Wendy's Co Q3 FY2024 earnings call

Kirk Tanner started by highlighting high-level results and drivers in the quarter. The company is focused on building love for Wendy's by delivering its new brand promise. Enhanced U.S. incentive programs rolled out in July are resonating with franchisees, and new development incentives in Canada and Latin American countries have been announced. 89% of restaurants globally have completed re-imaging. The company made the strategic decision to close additional underperforming restaurants. In the fourth quarter and beyond, the company launched the Krabby Patty Burger and Pineapple Under the Sea Frosty for SpongeBob's 25th anniversary, with upcoming campaigns including an innovative salted caramel frosty flavor, the return of a customer favorite mushroom bacon cheeseburger, and national media showcasing the iconic spicy chicken sandwich. The company is also focused on restaurant profitability through initiatives like the new partnership with Coca-Cola for the beverage business, breakfast sales growth, and fresh AI voice-enabled order taking.

In the third quarter, global systemwide sales grew 1.8% and same-restaurant sales grew 0.2%. In the U.S., the team maintained traffic share in the QSR Burger category and dollar share driven by core items, innovation, and value. The morning daypart saw mid-single digit sales growth, and late night sales grew high single-digit due to delivery and digital. The International segment achieved high single-digit systemwide sales growth with nearly 100 new restaurant openings by the end of the third quarter, led by the Canadian market which saw strong breakfast traffic growth. Global digital sales grew almost 40% year-over-year, with the U.S. segment delivering over 17% of the digital sales mix. Reward members increased from 43 million at the end of the second quarter to 45 million. 64 new Wendy's restaurants were opened globally in the third quarter, and the company remains on track to meet its full-year goal of 250 to 300 openings.

The company now expects full-year global systemwide sales growth of approximately 3%, composed of 1% to 2% same-restaurant sales growth and contributions from new restaurants. The adjusted EBITDA outlook remains $535 million to $545 million. The U.S. company-operated restaurant margin expectation is narrowed to 15% to 16%, and the outlook for adjusted EPS is $0.99 to $1.01. Capital expenditures are expected to be $90 million to $100 million, and free cash flow is expected to be $275 million to $285 million. The company declared a fourth quarter dividend of $0.25 per share, with a full-year dividend of $1 per share.

The macro environment presented challenges in the third quarter, with a softer category environment affecting performance. Cost pressures, including food and labor costs, impacted restaurant margins. Closing underperforming restaurants could have a short-term impact on net unit growth.

Q: David Palmer of Evercore ISI asked about the unit growth outlook and menu innovation.

A: Kirk Tanner said the system is strengthened by closing underperforming restaurants, with a development goal of 3% to 4% where 70% is international and 30% is domestic. On menu, focus is on building the core, maintaining an innovation pipeline, and offering value.

Q: Dennis Geiger of UBS asked about breakfast performance.

A: Kirk Tanner said breakfast is important, growing faster than the category and is a long-term strategic initiative.

Q: Danilo Gargiulo with Bernstein asked about consumer health.

A: Kirk Tanner said the third quarter was still challenging, but the second half and fourth quarter showed momentum.

Q: John Ivankoe of J.P. Morgan asked about prime costs.

A: Kirk Tanner said the company is focusing on labor efficiency, food costs, and growing profitable beverage categories.

Q: Jeffrey Bernstein of Barclays asked about adjusted EBITDA offsets and unit growth.

A: Gunther Plosch said increased franchise fees and lower general and administrative expenses offset the sales shortfall, with additional closures balancing openings and long-term visibility on accelerated growth.

Q: Brian Mullan of Piper Sandler asked about the beverage component of the breakfast offering.

A: Kirk Tanner said beverages are an opportunity for innovation and profitability.

Q: Chris O'Cull from Stifel asked about the Krabby Patty promotion and future collaborations.

A: Kirk Tanner said the partnership with Paramount was successful, and the company is open to future collaborations to drive growth.

Q: Lauren Silberman of Deutsche Bank asked about trends normalizing and income cohorts.

A: Gunther Plosch said October showed acceleration, and the company is maintaining share across income cohorts.

Q: Brian Mullan of Piper Sandler asked about voice AI and drive-thru.

A: Kirk Tanner said AI is driving efficiency, with continuous improvement in accuracy and deployment plans.

Q: Jon Tower of Citi asked about the Biggie Bag platform and competitor value messages.

A: Gunther Plosch said the Biggie Bag performed well, and the company focuses on innovation and operations for value-seeking consumers.

Q: Jim Salera of Stephens asked about menu components driving acceleration.

A: Kirk Tanner said there is a balanced approach of core menu, innovation, and value platform.

Q: Sara Senatore of Bank of America asked about store closures geographically.

A: Kirk Tanner said closures are not specific to one geography, with focus on strengthening the system with new high-performing restaurants.

Q: Andrew Charles of TD Cowen asked about breakfast incrementality.

A: Kirk Tanner said breakfast is highly incremental to other dayparts.

Q: Gregory Francfort of Guggenheim asked about cost inflation.

A: Gunther Plosch said commodity inflation is about 1% and labor rates are stable.

Q: Jake Bartlett of Truist Securities asked about operational improvements as a sales driver.

A: Kirk Tanner said operational excellence underpins the strategy, crucial for delivering the customer experience.

Q: Peter Saleh of BTIG asked about the dollar soft drink promotion.

A: Kirk Tanner said the promotion is celebrating the beverage partnership, with momentum expected to continue.

Q: Christine Cho of Goldman Sachs asked about executive leadership and growth.

A: Kirk Tanner said the company is organized with great talent to drive future growth.

Q: Alex Slagle of Jefferies asked about the SpongeBob collaboration engagement.

A: Kirk Tanner said the combination of a great menu, collaboration, and digital/social efforts is working.

Q: Jim Sanderson of Stephens asked about future partnerships.

A: Kirk Tanner said the company is open to partnerships that build the brand.

Q: Logan Reich of RBC asked about income cohort trends.

A: Gunther Plosch said data was not available to specifically answer.