The Wendy's Management Discusses Q2 2012 Results - Earnings Call Transcript

The Wendy's (WEN)

Q2 2012 Earnings Call

August 09, 2012 10:00 am ET

Executives

John D. Barker - Chief Communications Officer and Senior Vice President

Emil J. Brolick - Chief Executive Officer, President, Member of The Board of Directors, Member of Executive Committee and Member of Capital & Investment Committee

Stephen E. Hare - Chief Financial Officer and Senior Vice President

Analysts

Michael W. Gallo - CL King & Associates, Inc.

Ashwin Shandilya - Barclays Capital, Research Division

Jason West - Deutsche Bank AG, Research Division

Larry Miller - RBC Capital Markets, LLC, Research Division

Chase Arneson - Goldman Sachs Group Inc., Research Division

Nick Setyan - Wedbush Securities Inc., Research Division

Jake R. Bartlett - Susquehanna Financial Group, LLLP, Research Division

Presentation

Operator

Good morning. My name is Brandy, and I will be your conference operator today. At this time, I would like to welcome everyone to The Wendy's Company Second Quarter Earnings Conference Call. [Operator Instructions] Thank you.

I would now like to turn the call over to John Barker, Chief Communications Officer. Please go ahead, sir.

John D. Barker

Thanks, Brandy. Good morning, everybody. This morning, we issued our second quarter 2012 earnings release, and we filed our Form 10-Q. The agenda for today, our call and webcast, will start with opening comments from our President and CEO, Emil Brolick, to be followed by a review of our second quarter financial results from our Chief Financial Officer, Steve Hare. Then Emil will provide an update on Wendy's Recipe to Win and the progress we're making on our key growth initiatives. Finally, we'll open up the line for questions.

Today's conference call and our webcast is accompanied by a PowerPoint presentation, which can be found on the Investor Relations page at our corporate website, www.aboutwendys.com. For those of you who are listening by the phone today, please make sure you select the appropriate webcast player option from our website and that will ensure that you can sync up with the slides and the audio.

Before we begin, I'd like to refer you for just a minute to the Safe Harbor statement that is attached to today's news release. Certain information that we may discuss today regarding future performance such as financial goals, plans and development is forward-looking. Various factors could affect the company's results and cause those results to differ materially from those expressed in our forward-looking statements. Some of those factors are referenced in the Safe Harbor statement that is attached to the news release. Also, some of the comments today will reference non-GAAP financial measures, such as adjusted earnings before interest, taxes, depreciation and amortization. Investors should refer to our reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measure.

Now with that, I'd like to it over to Emil.

Emil J. Brolick

Thank you, John, and good morning. As we review the results of our second quarter performance, I believe we are beginning to see positive signs in our quest to become a cut above in all aspects of the Wendy's brand experience. We are very encouraged, but we're certainly not satisfied.

Second quarter system same-store sales growth of 3.2% marked our fifth consecutive quarter of positive, system same wide store sales. This growth was the result of improved restaurant operating experience, compelling product messages and integrated marketing that really is beginning to resonate with consumers.

Our company-operated restaurant margin increased 20 basis points in the quarter, as our average check increase was mostly offset by investment in labor to improve the consumer experience and increases in commodities. As Steve will explain, we believe we have opportunities to improve margin.

Based on second quarter results, we are maintaining our 2012 adjusted EBITDA outlook of $320 million to $335 million. We continue to see strong sales increases at our Image Activation restaurant and plan to accelerate the expansion of the program in 2013. We are confident that the substantial capital investments we and our franchisees are making will drive the long-term profitability and growth of the Wendy's brand.

The 3 key reference points guiding our thinking strategically and tactically are: our brand positioning of A Cut Above, the growth pyramid illustrated in this slide and our Recipe to Win. Our company and franchise operators are aligned with and committed to these 3 cultural foundations, as keys to producing consistent brand, sales and profit growth.

The 7 growth initiatives, as illustrated by this pyramid, begin with the foundation of our business, North American sales growth. Beyond driving same-store sales growth, Image Activation is the most important initiative in our company. As our reimaged restaurants enable our marketing, our food and our people to be more effective in delivering a total experience that our customers are telling us that they absolutely love.

The 6 P's in our Recipe to Win bring our growth strategies to life, and when executed in unison, are powerful. We are optimistic about the potential of each of these growth players and our Recipe to Win.

And now, I'll turn it over to Steve, and then I'll return with more thoughts on our growth strategy.

Stephen E. Hare

Thank you, Emil, and good morning. And thank you for joining us today. We began the second quarter with the introduction of the Spicy Guacamole Chicken Club in April. In May, we launched our new Signature sides, featuring Mac 'N Cheese, Baked Sweet Potato and our Chili Cheese Fries. In June, we promoted the return of a Wendy's seasonal favorite, the Berry Almond Chicken Salad.

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