Q1 2024 The Wendy's Co Earnings Call

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Speaker Change: 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.

Operator: 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 speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the 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. Kelsey Freed, Director of Investor Relations. You may begin your conference.

Speaker Change: 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.

Kelsey Freed: LC freed director of Investor Relations you May begin your conference.

Kelsey Freed: Thank you, and good morning everyone. Today's conference call and webcast includes a PowerPoint presentation which is available on our Investor Relations website, irwendys.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. Various factors could affect our results and cause those results to differ materially from the projections set forth in our forward-looking statement.

Kelsey Freed: 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 various facts.

Kelsey Freed: <unk> could affect our results and cause those results to differ materially from the projections set forth in our forward looking statements.

Kelsey Freed: 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.

Kelsey Freed: Also, some of today's comments will reference non-gap financial measures. Investors should refer to a reconciliation of non-gap financial measures to the most directly comparable gap measure at the end of this presentation or in our earnings release. On our conference call today, our President and Chief Executive Officer, Kirk Tanner, will give a business update, and our Chief Financial Officer, Gunther Plosch, will provide a franchise health update, review our first quarter results, and share our reaffirmed outlook. From there, we will open up the line for questions. And with that, I'll hand things over to Kirk.

Kelsey Freed: On our conference call today are president and Chief Executive Officer, Kirk Tanner will give a business update and our Chief Financial Officer, Gunther <unk>, who will provide a franchise health update review, our first quarter results and share our reaffirmed outlook from there we will open up the line for question and with that I'll hand things over to Kirk.

Kirk Tanner: Thanks, Kelsey. And good morning, everyone. The momentum we built across our business in the first quarter puts us on track to achieve our 2024 commitment and on the path towards unlocking our full potential. But before we dive into the results, I wanted to share some of my thoughts on the business now that I'm almost three months in. The things that brought me to Wendy's still ring true. We have an amazing brand, the highest quality food in QSR, and a great foundation for growth.

Kirk Tanner: Thanks, Kelcey and good morning, everyone. The momentum we've built across our business in the first quarter puts us on track to achieve our 2024 commitments and on path towards unlocking our full potential but before we dive into the results I wanted to share some of my thoughts on the business now that I'm almost three months in the.

Speaker Change: The things that brought me to win these still ring true we have an amazing brand the highest quality food in <unk> and a great Foundation for growth and after spending time learning from our restaurant support team listening to our franchisees and customers and working alongside our crew members I'm, even more fired up about the momentum we're building here at Wendy's.

Kirk Tanner: And after spending time learning from our restaurant support team, listening to our franchisees and customers, and working alongside our crew members, I'm even more fired up about the momentum we're building here at Wendy's. As I continue to immerse myself in the business, there's one thing I know for certain: the experience we deliver to our customers is the most impactful driver of our business. I've now had a chance to see that firsthand in so many ways, from working in our restaurants to our incredible activation at the final.

Kirk Tanner: I continue to immerse myself in the business. There's one thing I know for certain the experience we deliver to our customers is the most impactful driver of our business.

Kirk Tanner: Now had a chance to see that firsthand in so many ways from working in our restaurants to our incredible activation at the final four you can expect to see as always put the customer first with the goal of exceeding their expectations and everything we do we are committed to ensuring each interaction our customers have with US is brand building is.

Kirk Tanner: You can expect to see us always put the customer first with the goal of exceeding their expectations in everything we do. We are committed to ensuring that each interaction our customers have with us is brand building. As part of this commitment, we are reviewing every aspect of our business, and we'll come back to you later this year with our plans to deliver profitable growth over the short and long terms. Those plans will be centered on three things.

Kirk Tanner: Part of this commitment we are reviewing every aspect of our business and we'll come back to you later this year with our plans to deliver profitable growth over the short and long term those plans will be centered on three things number one driving strong same restaurant sales growth in all our restaurants, including continued momentum in our digital channel.

Kirk Tanner: Number one, driving strong same-restaurant sales growth in all our restaurants, including continued momentum in our digital channels. Number two, a significant acceleration in global net unit growth. Number three, unlocking meaningful improvements in restaurant level profitability. Progress against these focus areas will provide the oxygen we need to build the Wendy's flywheel, enabling us to bring our ownable propositions of fresh, high-quality favorites at affordable prices to more people in more places.

Kirk Tanner: Number two a significant acceleration of global net unit growth number three unlocking meaningful improvements in restaurant level profitability.

Kirk Tanner: Progress against these focus areas will provide the oxygen we need to build the windies flywheel, enabling us to bring our <unk> propositions of fresh high quality favorites at affordable prices to more people in more places.

Kirk Tanner: Turning now to our first quarter highlights global same restaurant sales grew 90 basis points during the quarter. This ladder to eight 9% on a two year basis as we lapped our highest quarter in the prior year, representing an acceleration of 120 basis points versus Q4.

Kirk Tanner: Turning now to our first quarter highlights, global same restaurant sales grew 90 basis points during the quarter. This equated to 8.9% on a two-year basis as we lapped our highest quarter in the prior year, representing an acceleration of 120 basis points versus Q4. Our international business achieved 3.2% same restaurant sales growth and 17.1% on a two-year basis. This marks the 12th consecutive quarter of double-digit, two-year, same-restaurant sales growth for our international segment and continued QSR burger category dollar and traffic share gains in Canada, our largest international market.

Kirk Tanner: Our international business achieved three 2% same restaurant sales growth and 17, 1% on a two year basis. This marks a 12 consecutive quarter of double digit two year same restaurant sales growth for our international segment and continued <unk> Burger category dollar and traffic share gains in Canada.

Kirk Tanner: Our largest international market.

Kirk Tanner: In the U.S., we delivered 60 basis points of same-restaurant sales growth and 7.8% on a two-year basis, holding our dollar and traffic share position within the QSR burger category. Our Q1 performance was driven by carryover pricing that continued to support average check growth, partially offset by customer count. We exited the quarter with momentum as year-over-year customer counts improved each month of Q1. Additionally, our breakfast strategy began to re-accelerate the daypart, driving high single-digit year-over-year growth in U.S. breakfast sales. This success was the result of delighting our customers through purpose-driven innovation with our Breakfast Burrito and Cinnabon Pull Apart.

Kirk Tanner: In the U S. We delivered 60 basis points of same restaurant sales growth of seven 8% on a two year basis, holding our dollar and traffic share position within the <unk> Burger category. Our Q1 performance was driven by carryover pricing that continued to support average check growth, partially offset by customer count declines.

Kirk Tanner: We exited the quarter with momentum as year over year customer accounts improved each month of Q1.

Kirk Tanner: Our breakfast strategy began to Reaccelerate the day part driving high single digit year over year growth in U S. Breakfast sales. This success was the result of delighting our customers through purpose driven innovation with our breakfast burrito and cinnabon pull apart.

Kirk Tanner: <unk> quality and compelling value with our two or three big bundle and increased media support as we began spending incremental media dollars from our company investment.

Kirk Tanner: On the digital front, we continue to gain significant momentum, reaching nearly 17% of the global digital sales mix and over 30% year-over-year increases in digital sales. Our international segment grew to over 20% of its digital sales mix, with strong digital adoption continuing in the UK, Canada, and much of our AP MIA. In the U.S., we drove meaningful increases in our mobile order and delivery channels, growing total digital sales by over 15% versus the prior quarter and 35% year over year.

Kirk Tanner: On the digital front, we continued to gain significant momentum, reaching nearly 17% global digital sales mix and over 30% year over year increases in digital sales.

Kirk Tanner: Our international segment grew to over 20% digital sales mix with a strong digital adoption and continuing in the U K, Canada and much of our AP EMEA region.

Kirk Tanner: In the U S. We drove meaningful increases in our mobile order and delivery channels growing total digital sales by over 15% versus the prior quarter and 35% year over year. This supported an acceleration in U S. Digital sales mix each month of the quarter for an average of over 16%.

Kirk Tanner: This supported an acceleration in U.S. digital sales mix each month of the quarter for an average of over 16%. Our digital momentum resulted from the success of our March Madness programming, which highlighted our fresh, never frozen beef that our customers know and love alongside compelling offers within our mobile app. This led to an increase in our monthly active users to over 6 million at quarter end, up over 40% versus Q4. Our total rewards members also increased to over 40 million, illustrating that our digital efforts are resonating with our customers.

Kirk Tanner: Our digital momentum resulted from the success of our March madness programming, which highlighted our fresh never frozen beef that our customers know and love alongside compelling offers within our mobile App. This led to an increase in our monthly active users to over 6 million at quarter end up over 40% versus Q4, our total rewards.

Kirk Tanner: Members also increased to over $40 million illustrating that our digital efforts are resonating with our customers. This growth drives the restaurant economic model and our progress across breakfast and digital supported a 60 basis point year over year increase in U S Company operated restaurant margin to 15, 3%.

Kirk Tanner: This growth drives the restaurant economic model, and our progress across breakfast and digital supported a 60 basis point year-over-year increase in U.S. company-operated restaurant margin to 15.3%. Finally, our Q1 development progress achieved our expectations as we opened 35 new restaurants across the globe. Looking ahead, we remain focused on executing against our plan and investments through a customer-centric approach, supporting profitable growth across our system. As we shared during our Q4 earnings call, our growth plans are supported by our breakfast and digital investments alongside our strong development pipeline, all of which support our restaurant economics. In 2024, we continue to expect global same restaurant sales growth of 3 to 4%.

Kirk Tanner: Finally, our Q1 development progress achieved our expectation as we opened 35, new restaurants across the globe. Looking ahead, we remain focused on executing against our plan and investments through a customer centric approach supporting profitable growth across our system as we shared during our Q4 earnings call or grow.

Kirk Tanner: <unk> plans are supported by our breakfast and digital investments alongside our strong development pipeline all of which support our restaurant economic model. In 2024, we continue to expect global same restaurant sales growth of 324% as we look towards the rest of the year. This expectation of players that are two year growth for the rims.

Kirk Tanner: As we look towards the rest of the year, this expectation implies that our two-year growth for the remainder of the year will be roughly in line with what we delivered in Q1, driven by our company investment in breakfast advertising, which is already driving a meaningful increase in U.S. breakfast sales, and continued ownership of our biggest quality differentiators through our core. We also remain on track to reach over $2 billion in global digital sales this year, supported by our digital investment fund. [inaudible] Finally, our progress through Q1 supports our goal of two plus percent net unit growth in 2024, which includes approximately 250 to 300 new restaurants. This next phase of our profitable growth journey is just beginning.

Kirk Tanner: <unk> of the year will be roughly in line with what we delivered in Q1, driven by our company investment in breakfast advertising, which is already driving a meaningful increase in U S. Breakfast sales continued ownership of our biggest quality differentiators through our core menu craveable innovation that excites our customers and inspire.

Kirk Tanner: More visits and compelling value that drives customer satisfaction and supports restaurant margin. We also remain on track to reach over $2 billion in global digital sales. This year supported by our digital investments continued improvement of our digital customer experience in our app and our restaurants and our increased ability to build personalized really.

Kirk Tanner: <unk> with our growing base of loyalty members.

Kirk Tanner: Finally, our progress through Q1 supports our goal of two plus percent net unit growth in 2024, which includes approximately 250 to 300, new restaurant openings. This next phase of our profitable growth journey is just beginning the progress we made in the first quarter highlights that we have the right investments and plans in place to be.

Kirk Tanner: The progress we made in the first quarter highlights that we have the right investments and plans in place to begin our next chapter. With that, I'll hand it over to GP to walk you through our first quarter.

Kirk Tanner: Our next chapter with that I'll hand, it over to GP to walk through our first quarter financial results.

Gunther Plosch: Our global systemwide sales grew 2.6%, contributing to year-over-year growth across our financials. Our U.S. company restaurant margin reached 15.3%, increasing 60 basis points year-over-year, primarily due to the benefit of a high average check, driven by carryover pricing of over 3%, partially offset by customer account declines and an increase in labor costs driven by rate inflation of approximately 3.5%. The increase in G&A was primarily driven by an increase in stock compensation and an increase in employee compensation and benefits. However, these were partially offset by lower outside professional services driven by lapping implementation costs for the company's human capital management system in the prior year.

GP: Cook, our first quarter results highlight the momentum we are building across our business. Our global system wide sales grew two 6% contributing to year over year growth across our financials.

GP: Company restaurant margins reached 15, 3%, increasing 60 basis points year over year, primarily due to the benefit of a higher average check driven by carryover pricing of over 3%, partially offset by customer count declines and an increasing labor costs driven by rate inflation of approximately <unk> <unk>.

GP: <unk>, 5% the increase in G&A was primarily driven by an increase in stock compensation and an increase in employee compensation and benefits.

GP: These were partially offset by lower outside professional services driven by lapping implementation costs for the company's human capital management system in the prior year.

Gunther Plosch: Attracted EBITDA increased 1.8% to approximately $128 million, resulting primarily from higher franchise royalty revenue and an increase in U.S. company-operated restaurant margins. However, these were partially offset by an increase in the company's incremental investment in breakfast advertising and higher G&A. The almost 10% increase in adjusted earnings per share was driven by fewer shares outstanding from our share repurchase program, an increase in adjusted EBITDA, and lapping a decrease in investment income in the prior year. However, these were partially offset by higher depreciation and higher monetization of cloud computing arrangement costs.

GP: Adjusted EBITDA increased one 8% to approximately 20.

GP: $8 million, resulting primarily from higher franchise royalty revenue and an increase in U S Company operated restaurant margin. These were partially offset by an increase in the company's incremental investment in breakfast advertising and higher G&A.

GP: The almost 10% increase in adjusted earnings per share was driven by fewer shares outstanding from a share repurchase program and increasing the adjusted EBITDA and lapping a decrease in investment income in the prior year.

GP: These were partially offset by higher depreciation and higher amortization of cloud computing arrangement costs.

Gunther Plosch: Finally, the decrease in free cash flow resulted primarily from the company's incremental investment in breakfast advertising, partially offset by the timing of receipt of vendor incentives. Now, let's turn to our expectations for 2024. Our financial outlook for 2024 remains unchanged as our first quarter performance and plans across the year keep us on track to deliver on all our financial targets. We continue to expect strong global system-wide sales growth of 5 to 6 percent, U.S. company-operated restaurant margin of 16 to 17 percent, and G&A of $265 to $275 million, resulting in our adjusted EBITDA outlook of approximately $535 to $545 million. Our capital expenditure outlook for the year remains unchanged at 90 to 100 million dollars.

GP: Finally, the decrease in free cash flow resulted primarily from the company's incremental investment in breakfast advertising, partially offset by the timing of receipts with vendor incentives.

Speaker Change: Now, let's turn to our expectations for 2024.

Speaker Change: Our financial outlook for 'twenty 'twenty four remains unchanged as our first quarter performance and plans across the year keep us on track to deliver on all our financial targets.

GP: Continue to expect strong global system wide sales growth of 5% to 6% U S company operated restaurant margin of 16% to 17% and G&A of $2 $65 million to $275 million, resulting in our adjusted EBITDA outlook of approximately 535 to 544.

GP: $5 million.

GP: Our capital expenditure outlook for the year remains unchanged at $90 million to $100 million.

Gunther Plosch: Lastly, we continue to expect free cash flow to grow to approximately 280 to 290 million dollars and are also reaffirming our adjusted EPS outlook of 98 cents to a dollar and two cents. Our focus on profitable growth is foundational to Wendy's, and our reaffirmed outlook underscores this commitment. Now, I'd like to highlight our capital allocation policy, which remains unchanged.

GP: Lastly, we continue to expect free cash flow to grow to approximately $280 million to $290 million and also reaffirming our adjusted EPS outlook of 98 to $1 in 2000.

GP: Our focus on profitable growth is foundational to wendy's and our reaffirmed outlook underscore this commitment.

GP: Now I'd like to highlight our capital allocation policy, which remains unchanged.

Gunther Plosch: Our first priority remains investing in profitable growth, and our recent investments across our growth pillars showcase exactly that. Secondly, we are committed to sustaining an attractive dividend. We announced today the declaration of our second quarter dividend of 25 cents per share and continue to expect a full year dividend of a dollar per share in 2024. Lastly, our capital allocation policy gives us the flexibility to utilize excess cash to repurchase shares and reduce debt. Due to date, through April 25, we have repurchased approximately 0.6 million shares and have approximately $298 million remaining on our $500 million share repurchase authorization expiring in February of 2027.

GP: First priority remains investing in profitable growth and our recent investments across our growth pillars showcase exactly that.

GP: Secondly, we are committed to sustaining an attractive dividend, we announced today the declaration of a second quarter dividend of <unk> 25 per share and continue to expect our full year dividend of $1 per share in 2024.

GP: Lastly, our capital allocation policy gives us the flexibility to utilize excess cash to repurchase shares and reduce debt year to date through April 25th we have repurchased approximately two 6 million shares and have approximately $298 million remaining on our $500 million share repo.

GP: Which is authorization expiring in February of 2027.

Gunther Plosch: We are fully committed to delivering our simple yet powerful formula. We are a predictable, efficient growth company that is driving strong system-wide sales growth on the backdrop of positive same-earth-earned sales and expanding our global footprint. This translates into significant free cash flows which support a meaningful return of cash to shareholders through an attractive dividend and share repurchase. Lastly, let's turn to our 2023 franchise financial results. French IT profitability remains a key focus area of ours that we are committed to providing visibility on.

GP: Fully committed to delivering a simple yet powerful formula.

GP: <unk> efficient growth company that is driving strong system wide sales growth on the backdrop of positive same restaurant sales and expanding our global footprint distance late into significant free cash flows, which supports meaningful return of cash to shareholders through an attractive dividend and share repurchases.

GP: Lastly, let's turn to our 2023 franchise financial or without <unk>.

GP: Franchisee profitability remains a key focus area of ours that we are committed to providing visibility too.

Kelsey Freed: We are pleased that the strong 2023 performance we saw in our company-operated restaurants was also experienced by the U.S. and Canadian franchise system. This growth is driven in part by the strong and productive partnership we continue to have with our franchisees. Our US and Canadian franchisees achieved 4% and 6% year-over-year sales growth with Factor. This momentum contributed to strong EBITDA dollar growth year over year of approximately 9% in the US and 25% in Canada.

GP: We are pleased that the strong 2023 performance we saw in our company operated restaurants was also experienced by our U S and Canadian franchise system.

GP: This growth is driven in part by the strong and productive partnership we continue to have with our franchisees.

GP: Our U S and Canadian franchisees achieved 4% and 6% year over year sales growth respectively.

GP: Momentum contributed to strong EBITDA dollar growth year over year of approximately 9% in the U S and 25% in Canada.

Kelsey Freed: Franchisee's strong restaurant EBITDA performance in 2023 supported an improvement in balance sheet health, with least attracted leverage ratios improving year over year. We expect the sales and profit momentum to carry into this year, just as we expect sales and margin expansion in our company-operated restaurants. This growth directly supports our new restaurant acceleration plan by putting our current franchisees in an even stronger position to build more restaurants and by continuing to attract new franchisees into the Wendy's system. We look forward to achieving continued profitable growth together with our franchisees for years to come. With that, I will hand things over to Kelsey to share our upcoming IRR calendar. Thanks, JP.

GP: Franchisees strong restaurant EBITDA performance in 2023 supported an improvement in balance sheet health with Liza trusted leverage ratios improving year over year.

GP: We expect the sales and profit momentum to carry into this year Trust us, we expect sales and margin expansion.

GP: <unk> operated restaurants.

GP: This growth directly supports our new restaurant acceleration plans by putting our current franchisees in an even stronger position to build more restaurants and by continuing to attract new franchisees into the system.

GP: We look forward to achieving continued profitable growth together with our franchisees for years to come with that I will hand things over to kelcey to share of our upcoming IR calendar.

Kelsey Freed: Thanks, GP. This quarter, we will attend the Oppenheimer Conference on June 11th, followed by the Evercore Conference on June 12th. We'll then hold an investor call hosted by Guggenheim on June 11th. Lastly, we plan to report our second quarter earnings and host a conference call that same day in August. As we transition to our Q&A section, I wanted to remind everyone that due to the high number of covering analysts, we will be limiting everyone to one question only. With that, we're ready to take your questions.

Kelcey: Thanks D. P. This quarter, we will attend the Oppenheimer Conference on June 11, followed by the Evercore Conference on June 12, well that holding an investor call hosted by Guggenheim On June 18th Lastly, we plan to report our second quarter earnings and host a conference call that same day on August 1st as you transition to our Q&A section I wanted to remind everyone that due to the high.

GP: Number of covering analysts will be limiting everyone to one question with that we're ready to take your questions.

Speaker Change: Thank you.

Operator: If you would like to ask a question and you have joined on the telephone line, then please press star related by one on your telephone keypad to withdraw your question. Please press star related by two. Please also ensure that your phone is unmuted locally.

GP: If you would like to ask a question and you joined on the telephone line then please press star one.

GP: We had to withdraw your question. Please press star <unk>. Please essential that you'll find is Amit <unk>.

GP: Our first question comes from Brian <unk>.

Brian John Bittner: Our first question comes from Brian Bittner from Oppenheimer. Brian, please go ahead.

GP: Hi, Brian. Please go ahead.

GP: Yeah.

Brian John Bittner: Thanks. Good morning.

Brian: Thanks, Good morning.

Brian: It seems like the base case assumption from an industry perspective is that many feel the need to get more aggressive on value, which historically has caused more of a street fight dynamic within the quick service industry.

Kirk Tanner: It seems like the base case assumption from an industry perspective is that many feel the need to get more aggressive on value, which historically has caused more of a street fight dynamic within the quick service industry. And how do you feel that Wendy's is positioned if this is an environment that unfolds with intensity? And what weapons can you use to compete in a more value-focused environment? Because historically, you've actually competed pretty well when the industry resorts more to value.

Brian: How do you feel that Wendy's is position that this is an environment that unfold with intensity and what weapons can you use to compete.

Brian: And the more value focused environment, because historically, you've actually competed pretty well when the industry Russo resorts more of the value.

Brian: Brian Good morning, Brian.

Kirk Tanner: Ryan

Kirk Tanner: Brian, good morning, Brian. I think that's a good question and a topic that a lot of folks are talking about. Let me give you my perspective on where Wendy's is. First, from a value standpoint, we have a platform that delivers everyday value. It's, you know, our biggie platform; consumers love that platform, that's an important part of the menu. And then separately, we're leveraging our digital communication to drive value. And it has a double benefit.

Brian: I think thats a good question and a topic that a lot of folks are talking about let me give you my perspective for Wendy's is first on a value standpoint, we have a plan.

Brian: That form that delivers everyday value.

Brian: Our biggie platform consumers.

Brian: Love that platform, that's an important part of the menu and then separately, we're leveraging our digital communication to drive value and it has a double benefit one it allows us to build loyalty it allows us to add cut.

Kirk Tanner: One, it allows us to build loyalty. It allows us to add customers to our platform. It's an exciting way to engage customers and drive personalization.

Brian: Customers to our platform, it's an exciting way to engage drives personalization so value at Wendy's is going to be done with everyday value like our platform and biggie and will continue to use digital value to drive loyalty and build our customers on our platform I think we're well positioned to deliver on the VAT.

Brian: But I would say, it's a balance for us as well if you look across our menu.

Kirk Tanner: So value at Wendy's is going to be done with everyday value, like our platform and Biggie. And we'll continue to use digital value to drive loyalty and build our customers on our platform. I think we're well positioned to deliver on value, go from premium fresh all the way to value propositions. And I think that the structure of our menu and how we address customers allows us to win across consumer segments.

Brian: Go from premium fresh all the way to value propositions, and I think that the structure of our menu and how we address customers allows us to win across consumer segments.

Brian: Yeah.

Speaker Change: Thank you.

Jeffrey Andrew Bernstein: Thank you. Our next question comes from Jeffrey Bernstein from Barclays. Jeffery, please go ahead.

Speaker Change: Our next question comes from Jeffrey Bernstein.

Jeffrey Andrew Bernstein: Jeffrey Please go ahead.

Jeffrey Andrew Bernstein: Great. Thank you very much.

Jeffrey Andrew Bernstein: Great, thank you very much. I have a question on the unit growth outlook, which years have been a big priority to accelerate. I think you mentioned 250 to 300 units this year. Kirk, I'm just wondering if you could talk a little bit about your early conversations with franchisees, both U.S. and international. Maybe the time frame you think to accelerate that unit growth. Obviously, it is a more challenged macro, and some would believe that franchisees might be a little bit more hesitant to put up more capital and accelerate growth. So your early thoughts on the unit growth outlook and the ability to accelerate in terms of franchisee demand would be great. Thanks so much. Jeffrey, thanks for the question.

Jeffrey Andrew Bernstein: Question on the.

Jeffrey Andrew Bernstein: The unit growth outlook, which.

Jeffrey Andrew Bernstein: For years has been a big priority to accelerate I think you mentioned the 250 to 300 units this year.

Jeffrey Andrew Bernstein: I'm just wondering if you could talk a little bit about.

Jeffrey Andrew Bernstein: Your early conversations with franchisees, both U S and international.

Jeffrey Andrew Bernstein: Maybe the timeframe you think to accelerate that unit growth.

Jeffrey Andrew Bernstein: Obviously, it is a more challenged macro and somewhat believe that franchisees might be a little bit more hesitant to to put up more capital to accelerate growth. So your early thoughts on the unit growth outlook and the ability to accelerate in terms of franchisee demand would be great. Thanks, so much.

Jeffrey Andrew Bernstein: Okay.

Jeffrey Andrew Bernstein: Geoffrey Thanks for the question and good morning.

Kirk Tanner: Jeffrey, thanks for the question and good morning. Yeah, I've had a lot of opportunities to talk to franchisees about this very topic. You know, we talked a little bit about creating that flywheel, and that's why we share profitability for franchisees, and GP walked through that in his opening comments. The ability to move faster, you know, let me give you just a little background.

Jeffrey Andrew Bernstein: Yes.

Geoffrey: A lot of opportunities to talk to franchisees about this very topic.

Geoffrey: We talked a little bit about creating that flywheel and thats why we share profitability for franchisees in GP walked through that.

Geoffrey: In the opening comments the ability to move faster get let me give you just a little background. This year, we talked we're talking about unit growth north of 2% and then in 'twenty five we're talking about 3% to 4% unit growth and Thats by looking at our development agreements, where we have 90% confirm.

Kirk Tanner: This year we're talking about unit growth north of 2%, and then in 25 years, we're talking about 3 to 4% unit growth. And that's looking at our development agreements, where we have 90% confirmed right now. So, you can see the short term. The long term for us has the ability to build this profitability. There's still a lot of runway both here in the US and, of course, internationally, and we see that as a 30-70 split.

Geoffrey: Right now so you can see the short term the long term for us.

Geoffrey: Has the ability to build this profitability there is still a lot of runway both here in the U S and of course internationally and we see that as a 30 70 split 30% of our unit growth going to come from the U S. So still tons of potential and 70% of that unit growth going to come from outside the U S and <unk>.

Kirk Tanner: 30% of our unit growth is going to come from the U.S., so there is still tons of potential, and 70% of that unit growth is going to come from outside the U.S. And speaking to the franchisees, opening new restaurants really pays a dividend, and they can see it themselves. The AUVs on a new restaurant outperform older legacy restaurants, and that's a big deal. So you'll see us continue to invest in platforms with our franchise to accelerate that, and there's a really good return when it comes to building new restaurants. There's an ability for us to continue to partner, but I would tell you our outlook is good. It's on track. Thank you. Brian Harbour

Geoffrey: Speaking to the franchisees opening new restaurants, really pay a dividend and they can see it themselves. The <unk> on our new restaurants outperform older legacy restaurants, and Thats, a big deal. So youll see us continue to invest in platforms with our franchise to accelerate that and Theres a really good written.

Geoffrey: Turn when it comes to building new restaurants.

Geoffrey: There is an ability for us to continue to partner, but I would tell you our outlook.

Geoffrey: Is on it's on track.

Speaker Change: Thank you.

Brian James Harbour: Our next question comes from Brian Harbour from Morgan Stanley. Please go ahead.

Geoffrey: Our next question comes from Brian <unk> from Morgan Stanley. Please go ahead.

Geoffrey: Okay.

Brian: Maybe just continuing on that topic could you comment on.

Brian: There were some unit closures in the first quarter or do you think that.

Brian: That sort of subsides for this year or.

Brian: Should we expect some of those to continue and just comment on how that factors into your outlook.

Speaker Change: Good morning, Brian.

Brian James Harbour: Good morning, Brian. Yeah, our unit performance was in line with our expectations. We opened 35 restaurants, and we had closures. It's always our rhythm in our business. We're expecting, as we said, 250 to 300 restaurants to open this year. And we're expecting a little bit more than 100 closures for the year. So that then, you know, if you do the math, gets you to the 2% plus guidance range that we have

Speaker Change: Unit performance was in line with our expectations. We opened 35 restaurants, we had closures at all with our rhythm in our business. So it would be expecting as we said.

Speaker Change: 150 to 300 restaurants to open this year and we're expecting a little bit more than 100 closures for the year.

Speaker Change: And if you do the math gets you to that.

Speaker Change: <unk> plus guidance range that we have nothing unusual is happening here everything went to plan.

Brian James Harbour: Nothing unusual is happening here. Everything went to

Speaker Change: Okay.

Speaker Change: Thank you.

David Sterling Palmer: Our next question comes from David Palmer from Epicor ISI. David, please go ahead.

Speaker Change: Our next question comes from David Palmer with Evercore ISI, David. Please go ahead.

David Sterling Palmer: Thanks. I just want to follow up on the topic of franchisee cash flow and new unit returns in the US. What is the franchisee cash flow per restaurant? I think it's north of 200,000 for 23, but maybe you can give an exact number there.

Speaker Change: Thanks.

GP: Wanted to follow up on the topic of franchisee cash flow New unit returns.

Kirk Tanner: In the U S.

David Sterling Palmer: What is the franchisee cash flow per restaurant I think it's north of 200000.

David Sterling Palmer: For 'twenty three but maybe you can give the exact number there and how does that compare to pre COVID-19 levels.

David Sterling Palmer: And then separately Relatedly what are the what's the return on new units before considering any incentives.

David Sterling Palmer: Heard that the building costs have gone up a lot during COVID-19.

Kirk Tanner: 30% plus and so the returns before incentives have gotten quite low.

David Sterling Palmer: Out there at least that's what they're talking about and the lending community. So any.

Speaker Change: <unk> on that on those two things would be super helpful. Thank you.

Kirk Tanner: Yeah.

Speaker Change: Good morning, David So on franchise profitability, we haven't given cash flow per restaurant.

Gunther Plosch: And how does that compare to pre-COVID levels? And then separately, relatedly, you know, what is the return on new units before considering any incentives? You know, we've heard that building costs have gone up a lot during COVID and are, you know, 30% plus. And so the returns before incentives have gotten quite low out there, at least that's what they're talking about in the lending community. So any visibility on that, on those two things would be super helpful. Thank you. Good morning, David.

Gunther Plosch: Good morning, David. So on French's profitability, we haven't given cash flow per restaurant out yet. What we are definitely watching is definitely the trusted leverage ratios. Last year, that was about a little bit north of five and a half times. By the way, for the calculation, we're using eight times rent. This time around, it is hovering at a little bit more than five times.

It would be approaching is definitely lease adjusted leverage ratios last year that was about a little bit north of 505 times by the way before the calculation we are using eight times rent.

This time around it is hovering a little bit more than five times. So I assume you mean.

Kirk Tanner: Made significant progress on our system got much much healthier, but also we expect that.

Gunther Plosch: So we made significant progress. Our system got much, much healthier. We would also expect that the EBITDA performance in the franchise system in 2024 will follow the performance of the company restaurants. As you know, we are guiding for a US 100 basis point expansion. So that obviously translates into EBITDA growth and should improve these trusted leverage ratios further and obviously helps us on our journey of accelerating unit growth. In terms of returns, we've done a good job, I think, of containing building costs.

Gunther Plosch: Sure.

Gunther Plosch: The EBITDA performance in the franchise system in 2024, we'll follow the performance of the company restaurants, as you know youre guiding for the U S 100 basis point expansion. So that obviously translates into EBITDA growth and should improve lease adjusted leverage ratios.

Gunther Plosch: And obviously helps us.

Gunther Plosch: No to any of accelerating unit growth in terms of returns.

Gunther Plosch: Done a good job I think to contain.

Gunther Plosch: Building cost if I remember two years ago.

Gunther Plosch: <unk>.

Gunther Plosch: Freestanding building would cost about $1 $9 million, our Nextgen restaurant, that's no. The global building standard is also costing $1 9 million.

Gunther Plosch: If I remember eight years ago, a freestanding building would cost about $1.9 million. Our next Chen restaurant, that's now the global building standard, is also costing $1.9 million eight years later. So we've contained inflation as best as we could. From a return point of view, on a levered basis, the most attractive incentive program is built to suit, where you are getting a levered return in about three and a half years. If you have no incentives whatsoever, so that's the other bookend; you're getting to about six years of return.

Gunther Plosch: Eight years later, so we've contained inflation as best as we could.

Gunther Plosch: From a return point of view on the on a levered basis. The most attractive incentive program is a build to suit.

Gunther Plosch: So you are getting a levered return in about three to five years.

Gunther Plosch: <unk>.

Gunther Plosch: And if you have no incentive whatsoever. So that's the other bookend you are getting to about six years return so a relatively competitive.

Gunther Plosch: So relatively competitive. We have a lot of interest from franchisees to join the system. And that's obviously a great foundation to accelerate our growth, and Danilo Gargiulo, please go ahead.

Gunther Plosch: We have a lot of interest from franchisees to join the system and.

Danilo Gargiulo: That's almost can be a great foundation to accelerate our growth.

Danilo Gargiulo: Thank you.

Danilo Gargiulo: Our question comes from Danilo Gargiulo. Please go ahead. Hi, I would like

Speaker Change: Jim comes Donny Lau <unk> Gokhale night. Please go ahead.

Danilo Gargiulo: I would like to continue with handling the Baltic.

Danilo Gargiulo: Once it needs.

Danilo Gargiulo: And specifically to tariffs in your round tables with franchisees.

Danilo Gargiulo: The one area of excitement that you've heard most consistently and what is the one area of opportunity that they're asking mobile.

Danilo Gargiulo: Great question and good morning, Yeah the number.

Kirk Tanner: Great question. And good morning. Yeah, the number one excitement is building the day part of breakfast. This gives a lot back to the franchisee. We've talked about it in the past; it allows us to build out and use the restaurant, use the labor model, and build out a profitable daypart that, you know, we still have a lot of potential for. So we've got a lot of excitement around building that daypart, that allows us to grow faster and grow our profits.

Danilo Gargiulo: Number one excitement is building the day part of breakfast. This gives a lot back to the franchisees we've talked about it in the past that allows us to build out and use the restaurant use the labor model and build out our profitable day part that where we have still a lot of.

Kirk Tanner: Potential for so we've got a lot of system excitement around building that day part that allows us to grow faster and grow our profit.

Kirk Tanner: You know, the big conversation that we're having with our franchisees is driving restaurant level profitability. I think that, again, that's a good part of this flywheel that we want to create. So if we can expand margins by operating more efficiently, driving levels of productivity, those are meaningful partnerships that we are working on with our franchisees. And that's something that we're, you know, we're both in the boat together relatively going on because we feel like that will generate a lot of momentum for our future.

Kirk Tanner: The big conversation that we're having with our our franchisees is driving restaurant level profitability I think that again, that's a good part of this flywheel that we want to create so if we can expand margins by operating more efficiently driving levels of productivity.

Kirk Tanner: Those are meaningful partnerships that we're working on with our franchisees and that's <unk>.

Kirk Tanner: One thing that we're we're both on the boat together rowing on because we feel like that will generate a lot of momentum for our future.

Speaker Change: Thank you.

Alexander Russell Slagle: Thank you. Our next question comes from Alex Slagle from Jeffreys. Please go ahead.

Kirk Tanner: Our next question comes from Alex Slagle from Jefferies. Please go ahead.

Alexander Russell Slagle: Hey, Thanks, and good morning.

Alexander Russell Slagle: Hey, thanks. Good morning.

Alexander Russell Slagle: I realize we're only four months into the year, but 3% to 4% comp guidance and the underlying assumption that GSR and Burger traffic would be slightly positive, which I don't have hard data on but it's been a soft start.

Gunther Plosch: I realize we're only four months into the year, but with the three to 4% comp guidance and the underlying assumption that QSR burger traffic would be slightly positive, which I don't have hard data on, but no, it's been a soft start. Indications seem to suggest, you know, a negative one, two, maybe negative trend for the year, but just kind of curious if this has an impact on your outlook at this point, or I guess, you know, the incremental offsets you anticipate and the flexibility. I know, you know, the investments give you a lot of positive optimism, but there are thoughts there.

Alexander Russell Slagle: Indications seem to.

Alexander Russell Slagle: Suggest.

Alexander Russell Slagle: <unk>, maybe negative trend for the year, but just kind of curious if this has an impact on your outlook at this point or I guess, the incremental offsets you envision and the flexibility.

Gunther Plosch: I know.

Gunther Plosch: <unk> give you a lot.

Gunther Plosch: Part of the optimism, but thoughts there.

Speaker Change: Good morning, Alex Yes, they are comfortable with our unchanged global Sos outlook of 3% to 4%.

Gunther Plosch: Good morning, Alex. Yeah, we are comfortable with our unchanged global SRS outlook of three to four percent. As you have heard from the prepared remarks, both in the U.S., in international, and global, we accelerated this quarter four on a two-year basis. Our two-year stack in the first quarter was 8.9 percent.

Gunther Plosch: We've heard from the prepared remarks, both in the U S and international and global B accelerated versus quarter, four and a two year basis.

Gunther Plosch: <unk> in the first quarter was $8.

Gunther Plosch: 9%, if you take our.

Gunther Plosch: Guidance into consideration you will find that for the rest of the year. Our two year stack is about in line with the first quarter from a programming point of view will be feel really good might be starting to spend money on breakfast.

Gunther Plosch: If you take our guidance into consideration, you will find that for the rest of the year, our two-year stack is about in line with the first quarter. From a programming point of view, we feel really good. We started to spend money on breakfast in the second half of the quarter and achieved already high single-digit sales growth. That will accelerate as we spend more money on it. Also, from a programming point of view, for the rest of the day, we have a great focus on core.

Gunther Plosch: In the second half of the quarter and achieved already high single digit sales growth that will accelerate.

Gunther Plosch: Any more money on it.

Gunther Plosch: Also from a programming point of view for our rest of day.

Gunther Plosch: Great focus on core.

Gunther Plosch: We are spending a good amount of money on digital. We have more innovation coming out on Frosties, and more innovation coming out on our chicken lineup. For all of that, we think there is a good level of momentum, especially since we increased traffic every single month of the quarter. So comfortable with the outlook, like the marketing plan for the year to go and guidance as well.

Gunther Plosch: Spending a good amount of money on digital we have more innovation coming out in France face more innovation coming out of the lunar chicken lineup. So all of those that we think is a good level of momentum, especially since be increased traffic every single month.

Gunther Plosch: Sure.

Gunther Plosch: Of the quarter, so comfortable with the outlook like the marketing plan for the year to go and.

Gunther Plosch: Guidance is realistic.

Gunther Plosch: Thank you. Our next question comes from Eric Gonzalez from Keybanc capital markets. Please go ahead.

Eric Andrew Gonzalez: Thank you. Our next question comes from Eric Gonzalez from Key Bank Capital Markets. Go ahead.

Eric Andrew Gonzalez: Hi, good morning, and thanks for the question. Maybe if you could speak a little bit more about day parts, you know, you have the high single-digit growth at breakfast, which I suspect is well above the industry's growth rate but perhaps, you know, expected given the investment. So first, how much of your incremental investment did you deploy in the first quarter? That's the first part. And then the second part is, you know, presumably with the low single-digit comp growth in the US, it would appear that the other dayparts were underperforming the industry. So perhaps you could comment on how the lunch and dinner dayparts fared in the quarter. And maybe what are some of the growth drivers in place to reaccelerate those trends? Thanks.

Eric Andrew Gonzalez: Good morning, and thanks for the question, maybe if you could speak a little bit more about day parts that you have the high single digit growth at breakfast, which I suspect is well above the industry's growth rate, but perhaps.

Eric Andrew Gonzalez: Expected given the investments so first how much of your incremental investments would you deploy in the first quarter. That's the first part and then the second part is presumably with the low single digit comp growth in the U S. It appears that the other day parts or underperformed the industry. So perhaps you could comment on how the lunch and dinner day parts here in the quarter and maybe what are some of the growth drivers in place to Reaccelerate those trends. Thanks.

Speaker Change: Good morning, Eric and thanks for the question on Breakfast, let me start with that one.

Kirk Tanner: Good morning, Eric. And thanks for the question about breakfast. Let me start with that one.

Eric Andrew Gonzalez: Really only spent about $2 $5 million.

Kirk Tanner: We really only spent about two and a half million dollars because we started it late in March for breakfast. So we saw that performance, and we just started the investment. And maybe your question is, why did you wait that long?

Speaker Change: Because we activated late in March for breakfast. So we saw that performance and we just started the investment in <unk>.

Kirk Tanner: Maybe the question is why why do you wait that long I think that it was really important for us to get system wide alignment with our franchisees. We've added a couple of menu items like breakfast burrito and cinnabon pull apart. So we wanted to get that lined up and then we started to spend the money that we had great activation the restaurants, so we see that momentum.

Kirk Tanner: I think that it was really important for us to get system-wide alignment with our franchisees. We've added a couple of menu items like breakfast burrito and Cinnabon pull apart. So we wanted to get that lined up. And then we started to spend the money so that we had great activation in the restaurant. So we see that momentum continuing. So just really one quarter of investment or one month of investment.

Kirk Tanner: Continuing so just really one quarter of invested our one month of investment and you've got a lot to look forward to on the breakfast side. We also saw momentum on the evening day part that continues the late night day part has been successful for US we saw a lot of momentum.

Kirk Tanner: And you know, you get a lot to look forward to on the breakfast side. We also saw momentum on the evening day part. That continues The late night day part was successful for us. We saw a lot of momentum in that regard. So we see that continuing, and our menu is set up for that as well. You know, overall, we held share across the day parts. I think that's important in that, you know, there's still opportunities for us to accelerate, but we're in a, you know, competitive position right now where we hold share across traffic and dollars across all those day parts. Thank you. The next question comes from Jim Salera.

Kirk Tanner: Mentum in that regard so.

Kirk Tanner: So we see that continuing and our menu sets up for that as well overall, we held share across the day parts I think thats important.

Unknown Executive: In that Theres still opportunities for us to accelerate but.

Unknown Executive: And our competitive position right now, where we held share cross traffic and dollars across all of those day parts.

Kirk Tanner: Yeah.

Unknown Executive: Thank you. Our next question comes from Jim <unk> from Stephens, Inc. Please go ahead.

Jim Salera: Thank you. Our next question comes from Jim Salera from Stephen Inc. Please go ahead.

Kirk Tanner: Hi, This is Tyler on for Jim Thanks for taking the question.

Unknown Executive: Again, they don't consumer and how they might be interacting with your brand by income cohort or day part.

Jim Salera: Good morning. Yeah, so income cohort, a couple of messages. I would definitely say that the consumer is still under pressure. We're seeing this. Despite that, we obviously performed well.

Unknown Executive: Good morning, Yes, so income cohort couple of messages I would say definitely the consumer is still under pressure.

Unknown Executive: Seeing this.

Unknown Executive: Despite that we obviously performed well being maintained share on the traffic on dollar side <unk> bleeding income cohorts in income households below $75000. They are definitely under pressure reducing frequency and so their visitation is down we are maintaining share with fifth cohort.

Gunther Plosch: We maintained share on the dollar side. We are splitting income cohorts in income households below $75,000. They are definitely under pressure.

Gunther Plosch: They're reducing frequency, and so visitation is down. But we're maintaining share with that cohort. On the other side, there's more traffic and more frequency for the higher income consumer. We are again maintaining share with that income cohort. So it's not a new trend. It's a trend we saw in quarter four that we have seen continuing in quarter one. As we are looking at the category outlook, we think it will accelerate for you to go, so there will be a little bit of tailwind. That's also kind of shared. That view is also shared together with our research agency.

Gunther Plosch: Good.

Speaker Change: At this time.

Gunther Plosch: There's more traffic and more frequency on the higher income consumer via again, maintaining share within income cohort. So it's not a new trend is a trend we have seen in quarter four that we have seen continuing in quarter one as we.

Gunther Plosch: We are looking at the category outlook, we think it will accelerate for you to go so there will be a little bit of tailwind. That's also kind of shake.

Gunther Plosch: Abuse, all associates together with our research agency that abuse.

Gunther Plosch: Yeah.

Gunther Plosch: Thank you. Our next question comes from Dennis Geiger.

Dennis Geiger: Thank you. Our next question comes from Dennis Geiger from UBS. Please go ahead.

UBS: UBS. Please go ahead.

Speaker Change: Great. Thank you just wanted to ask one on the digital side of things given the impressive results there in the quarter. Maybe just if you were surprised by the digital strength or based on the focus on the investment there.

Dennis Geiger: Great, thank you. I just wanted to ask one on the digital side of things, given the impressive results there in the quarter, maybe just if you were surprised by the digital strength, or based on the focus and the investment there, if the digital performance kind of went as planned, and maybe just, you know, based on the strength you saw and maybe some of the value, compelling value offers on digital that you had in the quarter, what that maybe means going forward over the balance of the Thank you.

Dennis Geiger: The digital performance kind of went as planned and maybe just based on the strength you saw in and maybe some of the value compelling value offers on digital that you had in the quarter what that maybe means going forward over the balance of the year as you think about continuing to attract folks too.

Dennis Geiger: And what that value digital strategy might might look like thank you.

Speaker Change: Morning, and thanks for the question.

Kirk Tanner: Morning, and thanks for the question. Yeah, we're delighted with the digital performance. We still think we have a lot of runway. I would say it was planned.

Speaker Change: Delighted with digital performance, we still think we have a lot of runway I would say it was planned.

Kirk Tanner: We put a big effort into doing 360 advertising around this digital platform with the final four that saw a lot of traction, it saw a lot of loyalty uptick, we added. Now we've got about 40 million people on the platform, and our average monthly users went up to about 6 million. So we saw some significant momentum; we see it as a really positive tool to create this loyalty and engagement, which allows us to understand our customers better.

Speaker Change: We put a big effort to.

Kirk Tanner: <unk> 360 advertising around this digital platform with the final four that saw a lot of traction it's a lot of loyalty uptick we added.

Kirk Tanner: Now we're at about 40 million people on the platform. Our average monthly users went up to about $6 million. So we saw.

Kirk Tanner: Some significant momentum we see it as a really positive tool to create this loyalty and engagement allows us to understand our customer better. We still think that there is still a lot of runway for us. So we're going to continue to invest in our app, we're going to continue to invest in our loyalty.

Kirk Tanner: We still think that there's still a lot of runway for us. So we're going to continue to invest in our app, we're going to continue to invest in our loyalty platform, because we think this is certainly an avenue. We like it for a lot of reasons. And one of the reasons I like it the most is when we have a digital order, it's a larger order; it has a nice impact on our profitability and our restaurant.

Kirk Tanner: That form because we think this is certainly an avenue, we like it for a lot of reasons and one of the reasons I like the most is when we have a digital order its a larger order. It has a nice impact to our profitability at our restaurants I am excited about the potential that we still have and delighted with the traction that we've created in <unk>.

Kirk Tanner: One.

Speaker Change: Thank you.

Gregory Ryan Francfort: Thank you. Our next question comes from Gregory Francfort from Guggenheim Security. Please go ahead.

Kirk Tanner: So I'm excited about the potential that we still have and delighted with the traction that we've created in Q1. Our next question comes from Gregory Francfort from Guggenheim Security. Please go ahead. Hey, hey, thanks for the question.

Kirk Tanner: Our next question comes from Gregory Frankfurt from Guggenheim Securities. Please go ahead.

Gregory Ryan Francfort: Hey, Thanks for the question keeping maybe this is for you, but can you just talk a little bit about the commodity basket for the balance of the year.

Gregory Ryan Francfort: We've all kind of seen a big spike in Hamburger prices, but when you guys had a great quarter from a margin perspective, particularly on Cogs. So just just the pushes and pulls on what youre seeing from that as you go forward. Thanks.

Kirk Tanner: Yeah.

Gregory Ryan Francfort: Good morning, Greg, Yes, so in the first quarter, we had flat commodity inflation and labor inflation of about three 5%. Despite that we managed to.

Gunther Plosch: Good morning, Greg. Yeah, so in the first quarter, we had flat commodity inflation and labor inflation of about three and a half percent. Despite that, we managed to enhance U.S. company margin by 60 basis points. From a commodity outlook point of view, it's unchanged. I told you last time it was flat. It remains flat.

Speaker Change: And U.

Gunther Plosch: U S company margin by 60 basis points from promoted the outlook point of view is unchanged Toby last time, it slanted remains flat.

Gunther Plosch: We obviously have gained a little bit more visibility now about 80% of our commodity basket is now locked down we continue to expect that beef and fries.

Gunther Plosch: We obviously have gained a little bit more visibility now. About 80 percent of our commodity basket is now locked down. We continue to expect that beef and fries are inflationary, and chicken remains deflationary for us. So overall, things are going very comfortably with the commodity outlook we have.

Gunther Plosch: Inflationary and chicken remains deflationary for us. So overall things are going to plan, we're comfortable with docomo.

Gunther Plosch: Sure.

Gunther Plosch: Thank you. Our next question comes from Lauren Silberman from Deutsche Bank. Please go ahead.

Lauren Danielle Silberman: Thank you. Our next question comes from Lauren Silberman from Deutsche Bank. Please go ahead.

Speaker Change: Thank you I wanted to just follow up on the same store.

Lauren Danielle Silberman: Thank you. I wanted to just follow up on the Sanford sales outlook on the two-year stack. It implies a pretty meaningful one-year acceleration throughout the year. Is it right for us to assume you expect one-year trends to build throughout the year? Anything you're willing to share on what you're seeing quarter to date? And then are you seeing any differences across regions?

Lauren Danielle Silberman: Outlook on a tier stack and implies a pretty meaningful one year acceleration throughout the year is it right for us is that one year trend that builds throughout the year anything youre willing to share on what you're seeing quarter to date and then are you seeing any differences across the weekend. Thank you very much.

Gunther Plosch: Thank you very much.

Lauren Danielle Silberman: Good morning Lauren.

Gunther Plosch: Good morning, Lauren. Yeah, I can give you a little bit of color by the quarter. So we definitely are expecting, on a one-year basis, a step up in quarter two versus quarter one, and then a further step up in quarter three. So that's how it's going to lay out. As I said, for the year to go, the two-year stack is very well in line with what we had in the first quarter. From a regional differences point of view, as you know, there are always regional differences. We don't go into that level of detail, but we are happy with our performance across

Speaker Change: Yes, I can't give you a little bit of color by quarter. So we definitely are expecting.

Gunther Plosch: On a one year basis.

Gunther Plosch: To see a step up in quarter two versus quarter, one and then a further step up in quarter three.

Gunther Plosch: It's going to lay out as I said for the year to go to two year stack is very well in line with what we had in the first quarter from a reach no different point of view as you know there's always regional differences, we don't go into that level of detail, but we are happy with.

Gunther Plosch: With outperformance across the whole system.

Gunther Plosch: Sure.

Gunther Plosch: Thank you. Our next question comes from Andrew Strauss at BMO Capital markets. Please go ahead.

Andrew Strelzik: Thank you. Our next question comes from Andrew Strelzik of BMO Capital Markets. Please go ahead.

Andrew Strelzik: Hi, This is Gerald Lozinski on for Andrew or Scott. Thank you for taking the question. So I wanted to touch about touch on the planned $55 million company investment into breakfast advertising over the next two years.

Andrew Strelzik: Hi, this is Jared Lazinski on behalf of Andrew Strelzik. Thank you for taking the question. So I wanted to touch on the plan $55 million company investment in breakfast advertising over the next two years, and was hoping to get your thoughts on if more investments might be required there if we kind of remain in a more vocal competitive environment, and just putting that into the context of the high single-digit US breakfast sales growth in the quarter relative to your target to achieve 50% sales growth over the next two years. Thank you.

Andrew Strelzik: Hoping to get your thoughts on it more investments might be required there. If we kind of remain in a more local competitive environment and just putting them in the context of the high single digit U S breakfast sales growth in the quarter relative to your target to achieve 50% sales growth over the next two years. Thank you.

Gunther Plosch: Good morning. Yeah, our perspective on the investment needed to reach our potential after breakfast is unchanged, right? We told you guys about 55 million dollars, roughly split 50-50 between 24 and 25. Then, that started to ramp up. We are basically giving us an always-on message to keep reminding consumers that we have the best breakfast in the business, driving trial and repeat out of it. So for the time being, there is no change in opinion. We are obviously watching the performance closely, and the financial returns we get out of it. So far, we feel good about it.

Speaker Change: Good morning.

Andrew Strelzik: Our perspective on investments needed to reach out.

Gunther Plosch: Potentially and Brexit is unchanged. We told you guys about $55 million roughly split 50 50 between 'twenty four and 'twenty five.

Gunther Plosch: Started to ramp up.

Gunther Plosch: Basically allows us and always on message to keep reminding consumers that we have the best the best breakfast in the business drive trial and repeat out of it so for the time being there is no change in opinion, you're obviously watching.

Gunther Plosch: Performance closely the financial returns, we get out of it so far feel good about it and this is cook explained right.

Gunther Plosch: And as Kirk explained, right, we were not fooled from a media pressure point of view, from an incremental media pressure point of view. In the first quarter, we took our time to line up our innovation for it, and there's obviously more to come.

Gunther Plosch: We will not full on from a media pressure point of view from an incremental media pressure point of view in the first quarter. We took our time to line up our innovation for it and there's obviously more to come and we know what works in the breakfast business you need to offer value on a regular basis. So the two foot to the dollar.

Kirk Tanner: And we know what works in the breakfast business. You need to offer value on a regular basis. So the two for three dollar construct we have out there is responding well. Mix in innovation, plus remind consumers that, hey, they should try the best breakfast in town. All of that, continuing to repeat that, will get us on our way to our potential of about six thousand dollars per restaurant per week.

Gunther Plosch: Construct we have out there is resonating well.

Kirk Tanner: Mix in.

Kirk Tanner: Innovation, plus remind consumers that hey, you should try the best breakfast in town all of that continuing to repeating that will get us on our way to our potential.

Kirk Tanner: About $6000.

Kirk Tanner: The restaurant.

Kirk Tanner: Thank you. Our next question comes from Sarah <unk> from Bank of America. Please go ahead.

Sara Harkavy Senatore: Thank you. Our next question comes from Sara Senator from Bank of America. Please go ahead.

Speaker Change: Thank you very much I had a question about pricing and I think the pricing that youre running is below what your direct competitors are doing.

Sara Harkavy Senatore: are running is below what your direct competitors are doing. And so I guess I had two questions about that.

Sara Harkavy Senatore: And so I guess I had two questions about that one is I think your franchisees, perhaps not seen more margin compression over the last couple of years. So is the.

Sara Harkavy Senatore: One is, I think your franchisees perhaps have seen more margin compression over the last couple of years. So is the expectation that, you know, you can claw back all of the margin? Are your franchisees kind of willing to wait on that margin percentage if it means that they can underprice competitors?

Sara Harkavy Senatore: The expectation that.

Sara Harkavy Senatore: That you can claw back all of the margin or your franchisees kind of willing to weigh on that margin percentage. If it means that they can under price competitors. So I guess, it's a broader question about value and your franchisees.

Sara Harkavy Senatore: Tolerance or willingness to pursue that and I guess the second question is what is your definition of value.

Sara Harkavy Senatore: So I guess it's a broader question about, you know, value and your franchisees' sort of tolerance or willingness to pursue that. And I guess the second question is, what is your definition of value? You know, do you see an increasing need for like price point value or, you know, this sort of focus on bundled value? And I know you talked about this a little bit at the beginning of the Q&A, but I'm trying to understand sort of the value construct.

Sara Harkavy Senatore: Do you see an increasing need for like price point value or Easter.

Sara Harkavy Senatore: Any sort of focus on bundled value I know you talked about this a little bit at the beginning of the Q&A, but John I understand that.

Speaker Change: Value contract. Thanks.

Speaker Change: Good morning, Sarah you picked a couple of questions in there so on the system.

Gunther Plosch: Good morning, Sara. Oh, you packed a couple of questions in there. So, on the system, we had a little bit... You had a little bit more than 4% of pricing. So you're right, it was a little bit below the foot away from home inflation. Most of it was carryover pricing, and financials are actually happy with the financial progress they made in 2023. Right when you grow US profits in the system by 9%, the Canadians are really happy; they grow the profit by 25%. So there's definitely good alignment there.

Sara Harkavy Senatore: Yes.

Sara Harkavy Senatore: You had a little bit more than 4% pricing. So you're right. It was a little bit below food away from home inflation most of it was carryover pricing.

Gunther Plosch: So she's actually happy with the financial progress they made in 2023 when you grow.

Gunther Plosch: U S profits in the system by 9% the Canadians are really happy to grow the profit by 25%.

Gunther Plosch: There is definitely good alignment there.

Gunther Plosch: And we're not stopping there; we're going to, for sure, push profitability further. But I have to say, we're going to stay careful on pricing. We've always said that we are expecting low single-digit pricing that the system is going to execute this year. I don't think we're going to get too greedy. Flow through on pricing remains 70 to 80%.

Speaker Change: Stopping there we are going to.

Gunther Plosch: For sure push profitability floater.

Gunther Plosch: To say, we are going to stay careful on pricing, we've always said that.

Gunther Plosch: We are expecting low single digit pricing that the system is going to execute this year.

Gunther Plosch: I don't think theyre going to get too greedy.

Gunther Plosch: Flow through on pricing remained 70% to 80% and we need to be careful right. So we have an external pricing consultant out there it helps to system.

Gunther Plosch: And we need to be careful, right? So we have an external pricing consultant out there that helps the system to make sure we're making the right pricing decisions. And then that's kind of our outlook in life. From a value point of view, Kirk, you want to talk a little bit more about that? Yeah, I mentioned it earlier.

Kirk Tanner: To make sure we're making the right pricing decisions and so that's kind of our outlook in life from a value point of view Q1 to talk a little bit more about it I mentioned it earlier look I think we're positioned well with value. One we have a menu item that is I'd say consumer.

Kirk Tanner: Look, I think we're positioned well with value. First, we have a menu item that is, I'd say, consumer famous, called Biggie. So consumers know they can get great value at Wendy's. I think that's in concert with the rest of the menu, where we have balance.

Kirk Tanner: Amos and biggie, so consumers know they can get great value at Wendy's I think thats in concert with the rest of the menu, where we have balanced. So we have the ability to reach consumers across multiple demographics, and then I think that youll see us continue to use our digital platform to drive value I think those are the.

Kirk Tanner: So we have the ability to reach consumers across multiple demographics, and then I think that you'll see us continue to use our digital platform to drive value. I think those are the key things. I feel like we're well positioned to win customers over in this environment.

Kirk Tanner: The key things I feel like we're well positioned.

Kirk Tanner: To win customers over in this environment.

Kirk Tanner: Thank you our last question comes from John <unk> from Jpmorgan. Please go ahead.

John William Ivankoe: Thank you. Our last question comes from John Ivankoe from JP Morgan. Please go ahead.

John William Ivankoe: Hi, Thank you so much.

John William Ivankoe: Hi, thank you so much. You know, the question is on UK Europe. First, just remind us how many units we had in the UK at the end of the first quarter. And we know what you are really looking for there, you know, to really go, you know, for a more scale-driven strategy. I mean, I don't need to tell you, you're a relatively small fraction of some of your peers, which have been in the market for, in some cases, decades, but you know, are you seeing the kind of performance where you say, you know, you should have hundreds of stores in the UK, these guys kind of, you know, the first question of the economics would support that?

John William Ivankoe: <unk> is on the UK Europe.

John William Ivankoe: Just remind us how many units we had in the UK at the end of the first quarter and what are you really looking for there to really go go for more scale driven strategy I mean, I don't need to tell you I mean, Europe, a relatively small fraction of some of your peers, which had been in the market in some cases.

John William Ivankoe: AIDS, but are you seeing that kind of performance, where you say you should have hundreds of stores in the U K. These guys kind of like the.

John William Ivankoe: And, you know, secondly, you know, Kirk, as you have more time on your seat, how are you thinking about continental Europe? And as I think about, you know, the percentage of your international development that you do expect to come from the UK and Europe. I know you gave the split between US international, but could we just go one step further in terms of, you know, how important the UK and UK Europe strategy is in terms of future contribution to that growth? Thank you.

John William Ivankoe: The first question of the economics would support that and secondly, Kirk as you have more time in the seat how are you thinking about continental Europe and as I think about the percentage of your international development that you do expect to come from U K and Europe. I know you gave the split between U S. International if we can just dive one step.

John William Ivankoe: Further in terms of.

John William Ivankoe: How important that U K U K Europe strategy is in terms of future contribution to that growth. Thank you.

Gunther Plosch: Good morning, John. Maybe I'll kick it off.

Kirk Tanner: Good morning, John maybe I can kick it off so from a numbers point of view we had.

John William Ivankoe: 37 restaurants in the UK at the end of the first quarter 12 of which were 12 of them were a company operations.

Gunther Plosch: So from a numbers point of view, we had 37 restaurants in the UK at the end of the first quarter, 12 of which were company operations. To give you a little bit from a margin point of view in the UK, as you probably have seen already, the impact of the investments we are making in the UK has had an adverse impact on our consolidated margin of about 60 basis points.

Gunther Plosch: To give you a little bit on a from a from a margin point of view in the U K as you probably have seen already the impact of the investments you're making in the U K and adverse impact on our consolidated margin of about 60 basis points.

Gunther Plosch: Interestingly enough however year over year, our consolidated margin improved by 90 basis points. So more of an improvement that we have seen in the U S. With <unk>, we are making progress in UK profitability.

Gunther Plosch: Interestingly enough, however, year over year, our consolidated margin improved by 90 basis points. This is more of an improvement than we have seen in the US, so it tells you we are making progress on UK profitability. We continue to expect a headwind on the UK operations in our consolidated margin of about 50 basis points.

Gunther Plosch: Continuing to expect for the year.

Gunther Plosch: Headwind on the UK operations in our consolidated margin of about 50 basis points.

Gunther Plosch: For a short-term outlook, we would expect to have, by the end of the year, about 45 to 50 restaurants in the UK. We're building company restaurants, and obviously, we've signed up several franchise partners that are very excited. Investing in the business helps us develop the market. We've always said that the UK is a key strategic market for us. It's kind of the beachhead for the rest of Europe. We absolutely expect that, over time, that market should bring 400 restaurants for us.

Gunther Plosch: Short term outlook, we would expect to have by the end of the year.

Gunther Plosch: <unk> 48, 45% to 50 restaurants.

Gunther Plosch: In the UK, we're building company restaurants, and obviously if signed up several franchise partner is very excited investing in the business help us develop that market.

Gunther Plosch: <unk> always said that U K is a key strategic market for us is kind of the beachhead for the rest of Europe, we absolutely expect that over time that market should yield.

Gunther Plosch: 400 restaurants for US we will see how long that takes us, but we believe is our fair share in that market as you also know.

Gunther Plosch: We'll see how long that takes us, but we believe it's our fair share in that market. As you also know, we are exploring continental Europe with the prime candidates that we've always talked about, Ireland and Spain. So, that's kind of what we have on that. Kirk, any other? Yeah, no.

Gunther Plosch: <unk>.

Gunther Plosch: Exploring continental Europe.

Gunther Plosch: With the prime candidates that we've always talked about Ireland and Spain. So that's kind of what we have on the Ed Koch any of them, yes, no I would say I think you nailed it GP the opportunity is there for US I think we have a great deal of potential the UK as J P mentioned as a beachhead and.

Kirk Tanner: Yeah, no, I think you nailed it, GP. The opportunity is there for us. I think we have a great deal of potential. The UK, as GP mentioned, is a beachhead.

Kirk Tanner: We continue to work across Europe right now so we do think that is a significant.

Kirk Tanner: And, you know, we continue to work across Europe right now, so we do think that this is a significant opportunity for us. And we think by getting the UK right, we're in a great position to continue to grow in the UK to 400 units. That's the potential. And then outside the UK, leveraging the business there to be the beachhead for the rest of Western Europe. So we feel really strong about that opportunity. Thanks for the question.

Kirk Tanner: An opportunity for us and we think by getting the UK right. We're in a great position to continue to grow in the U K to 400 units Thats the potential and then outside the UK leveraging the.

Kirk Tanner: The business there to be the beachhead for the rest of Western Europe. So we feel really strong about that opportunity. Thanks for the question.

Kirk Tanner: Thanks, John. That was our last question of the call. Thanks, everyone, for participating this morning. We look forward to speaking with you again on our second quarter call in August. Have a great day. You may now disconnect.

Speaker Change: Thanks, John that was our last question of the call. Thanks, everyone for participating. This morning, we look forward to speaking with you again on our second quarter call in August have a great day, you may now disconnect.

Kirk Tanner: Okay.

Kirk Tanner:

Kirk Tanner: [music].