter results and provide an update on our outlook for the year from there we will open up the line for questions and with that I will hand things over to Todd. Thanks.
Thanks, Kelcey and good morning, everyone in.
In the second quarter, we continued to deliver meaningful sales and profit growth alongside sustained progress against their strategic growth pillars. Our global same restaurant sales grew five 1% on a one year basis and eight 8% on a two year basis in line with our strong expectations for the quarter.
This was driven in part by our international business, which achieved another outstanding quarter with same restaurant sales growth of seven 2% in two year growth of 22, 4%.
This marks a ninth consecutive quarter of double digit international same restaurant sales growth on a two year basis.
We continue to see strong results across all our regions, including our key international growth markets, which have all achieved double digit same restaurant sales growth year to date through the second quarter.
The continued success of these markets is driving interest in development from both new and existing franchisees and bolsters, our confidence and our international growth plans.
Our U S business delivered same restaurant sales growth of four 9% with strong two year results of seven 2%. These.
These results allowed us to hold our strong dollar and traffic share within the <unk> Burger category and once again widen our share gap to several competitors.
During the quarter, we benefited from our strategic pricing actions and positive mix, resulting from the evolution of our value platforms, partially offset by an expected decline in year over year customer counts.
Carryforward, our digital momentum is global digital sales mix held strong at over 12%. Following the large acceleration we drove during the first quarter.
We once again drove significant profit expansion, resulting in an over 200 basis point year over year increase in U S Company operated restaurant margin to 17, 3% as sales growth drove P&L leverage and commodity inflation eased.
We also continue to make progress against our development goal opening 41, new restaurants across the globe totaling 80, new restaurant openings year to date through the second quarter.
We remain fully committed to driving the restaurant economic model and delivering global growth alongside our franchisees crew members and employees.
I am confident that each of our growth pillars has significant runway ahead of us.
Our plans remain deeply rooted in the foundation of the restaurant economic model.
This is highlighted by a significant profit expansion year to date, which our franchisees are also experiencing.
Our growth and success would not be possible without the partnership we have with our franchisees and I am confident that our systems continued alignment will allow us to achieve our near and long term goals.
Our focused approach to driving same restaurant sales momentum powered our strong results in the second quarter and gives us confidence in extending our track record of sales growth.
First we are committed to delivering a restaurant experience that delights, our customers and brings them back more often in the second quarter. We once again drove improvement in our customer satisfaction scores and speed of service versus the prior year and prior quarter. This.
This momentum was supported by both speed of service initiatives in our restaurants and continued improvements in the staffing environment.
Providing a great customer experience supports every other sales driver and we will continue driving speed consistency and accuracy in our restaurants every day.
Second we continue to promote products across a variety of price points and occasions. The launch of the Ghost Pepper Ranch chicken sandwich and the return of Strawberry Frosty alongside continued profitable value with our biggie bag lineup contributed to our second quarter growth.
We will continue utilizing our <unk> platforms like made to crave biggie and frosty to breakthrough with our customers in new ways across the rest of the year.
Third we know Theres significant growth ahead of us at the breakfast day part in the U S. We achieved our highest quarterly breakfast sales volumes of all time supported by our $3 croissant promotion, resulting in mid single digit sales growth versus the prior year.
We expect to continue building on this momentum with our recently launched <unk> cream cold brew additional menu innovation launching soon and more consistent promotional activity to drive trial and repeat.
All in we continue to expect the breakfast day part will deliver outsized sales growth in 2023 and beyond.
Finally, a recent push into the late night day part paid off with double digit sales growth versus both the prior quarter and prior year.
Up to 90% of our U S. Restaurants are now open until midnight or later and as expected, we're seeing higher average checks and a skew towards delivery, which further supports the restaurant economic model.
We continue to see room to grow our share of this day part versus our <unk> competitors and are excited to continue advertising late night during the third quarter.
We believe the day part will expand even further as customers come to note that Wendy's is reliably open for the high quality late night experience they deserve.
The success of the second quarter and our strong plans for the remainder of the year drive our continued confidence that these four initiatives will ladder up to mid single digit global same restaurant sales growth in 2023.
We held our strong digital momentum in the second quarter, achieving over 12% global digital sales mix, while digital sales dollars grew over 25% year over year Star.
Starting this quarter our digital sales definition includes in restaurant mobile scans in order to more accurately reflect our full digital portfolio and align our reporting with others across the restaurant industry.
Internationally, we continue to see strong adoption of digital channels, leading to a digital sales mix of over 17% in the U S. We are pleased that the digital gains we drill with our March madness programming prove sticky end of the second quarter. Our U S. Digital sales mix held relatively steady versus the prior quarter at over 11%.
While digital sales grew over 25% year over year.
U S. Digital performance also benefited from our late night advertising and expanded operational hours our U S loyalty monthly active users held strong at over $3 5 million supported in part by continued strides in our one to one marketing program.
We have now activated more personalized user experiences and expect our progress in this area will accelerate over time, ultimately driving frequency check and operational efficiencies.
Additionally, we are proud to remain on the forefront of testing new technologies alongside our key partners. We are committed to staying nimble in finding innovative solutions to maximize the restaurant economic model are strong year over year sales growth rate expectations for delivery mobile order and kiosks have not changed but with our updated definition we know.
Now expect our global digital sales, who will reach over $1 5 billion. This year.
We are pleased to have opened 41, new restaurants in the second quarter, including our first global Nextgen restaurants, bringing our openings for the first half of 2023 to <unk> 80 restaurants.
We continue to make headway in our key international growth markets this quarter, including net unit growth in Canada, The U K, India and the Philippines we.
We also further solidified our long term international restaurant pipeline with new restaurant development commitments in Canada.
Our significant sales growth across these key markets and continued improvements in our U K restaurant margin support our expectations for outsized growth of our international footprint over the short and long term.
Additionally, we are excited to share that we have entered into a new master franchise agreement with Flynn restaurant group to develop 200, Wendy's restaurants in the Australian market Flynn.
Flynn restaurant group is the largest restaurant franchise operator in the World and operates nearly 200 Wendy's restaurants in the U S. We are thrilled to expand our relationship with them in this key market.
Our development pipeline continues to be supported by our suite of development programs, which provide compelling incentives and support to new and existing franchisees and.
In the event that restaurants under agreements are not open on time, the company receives a monthly fee, which builds an additional layer of certainty into our development pipeline.
We made progress during the quarter on converting franchisee interest in our suite of development incentives into new agreements with an uptick in commitments across the pacesetter groundbreaker and build to suit programs and now have approximately 60% of our development pipeline through 2025 committed under the development agreement.
We expect additional commitments across our system throughout 2023 and beyond as we continue to market. These programs sales momentum continues and inflationary pressures subside.
In addition, we continue to lean into the build to suit program to ensure that all the new franchisees entering the wendy's system can be up and running with new restaurants as quickly as possible.
We expect 2023 global net unit growth of approximately 2% as we continued to navigate substantial permitting delays in the U S, which have intensified and are pressuring our new restaurant opening timelines.
All U S restaurants facing permitting delays in 2023 have fully secured sites. So to the extent that restaurants cannot open in 2023 due to permitting it will be a timing shift into 2024.
Our 2023 outlook continues to include a significant step up in traditional net unit growth as we have transitioned our development focused into higher ANV formats.
This shifts substantially increases the long term financial benefit of our 2023 unit growth versus the units we delivered in the prior year it.
It is also important to note that our new traditional units are opening with <unk> almost double that of our restaurant closures, which is driving sales growth and building an even stronger system.
Looking further out our progress towards solidifying our restaurant pipeline keeps us on track to achieve our long term global net unit targets of 2% to 3% in 2024 and 3% to 4% in 2025.
We know there is substantial runway for the Wendy's brand and continue delivering meaningful global growth and we believe our momentum and strategies across our three growth pillars will drive shareholder returns for years to come I will now hand, it over to GP to share our second quarter financial performance.
Thanks, Todd our second quarter results continued to highlight the strength of our financial Formula as progress against our strategic growth initiatives. Once again drove sales and profit growth our global system wide sales grew six 9% achieving 12, 5% growth on a two year basis supported by strong glue.
Same restaurant sales across both U S and international segments and net unit growth.
Our U S company restaurant margin reached an impressive 17, 3%, increasing 230 basis points year over year. This expansion was primarily due to the benefit of a higher average check driven by cumulative pricing of 6%, partially offset by commodity and labor inflation of 2% and four person.
Scent, respectively and customer count declines.
G&A increased slightly primarily due to a higher incentive compensation accrual.
Adjusted EBITDA increased almost 9% to approximately $145 million, resulting primarily from higher franchise royalty revenue and an increase in U S company operated restaurant margin.
The almost 17% increasing the trusted earnings per share was driven by an increase in the adjusted EBITDA into higher interest income. These increases were partially offset by a decrease in investment income.
Year to date free cash flow increased over 40% to approximately $134 million.
Resulting primarily from higher net income adjusted for noncash expenses and a decrease in payments for incentive compensation. These increases were partially offset by an increase in cash paid for income taxes.
Our strong results through the first half of the year and the plans we have in place for the second half support our confidence in our 2023 and long term financial outlook, which we are reaffirming today.
We continue to expect global system wide sales growth of 6% to 8%. This year driven by mid single digit global same restaurant sales and global net unit growth of approximately 2%.
Our 2023, adjusted EBITDA outlook of $530 million to $540 million remains.
Unchanged as we continue to expect strong top line sales U S company operated restaurant margin of approximately 15% to 16% and mid single digit commodity and labor inflation. Our restaurant margin expectation continues to include the benefit of approximately 7% pricing, which includes one new.
Pricing action that was taken towards the end of May as planned.
We are also reaffirming our 2023 outlook for adjusted EPS of <unk> 95 to $1 as the benefit of a lower expected tax rate and higher interest income are offset by a decrease in investment income and higher amortization of cloud computing arrangement cost.
Our capital expenditure outlook for the year remains unchanged at $75 million to $85 million.
Lastly, we continue to expect 2023 free cash flow of $265 million to $275 million.
As expected lower cash taxes, and higher interest income are offset by higher expected cloud computing arrangement cost, which increased to $30 million from our initial expectation of $25 million.
Turning to our long term outlook, we continue to expect mid single digit annual system wide sales growth and high single digit to low double digit annual free cash flow growth in 2024 and 2025.
If you have a strong history of delivering meaningful sales and adjusted EBITDA growth in the last three years alone. We have grown these metrics by over 20% during a period of unprecedented economic uncertainty.
By the end of 2022, our strong performance drove an increase of $2 4 billion.
In system wide sales and $85 million in adjusted EBITDA versus 2019. These results were delivered while investing behind our breakfast digital and development initiatives to set us up for continued growth showcasing the resiliency and predictability of our financial model.
Our plans are building on this momentum with our 'twenty to 'twenty three outlook showcasing approximately 30% in sales and adjusted EBITDA growth versus 2019.
I also wanted to take the opportunity to highlight our asset light financial model has continued to predictably and consistently generate a substantial amount of cash we have continued to convert over 100% of our net income into free cash flow significantly outperform.
<unk>, our key competitors in the Q as a category.
As we look ahead to 2023 and beyond we expect our free cash flow conversion will remain well above 8%.
Our cash balance of over $650 million at the end of the second quarter and strong and flexible balance sheet leave us well positioned to withstand any macroeconomic headwinds as we continue to drive significant return of cash to shareholders.
To close I'd like to highlight our capital allocation policy, which remains unchanged.
First priority is investing in our business for growth, which we will continue to do while holding true to our asset light model.
Secondly, today, we announced the declaration of a third quarter dividend of 285 per share, which aligns with our commitment to sustain an attractive dividend.
Tenure to expect a full year dividend of $1 per share in 2023, which represents an over 100% dividend payout ratio.
Lastly, we will utilize excess cash to repurchase shares and reduce debt.
What was the second we have repurchased approximately $4 7 million shares and have approximately $397 million remaining on our.
$500 million share repurchase authorization expiring in February of 2027.
We expect to continue to lean in on share repurchases. This year in light of our current share price and cash balance.
Additionally, we repurchased approximately $32 million of RTP.
Through August the second, leaving approximately $43 million remaining on our debt repurchase authorization expiring in February of 2024.
We are fully committed to continue delivering a simple yet powerful formula via a predictable efficient growth company that is investing in our growth pillar in driving strong system wide sales growth on the backdrop of positive same restaurant sales.
And expanding our global footprint.
Is translating into significant free cash flows, which supports meaningful return of cash to shareholders through an attractive dividend and share repurchases with that I will hand things over to kelcey to share our upcoming IR calendar.
D P.
To start things off we have an investor call. The truest on August 15th well that had to Canada for an MTR with Stifel in Toronto, and Montreal on August 22nd and 23rd respectively.
On September 11th we have an investor call with Wedbush.
We have an MBR in Chicago with Bernstein on September 27, if you are interested in joining us at any of these events. Please contact the respective sell side analyst or equity sales contact at the host firm.
Lastly, we plan to report our third quarter earnings and host a conference call that same day on November 2nd.
We transition into our Q&A section I wanted to remind everyone that due to the high number of covering analysts will be eliminate everyone to one question only with that we're ready to take your questions.
As a reminder, if you'd like to register a question. Please press star followed by one on your telephone keypad.
<unk> you mind, Please press star followed by two.
Please ensure you're on mute when speaking.
Our first question comes from Brian Bittner of Oppenheimer <unk> Company, Brian The line is yours.
Thank you and good morning.
As it relates to late night.
Just hoping maybe you can expand on the early learnings here considering you just launched it. This summer can you can you or the focus this summer can you speak about the degree of increments how the.
That youre getting from the sales youre experiencing as you pour more more focus into late night.
Is the momentum Youre starting to see at late night, something that you anticipate to continue to build over the next several quarters.
Hey, Brian .
We're very pleased with the opportunity that we see at late night first and foremost we wanted to make sure that we've got our restaurants open to midnight or later, we now have 90% of our system opened midnight or later and actually goes up a little bit even higher as we get into the weekend, but we really want to do is to make sure that there's awareness that we are open and we're consistently open so.
We can build.
Into customers' routines that we are there for them on the late night day part it is highly incremental it's business that we don't have today. It's a strong category that's been growing consistently consistently for the last couple of years.
We are well positioned to compete with made to order great food that can deliver on the promise each and every night. So we're excited the piece that we really like about it is we can continue to drive sales without adding a labor. So it is really margin accretive to us through the bottom line.
Yeah.
Our next question comes from Joshua Long of Stephens, Inc. Joshua. Please go ahead.
Great. Thank you for taking the question can we talk about the personalized user experience is that you mentioned on the digital it seems like Youre, making some early strides there curious what kind of learnings you've had to date and where you think that could go next thank you.
Yes, we've been working for a while as as you know to really make sure. We had a database to really better connect to our customers and that started with general customer journeys is quickly becoming more personalized journeys.
We feel like we are in a position now after a lot of work to really double down going forward to lean in to better connect to make sure that we've got offers customized.
To those consumers that are morning afternoon, and late night customers and.
And we will continue to learn and evolve into it to get it even more personalized so it becomes one to one offers over time, but we're in a position to really leverage that moving forward.
Starting to see some of that progress in the first half of this year and a lot more to come.
Our next question comes from Brian <unk> of Morgan Stanley .
Yes. Thank you good morning can I just ask you about your kind of same store sales outlook.
And also just some of the pieces in <unk> is it your expectation that you would consider continue to see positive mix or is there anything that we should keep in mind with your expectations for mix and then also just traffic how do you kind of see that evolving as you go through the rest of the year.
Good morning, Brian .
We are confident with our top line outlook, we have for the year, we definitely started the third quarter well in July .
We have definitely seen an acceleration on a two year basis versus the second quarter from an <unk> point of view with great programming in place for the second half of it is for the year to go so we think that mid single.
Mid single digit guidance that we have is working for us from a marketing programming point of view as we said in our prepared remarks, we do expect further growth on the breakfast side sort of growth on the digital side and all of that is going to fuel our topline and bottom line.
Our next question comes from Andrew Charles of TD Cohen.
Great. Thank you Keith.
Can you expand on what you're observing with franchisee cash flow in the first half of 2023, when you compared to the first half of 2022. It was encouraging to see an easing of inflation, but curious of trade down within the menu to value offerings. The biggie bag is offsetting some of the benefit as we're hearing about that elsewhere in quick service.
Hi, good morning, Yeah, a little bit on franchise held so just to be clear we are not kind of collecting for angelus financials for 2023, but we always look at the company performance as a proxy. So as you have seen our second quarter results were very strong.
Our EBITDA of four wall EBITDA was about 19% up versus prior year I would.
Fully expect that franchisees will have seen similar performance. So I think some of the tightness that franchisees have experienced as we've worked ourselves through 2022 is definitely disappearing.
Quickly as far as mix is concerned.
We are doing really well there right. If you look at our U S system sales growth of about 5%, we had about 5% price in the system, 1% positive mix and is driven by the.
Focus on big sandwiches and.
Kind of moving our value offerings up to higher price point and that it will stand as expected slightly offset by about 1% traffic decline in the quarter and the.
Biggest opportunity that we continue to see on margin as I. Just said late night, we can add a lot of sales without adding any incremental labor and breakfast is still a big opportunity for us as we continue to grow our breakfast day part we know we can add a lot more sales with the existing labor in the restaurants. So both of those really lend too to nice cash flow generation at the restaurant in it.
Addition to everything that <unk> said.
Yeah.
Our next question comes from Dennis Geiger of UBS.
Great. Thank you I was wondering if you could speak a little bit more to the traffic and dollar share comments you made was with respect to the Kyocera Burger category not sure. If you could speak to how thats trended at all even if at a high level.
The quarter.
Hudson was relatively consistent and then just any comments.
Respect to share as it relates to the breakfast and late night, you talked about the outsized growth from those two day parts, but any comments there on sort of share.
Share within the category as you look to capture your fair share. Thank you.
Yes, Youll look at overall share both traffic and dollar again within the quarter, we held our share within the <unk> Burger category on both fronts. If you look at the growth that we're seeing on income cohorts greater than 75000, we're seeing some nice growth held our share there we're seeing some softness in the under 75.
And cohort with a little less traffic, but we held our share on that point.
Clearly gained share at late night that was incremental and we continue to lean into that and we're holding our share on the on the breakfast day part. So we're feeling good that we're competing well with the plans that we have in place just a little more granularity because I know theres a lot of channel checks on Q2, if you think about may.
We had really strong two years.
And that was with the return of the Strawberry Frosty and we had a little mismatch in timing. So last year, we actually launched Strawberry frosty in all our success in in June .
So we had to lap over all of that but between May and June were very consistent on our two year growth rates within the quarter and then as GP. Just said, we saw a nice acceleration in our two year growth rates to start the third quarter.
Our next question comes from Alex Slagle of Jefferies.
Thanks, Good morning.
If you could discuss the international business a bit more look like the segment profit was down a little bit year over year, just kind of talk about franchise support actions in some of the inflationary pressures you are seeing in the UK and Canada.
How this impacts your stance on the game plan in this market.
Yeah, So overall really happy with the international business as we said in the prepared remark.
22, more than 22% growth on a two year basis, that's really now the ninth consecutive quarter of double digit growth in the market.
On that second point I would say the growth is definitely broad based so all the key markets have grown in the double digit basis year to date Ken.
Canada, which is obviously our biggest market from a sales point of view is north of 50% of our international sales have actually grown taller and traffic share in the Canadian market.
We definitely expect that international segment profit on the year going to be up so <unk> seen the segment reporting profit slightly down it's timing of investments we are making first half versus second half specific comment on the U K really happy with the progress we are making there.
Now trending towards an <unk> of about $1 9 million U S dollars.
Second quarter, we have improved profitability by about 500 basis points. Unfortunately, we had to catch up accounting to do expenses from prior year, that's depressed profitability.
Consolidation a little bit we do absolutely expect that to be a sequentially improving is a good amount of interest of franchisees to further build out restaurants, and we expect to have 40 restaurants in the UK by the end of this year.
Our next question comes from Jeffrey Bernstein of Barclays.
Great. Thank you very much.
On unit growth.
I think you said your guidance for net unit growth for this year is now 2%.
Is it a little bit due to permitting delays, but it looks like still expect 2% to 3% or even more I guess with some rollover in 'twenty, four and then 3% to 4% and 25.
Wondering if you can talk about any puts or takes whether theres any concern on the U S or the international front on that steady acceleration or.
Conversations with franchisees talking about a slowing macro in rising rates just trying to.
Tease out the permitting issues in the short term versus any risk to the visibility to the accelerating growth over the next few years. Thank you.
Yes, Jeff in the short term clearly a little bit of pressure on some of the permitting that.
Make may create a little bit of slippage into next year, but that really solidifies next years pipeline look.
You look at where we stand today, both in the U S and the international front, we do have good visibility with strong pipelines not only into 2024, but into 2025 as we said in the prepared remarks, we now I've got 60% of our restaurants under our development agreement and what you're really seeing is the steady improvement in the in the financials in the U S.
Continue to create more headroom on their balance sheet.
We've had a lot of momentum on margin improvement.
Some of that create a date when we had the pressure back in 2022 folks slowed a little bit, but now we're back into acceleration mode, but as you know as you start to accelerate a development you've got to restart that pipeline and we've got some longer lead times, but that's all been contemplated in the outlook and we feel really good on the on the U S front and then on international as GP just said.
We've had some tremendous growth that we've seen our U K business has been growing really nice and same restaurant sales comps.
Canada continues to be really successful with growth on top of growth on top of growth.
India, Philippines, we've seen a lot of success on our same restaurant sales, Mexico strong sales and profit that gives us some really confidence to continue to build out that market and with the success in the UK. We're confident we can get the Ireland into other markets over time, and then a little bit longer term you heard our announcement today on entering the Australian market with a great franchise partner in Flint.
So we're feeling good that all of those things are lining us up the economics makes sense, we got a strong suite of tools leaning into build to suit. We got a pace setter. We've got ground breaker, we're going to continue to utilize all of those while at the same time continuing to enhance and improve our restaurant economic model. So the returns are there for our franchise community.
Our next question comes from Pizza seller of BTG.
Peter Your line is open.
Our next question comes from Daniel <unk> of Bernstein. Please go ahead.
Good morning.
Just a quick macro question so what.
Consumer is healthier weaker than the market is expecting today, especially given all the restaurants in place and is starting to outpace the grocery inflation and can you also comment on your expectations of the impact of resuming student loan repayments.
And how that could be impacting your forward view on your same store sales. Thank you.
The consumers continuing to face a lot of pressures as a result of several macroeconomic factors, but we believe we're really well positioned to compete in this environment <unk> continues to be the place to be we saw some trade down from mid scale casual last year into into our brand those customers have stuck with us.
Higher income cohorts start to shift into <unk>, which is good for our brand and we do know the lower income cohort as inflation starts to moderate in the back half with all the gross income improvements they add real income will start to improve which could be a nice tailwind for our business.
Said.
Student loan repayments start to come in and any other things to start to provide a little bit of pressure against.
Personal disposable income there could be a little bit of impact there.
But we've got some great offerings across our menu when you think about where we play on the biggie bag offering we have a lot of relative value to add so I think we're really well positioned no matter, where the consumer health. It plays for the outlook of the year anything else you need to add.
What I'm, telling you the best and we see that net disposable income is starting to improve a little bit with consumers and as you noted the strong correlation of debt with the restaurant business. So if that continues to hold I think thats, but its positive I would also say in the name of them as I look at the camp of that we'll have at best and miles recession, maybe.
No recession at all.
I am right on that one, but particularly for the category.
Our next question comes from Chris <unk> of Stifel.
Thanks. Good morning, guys. This is Patrick on for Chris.
Question on follow up on the composition of the customer base in the breakfast day part I know early on you provided.
Sort of what's your penetration was with core customers I'm curious if you've seen that deepen as you've grown the day part or if you are reaching an incremental customer base and if thats. The case, what opportunities does that give you sort of trade them into occasions.
Your other offerings.
Yes, it's still it's still a big opportunity moving forward for Us Patrick.
We still got it.
A majority of our customers that have tried us add at lunch or dinner that have not yet tried us for breakfast. So that's an opportunity at the restaurant level as we continue to focus on breakfast, let them know why don't you try us for breakfast Tomorrow, and we will continue to focus on that.
Our calendar lines up in the breakfast day part year to go I'm really excited we've got.
She cream cold brew that just been put into into play we've got some innovation, that's going to be announced in launching soon.
More consistent promotional activity to drive trial and repeat and we're really going to focus our operations teams on ensuring that we are breakfast ready with lights on and where we want the dining rooms open and breakfast both legs out and have a message around returning for breakfast in the future. So we think that can continue to drive our business.
Going forward building on the momentum that we saw in the second quarter.
Our next question comes from Jeff Farmer of Gordon Haskett.
Yes. Good morning. Thank you you guys have twice mentioned two year same store sales.
Celebrating to begin in the third quarter.
I don't know that you guys mentioned this but.
Just trying to figure out the relationship between that acceleration in same store sales to begin in the third quarter.
Versus the buy one get one $4 promotion that you guys have been running for the better part of a loss.
Last month, so can you just share with us.
The decision to run that promotion and how it's been resonating for Ya.
Yes, we knew we had some big comps to lap over in and kind of the.
The June July time frame with all the success of the summer a strawberry last year, and we brought strawberry back and it was a nice add to the portfolio and the momentum through those periods as you look at things on a two year stacked basis. We also know that we wanted to make sure that we had a steady dose of a value out there in the buy one get one for a dollar was that.
<unk>, it's performed as we've expected so so that's been a good thing.
And then as we think about where we move forward. We've got the late night messaging continuing.
And we got more news to come on the rest of the day menu. We've got some some new innovation coming on made to crave will continue to lean in as we talked about on the prepared remarks on on Biggie.
We will continue to bring news on frosty throughout the year and Thats core because that actually has a halo to the entire brand.
It really drive awareness and affinity to the Wendy's brand.
Our next question comes from Gregory Frankfurt of Guggenheim Securities.
Yeah.
Hey, thanks.
It seems like through this earnings season, a bunch of the large <unk> have been taking G&A guidance up a little bit.
Can you just remind me what your thoughts are over the next maybe 12 months to 24 months on the cadence of that.
Good morning, Greg.
<unk> guidance is unchanged as you know we made pretty big investments between 2019 into 2022, our G&A went up to $200 million to $255 million. We then restructured the company slightly to set us up for future growth and stay efficient.
So out of it we are absolutely continuing to expect that.
23, and 24, we will be relatively flat in dollar terms versus 2022, I mean, if you look at our if you look at our first half G&A expense was about $123 million, so well on pace to be relatively flat versus 2022.
Our next question comes from Fred Wightman of Wolfe Research.
Yeah.
Hey, guys. Good morning is there anything you can share on the fresher high pilots that started back in June .
Topline possible labor savings anything that you can share at this point.
Okay.
Yes, it's still early days, we've got it.
Functioning in one restaurant, we continue to test and learn.
Get the confidence to move it to restaurant number two here shortly.
We're making a lot of progress, we're seeing a lot of accuracy or crew loves it.
They do see it as a supplement to helping them do their jobs, even better and the customers that have utilized it feel very comfortable and feel like it's a great experience for them. This isn't about labor savings for US. This is about how do we reposition the labor within the restaurant to drive more throughput drive speed and accuracy.
Z and a better customer experience to drive frequency and repeat moving forward still too early to tell if all of that can play out.
But we're seeing some nice progress in the work in our partnership with with the Google team.
Our next question comes from Sara Senatore of Bank of America.
Great. Thank you very much at point of clarification and then a question. Please so the practice business I know you said you maintain Sharon and you had the highest volumes that you've seen but it sounds like growth was pretty much in line with your broader business, so mix or percentage of sales meetings.
Is roughly stable.
I'm sort of curious.
Doing late night does that help are there other initiatives I guess to the extent that your goal is to take share more share.
Going forward it maybe mix higher with respect to breakfast because it does feel like that that's a very sticky day part and then the question is on pricing.
Your pricing is.
Then I think when a lot of your competitors have is this something that you feel like youre seeing some real benefit there I know, there's some offsetting puts and takes in terms of your approach to value but.
I think youre kind of that price elasticity do you have any signs that maybe mid single digit right now 7% pricing is helping you versus high singles low doubles that you might be seeing from competitors.
Your checking Sarah on breakfast.
<unk> drove mid single digit so in line with with our total sales.
So nice momentum for us year over year, we're still working to to ingrain, the habit and really drive the frequency and the repeat on that breakfast day part and I think the way that our calendar lines up for the rest of the year with some innovation news as well as the promotional activity to drive that trial and repeat that we've got planned I think lines up.
Well for that as well as the focus on getting our existing customers to come try it a little bit more often or even try us for the first time at the breakfast day part.
And we are focused and we've got the staffing model set really well. So we can take on a lot more sales in the breakfast day part to drive a lot of profit with the existing labor model late night as a as a big opportunity for us.
We've leaned in for the first time in about four years on advertising. It is incremental we continue to see opportunities.
Midnight or later, we do see a big opportunity to drive delivery business as well as folks coming to our restaurant.
So we do see that as highly incremental for our business and the more that we drive awareness and the more that we get consumers to come to us and see that will reliably opened in the late night late night day part the more we become part of that routine. So we see a lot of opportunity there too.
Yes, and Sarah I wanted to ask a second answer your second question on pricing, we're happy with the pricing position.
Ken.
We are expecting 7% price this year in our company restaurants, 5% is carryover good actually August plans to do another pricing action end of May we have executed that and if you step back and look at all of this the flow through from pricing.
70% to 80% range has not changed we are competitive from a market share point of view. So all of that worked actually to plan and we are going to be definitely careful on pricing on a go forward basis, obviously not ruling out the pricing in the future and restaurant economic model needs to progress.
Our next question comes from Brian Mullan of Piper Sandler.
Hey, Thanks, just a question on capital allocation GP cash balance of $635 million is still looks a bit elevated versus history. I guess part one do you still believe that the stock is undervalued, which I've heard you say in the past and then part two assuming you do can you just talk about how you balance that belief with where interest rates are.
And what you think the right.
Leverage ranges for Wendy's in this environment. So just any color on how you're approaching share repurchase topic going forward would be helpful.
Yes, Brian definitely.
If you believe that.
She is undervalued you have seen so far year to date, we have leaned in remember we have a share repurchase authorization of about half a million dollars out of $1 billion that spans over four years. So on a prorated basis, that's under $25 million a year, we have so far.
Bought back about $103 million worth of shares. So we are going to continue to lean in for the rest of the year.
Leverage point of view again actually I think in a great spot. If you look at our evolution at the end of 2021, our leverage ratio was five two times. We're sitting currently at the end of the second quarter at about four seven times with expected throughout the year, we are going to stay well below.
<unk> five times.
Have an authorization out there too.
Buyback some more debt of $43 million worth of it on top of a mandatory authorization. So.
This cash balance is going to stay elevated as it gives us flexibility to weather any economic uncertainties and keeps us obviously enough ammunition to.
Invest in growth, if we see opportunities in the spirit of investing in growth remember, we still got.
A lot of opportunity against our $100 million build to suit program. So we're going to continue to lean in on that we've got a strong pipeline of franchisees and what we're really trying to do is ensure that we're running things rather than sequential in parallel as we're bringing in new franchisees are already starting to leverage to build to suit program. So we can get them into those restaurants sooner moving forward, we think thats in <unk>.
Opportunities to both to deploy some of the cash on our balance sheet to get some nice returns and get some new restaurants open.
Our next question comes from Jim Sanderson of Northcoast research.
Hey, Thanks for the question I wanted to talk a little bit more about digital sales mix in the U S. I think that growth.
The sales mix held steady, but delivery was a bit stronger in late night. So were there other day parts where delivery.
Slow down.
Our delivery business has been pretty consistent I mean, we saw a nice uptick on delivery with the late night, having those restaurants opened a little bit later, there is a preponderance of our consumers liking delivery at that late night day part you look at kind of our rest of the day kind of lunch dinner or our delivery business has hung in there pretty well.
<unk>.
Still seeing some growth hanging in there with what we're seeing in the industry. So we're feeling good about that we're also seeing the consumer start shipped a little bit more to mobile grab and go so folks are ordering and that actually picking up in our restaurant and as you know we've put does the delivery racks into a restaurant late last year. Those racks are now in there.
Restaurant, and that's actually improved our overall experience with our digital customers and helped us with speed and throughput at at the restaurant because we continue to see speed of service improve that was one of the tools that it has helped us to do that to take some of those big delivery orders.
Lunch and dinner out of the line and get folks to grab their food and get out of the restaurant quickly.
The only other thing Tim I wanted to add is yes, the mix went down a little bit worse this quarter warm, but that's kind of expected since you obviously heavy programming with much maintenance going on a lot of that actually continued.
Im looking at absolute dollars via a basically an absolute growth.
Not really slowing down we are more than 25% up in the second quarter versus prior year and we now expect that.
Our overall digital sales are going to be north of one $5 billion. After goofy statement that we made on a comparative base.
About one 4 billion in 2022, so it as high single digit low double digit growth. So we feel really good.
Business is working well for us.
Our next question comes from Jake Bartlett of <unk> Securities.
Great. Thanks for taking the question you might ask about the comments of speed of service and customer.
Satisfaction measures improving year over year and quarter to quarter. My question is how that compares to pre COVID-19 I imagine, it's still lower I am wondering how much opportunity there is to <unk>.
To improve both speed of service and customer experience in.
And that could be a sales driver.
Yes, Jason if you look at our overall satisfaction, we are up fairly dramatic year over year, and clearly as you get better staffed.
You start to put yourself in a better position to create better experiences, but you look at taste. If you look at accuracy look at voice of the customer on their perception of speed you look at our digital overall satisfaction, we've had very market increases versus year ago, I would say, we're getting back to pre COVID-19 levels, but we knew each.
Even pre COVID-19 levels, we had a lot of opportunity to be even better so.
We'll continue to.
Improve as is turnover continues to improve as staffing continues to get better our newest new DSD rollout has been leading to hotter juicer hamburgers and as reduce Cook times Thats another opportunity on speed as I said, the rollout of the pickup order shelving to our entire U S system in the back half of last year is helping speed into this year.
Better experience for that digital consumer and we continue to do things around op simplification like our new grilled chicken wraps that lower operational complexity and fills a unique unique.
Unique space on our menus.
The operations team has been very focused on speed, we have been talking about speed the wendy's way.
We've been focused on it we've been measuring it we've made market progress. We know we've got even more progress antibody. So we do think that continued to be an unlock.
And the improvements in customer satisfaction.
Not only just help you today, but that's actually drives frequency and of the future and Thats the big unlock.
Our next question comes from Pizza seller of BT RG.
Yeah.
Hey, guys can you hear me now.
Hello, Peter.
Can you guys hear me.
Yes, yes, yes.
Can you guys hear me.
Yes, we can Peter.
Great. Thank you.
Okay. So I just wanted to ask maybe firstly on the pricing.
For the year, 7% pricing, 5% carryover does that imply that you don't take anything else for the balance of the year and what may cause you to guys to take additional price.
Good morning, Pete Yes, Thats currently the implication we have taken the last pricing so far at the end of May that was always in our plan and now we are watching we have seen no pushback from consumers would have to see how inflation develops we have to see what our competitors are doing and.
Checking the Chester a pricing plan, but to be clear for the moment. There is no additional pricing baked in for the rest of the year.
Thank you Peter that was our last question of the call. Thanks, Todd and GP and thanks, everyone for participating. This morning, we look forward to speaking with you again on our third quarter call in November have a great day, you may now disconnect.
Yes.
Thank you. This concludes today's call you may now disconnect your lines.
Yeah.
Okay.
Sure.
Okay.
Okay.