WEN

Wendy's Company (The) (WEN)

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The Wendy's Company (WEN)

March 13, 2013 8:00 am ET

Executives

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

Analysts

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Presentation

Joseph T. Buckley - BofA Merrill Lynch, Research Division

I'm Joe Buckley, Bank of America Merrill Lynch's restaurant analyst. We're very pleased to be kicking off day 2 of our consumer conference. We're chock-full of restaurant companies today, and we're very pleased to launch the restaurant portion of the conference today with Wendy's. Representing the company will be Steve Hare, the Chief Financial Officer; and Dave Poplar, who heads up Investor Relations. Steve and Dave, thank you for joining us. Steve, I'm going to turn it over to you.

Stephen E. Hare

Thank you, Joe, and it's good to be with you. Thanks for including us, and good morning, everyone, to the hard-core here at the early session, I'd say. What I wanted to do today was just briefly give you a quick framework for thinking about Wendy's, especially if you're new to looking at the story. A lot going on at Wendy's, to say the least.

What I'd like to do before we start is just point out that some of the comments I'll be making today will be forward-looking, so I would ask you to refer to our Safe Harbor language.

In terms of the presentation, just in terms of financial information, obviously, this is getting to be a little stale, but the latest numbers we have released were our fourth quarter numbers. You can see that we finished, in terms of our adjusted EBITDA, at $333 million, a slight increase over the previous year. Probably more importantly was the fourth quarter results. You can see the adjusted EBITDA was up about 19%. So a strong finish to the year, especially when you think that in the prior year was when we had launched the redo of our hamburger line, the Dave's Hot 'N Juicy, which was a strong quarter. From a same-store sales standpoint, you can see we came in at 1.6% for the year, and on a 2-year basis, about 3.6%, which we think is good performance overall. But clearly, as we look forward, we like to ramp that up a bit.

From a quarter standpoint, even though we dipped down to a negative number in the fourth quarter, again, I'd point out that we rolled over our strongest quarter of the year with the Dave's Hot & Juicy launch of 5%. So again, on a 2-year basis, almost a 5% lift.

So a good finish to the year, as we go into 2013. I'll point out that our growth levers, when we look at the strategy for the business, the 3 I really want to concentrate on today would be the core growth of the North America business and then the impact on our business from what we call Image Activation, which is our look at the quality of our facilities and really trying to take brand positioning, which is A Cut Above in the QSR space, and apply that as well to our facilities. We're a 40 -year-old brand, so the average age of our facilities is 20 years. So we think it's time for a significant upgrade of the quality of the facilities, and I'll walk you through some of the information there but it's probably our most important strategic objective overall in terms of growth. And when we talk about Image Activation, it applies not only to reimaging of existing restaurants, but also to our design of new units as well.

In terms of our marketing approach, when you think about Wendy's, again, consistent with brand equity over the years. The nice thing about Wendy's is our customers come in with the expectation of -- established over many years of higher-quality food in the QSR space. And so with that, what we're trying to do is continue to be viewed as an innovator in the space. And in QSR today, it really means really looking at a segment of both high and low, high being our premium quality products where, if you look at our core menu, we do think we offer a higher-quality product offering than our competition. We try to bring new news to the category with limited time offerings and we'll talk a little bit about that for 2013. But at the same time, recognize there's a significant part of our customer base that is very cost conscious, especially in this economic environment. So being able to compete at the discount end of the price spectrum is very important to us. About 15% of our customer traffic, we would like to sustain in the discount level.

Now for us, in terms of discounting, I would say that if you looked at 2012, we did see a loss of customer traffic overall, and all the loss of customer traffic was on the value side of the business. So we didn't feel we were being effective in communicating our value offerings to our customer base. And again, we see a significant amount of competitive activity as we head into 2013, focused on the value customer, and I think part of that is because of all the economic headwinds that our industry faces out there.

So for us, we launched, in January of 2013, what we call the Right Price, Right Size value menu. We hit the air with, I think, a pretty effective advertising campaign to raise awareness of it. And what it really is an extension of value from a price point, from a $0.99 price point for us up to just under $2. And what we're trying to do is build a consistency across the system that, frankly, was lacking in 2012 and really try to make it a compelling value offering to our customers, but at the same time something that makes sense for our franchisees because they're in this business to make money. And with the high cost of our food, and we'll talk little bit about inflationary pressures there, we really face a situation where it's not profitable for franchisees to sell some of these products at $0.99. So our marketing campaign to say these are quality products, especially some of the signature items that you can only get at Wendy's, we're very pleased with this program. We're off to a good start in the year, and I think it's something that we'll be able to build on for the rest of 2013.

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