Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The Wendy's Co (WEN, Financial) achieved system-wide sales growth of 2.6% and same-restaurant sales growth of 0.8% in Q2.
- Global digital sales grew by over 40% year-over-year, with a 17% global digital sales mix.
- The company opened 99 new Wendy's restaurants in Q2, a more than 20% increase compared to the first half of 2023.
- International segment delivered over 8% system-wide sales growth, driven by same-restaurant sales growth and net unit growth across each region.
- The Wendy's Co (WEN) has solidified its new restaurant pipeline, with plans to open 250 to 300 new units globally in 2024.
Negative Points
- U.S. company restaurant margin decreased by 80 basis points year-over-year to 16.5%, primarily due to increased labor costs and customer count declines.
- Adjusted EBITDA decreased by 1% to approximately $43 million, impacted by increased investment in breakfast advertising and lower U.S. company-operated restaurant margins.
- Free cash flow decreased due to increased capital expenditure and incremental investment in breakfast advertising.
- The company experienced a slight decline in traffic and a negative mix impact, with traffic down about 2% and a negative mix of more than 1%.
- The U.S. market faced challenges with labor and wage inflation, particularly in regions like California, impacting overall profitability.
Q & A Highlights
Q: Just had a question on the U.S. comp trends kind of in two parts. I guess the first part is just you mentioned the quick service category discounting, and I know you talk about your five piggybacks. Just wondering if you could talk about any change in consumer behavior you've seen from assumed in the mix of that has gone up and how you differentiate when it seems like everyone has a very similar CAD5 for the follow-up was just on the franchisee feedback from those conversations. Sure. The conversations have been active with that. I know some pushback in terms of making sure things profitable, but just wondering how the conversations are going with franchisees as you could talk about being more aggressive on the value side of things. Thank you. Meanwhile?
A: Yes, good morning, Jeffrey, this is Kurt. I appreciate the question. Very relevant right now, of course. Yes. Look, the first thing I would point to is we've got this nationally recognized famous platform called Biggie Bag that we've had on the menu prior to others coming in and doing something similar on the menu. So we have traction with that value proposition that's relevant. Our franchisees are certainly on board with that. Of course, that is that is a concern for everyone, but our franchisees are on board. They help build this platform over the years. This has been very effective tool, and it is in line with the rest of the things that we offer on our menu were very folks focused on three things, delivering innovation that drives traffic and relevant value in the balance of our portfolio. And our menu allows us to work really hard in times like we're in, and we're really excited about the traction that we have and the balance that we have across our menu.
Q: I just wanted to ask a question about your updated same-store sales guidance for 2024. It's now 1% to 3%. And I think the math suggests that this assumes a kind of 2% to 5% comp range in the second half of the year, which is obviously a meaningful acceleration from where your turn I've been the last couple of quarters. I know you're expecting to stimulate some breakfast growth, but on is the easy comparisons and big enough factor to drive this acceleration that your bank baking into the outlook? Or or what does drive your confidence that the second half can showcase acceleration?
A: Good morning, Brian. Yes, we are confident with our 1% to 3% guidance range. Clearly easier comparisons is one part of the story. Second part of the story is that we definitely expect that the category is going to be slightly slightly improve in the back half. Intuitively you so confident in the programming we have out there as Kirk that I've just said, our program is focused on showcasing our core and all the good news we have India plus, you will see a meaningful stream of innovation in the second U.S. plus a nationally recognized video platforms and our digital offerings and acquisition strategies. Combination of all three will, as you point out, drives a slight acceleration on a one-year basis. If you look on a two-year basis, it's actually very, very comparable.
Q: I just want to have in front of me, so please correct me if I'm wrong on your pipeline cost, food and paper plus labor running 63%, generally invest more in the industry companies ton. I want to be around 60, even loads on obviously negative traffic. And the question that I ask is on, not just in terms of unit development and as we kind of think about the system over the next couple of years in terms of rent renewals, if you will have properties that are coming up to their 20-year terms, how we see feeling about just overall capacity in the U.S., I mean that if the economics would certainly suggest that you keep stores open, but in some cases, it's actually not the choice of the tenant niche situation of the landlord. So I just really wanted to get a sense as we think about the U.S., not just in 25 and a couple of years after 25, it just you time how we're thinking about net overall unit count in this important market.
A: Well, good morning, John. Yes, we are very confident and bullish about the US market will be a highly underpenetrated. We have a lot of interest from U.S. franchisees to continue to expand it. To be announced in the first off, we added about 250 development agreements was a good amount in international, but that's also additions in the United States, as you might have also kicked up. I think two weeks ago we issued a new FTD. and into new FTDB. launched an optimized incentive programs. Our commitment to keep working on the restaurant economic model, plus the incentives that are out there, making the decisions for franchisees to build a much, much easier. So we think we have not reached our potentially in the United States is helping with incentives that we just launched, continue the incentive program around builds to sue them through confidence that the contribution of the US markets to the overall unit growth, which is about 30%. It's very feasible for us.
Q: And I guess to follow up on that on top of Canada, your biggest international market and you talk to the new commitments, implants or accelerate growth in Quebec and another profitability and economics there has improved significantly versus 2019. So curious if you think that to be even greater opportunity to expand that development beyond just go back, let me look at Ontario, Alberta. Just perhaps you feel pretty well penetrated at this point, but curious if you think there's greater opportunity there.
A: Yes, Alex, good morning. Very excited about the Canadian market. We have a very engaged franchise base, as you pointed out there making great progress in sales and profits was back in 2023. The grew sales by 9% in the system. It was up in profits by about 25%. So obviously great economic environment, we definitely expect that to Canada on its own is going to double their growth rates, very attractive AUVs, definitely economics also very good. So very excited about that combined, obviously, with all the other international markets that we continue high. But yes, there's definitely a lot of growth to be had.
Q: I mean if you could talk about how sales trended throughout the quarter? I know some of the typically do, but there are a lot of competitive cross currents during the quarter, and I suspect the month-to-month trends were a little bit lumpy. So maybe it could be helpful if you could explain how the quarter unfolded and the things that were done less sales when trends softened. And while we're at it, there's a little bit tougher. The exit rate in June and July be very helpful. Thank you.
A: Yes, the sales over the quarter, there were some ebb and flow in overall, but pretty consistent. I would just say, if you look at our business, we continue to compete extremely well in this environment. And
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
