Wendy's Company (The) (WEN)

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The Wendy's (WEN)

Q4 2012 Earnings Call

February 28, 2013 10:00 am ET


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


Jeffrey Andrew Bernstein - Barclays Capital, Research Division

David Palmer - UBS Investment Bank, Research Division

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Jason West - Deutsche Bank AG, Research Division

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

John S. Glass - Morgan Stanley, Research Division

Michael Kelter - Goldman Sachs Group Inc., Research Division

Sara H. Senatore - Sanford C. Bernstein & Co., LLC., Research Division

John W. Ivankoe - JP Morgan Chase & Co, Research Division

Keith Siegner - Crédit Suisse AG, Research Division

Nick Setyan - Wedbush Securities Inc., Research Division



Good morning. My name is Theresa, and I will be conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter and 2012 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. John Barker to begin. Please go ahead, sir.

John D. Barker

Thank you, Theresa. Good morning, everybody. This morning, we issued our fourth quarter 2012 earnings release. We also filed our Form 10-K. Today, for this call, we'll start with comments from our President and CEO, Emil Brolick, who will provide an update on Wendy's Recipe to Win and the progress we're making on the brand and our key growth initiatives. After Emil, we'll have our Chief Financial Officer, Steve Hare, who will review our fourth quarter and 2012 financial results. And then we'll open up the line for questions.

Today's conference call and our webcast is accompanied by a PowerPoint presentation that can be found on our Investor Relations page of our corporate website, which is www.aboutwendys.com. For those of you who are listening by your phone today, please make sure you select the appropriate webcast player option from our website, and that will make sure you can sync up the slides with 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 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 EBITDA and adjusted earnings per share. Investors should refer to our reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measure.

With that, I'd like to turn it over to Emil.

Emil J. Brolick

Thank you, John. Good morning, everyone, and thank you for being on the call. I'll start with a high-level summary of our 2012 results. As communicated in our preliminary earnings release on January 16, our 2012 fiscal year ended with a strong fourth quarter as our year-over-year adjusted EBITDA increased 19%. From a same-store sales perspective, the fourth quarter was down 2/10 of a percent, but we were positive of 4.9% on a 2-year basis. We began the fourth quarter with positive same-store sales momentum, successfully rolling over the launch of Dave’s Hot 'N Juicy Cheeseburgers with a promotion of our Bacon Portabella Mushroom Melt.

Our sales momentum slowed in November and through December as our marketing message for Mozarella Chicken Supreme did not resonate as strongly as we had hoped amid intense value and price competition. However, momentum has returned with the January system-wide rollout of our Right Price, Right Size menu, which is consistent with our expectations for a solid first quarter of 2013. Steve Hare will take you through a more detailed look at the financials in just a few moments.

Our conviction behind the growth drivers of our business became all clear during 2012 as we took action and made decisions that will position Wendy's well for a strong 2013 and beyond. For this reason today, I will focus on the growth layers that will drive the majority of the EBITDA increase over the next 3 years: first, driving North American same-store sales through an innovative product pipeline, compelling advertising and great operations; second, the continued expansion of our Image Activation initiative for company and franchise restaurants; and lastly, through new company and franchise restaurant development. Longer term, we do expect our global growth layer to contribute a more meaningful positive impact beyond 2015, and we believe that restaurant ownership optimization will make us more efficient heading into 2014.

As we step back and look at the big picture, consumers are no doubt feeling the effect of higher gasoline prices, the 2% payroll tax increase and delayed tax refund checks. While we can't control these forces, we certainly can control how we think about this great Wendy's brand and how we bring this brand to life. We remain convinced that our A Cut Above brand position is the natural position for Wendy's and will serve us well against traditional QSR competitors as well as against new QSR competitors.

I believe that in the first quarter of 2013, we are already able to see how our 2012 efforts in executing our Recipe to Win have begun to contribute to our performance. For example, in 2012, we tested our new Right Price, Right Size menu to enable a successful launch in January of 2013. We plan to sustain the strategic initiative with marketing continuity spaced around 2013 and beyond. And our franchise system has been supportive with higher degree of pricing consistency. Additionally, we are rebuilding our product pipeline and rekindling our heritage of product innovation leadership in leveraging our unique operating system and delivering on our commitment of playing a different game.

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