Wendy's Company (The) (WEN)

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The Wendy's (WEN)

Q1 2013 Earnings Call

May 08, 2013 10:00 am ET


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

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

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


Mitchell J. Speiser - The Buckingham Research Group Incorporated

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Jeffrey Andrew Bernstein - Barclays Capital, Research Division

John S. Glass - Morgan Stanley, Research Division

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

Will Slabaugh - Stephens Inc., Research Division

Michael Kelter - Goldman Sachs Group Inc., Research Division

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

Eric Gonzalez - UBS Investment Bank, Research Division

Christopher T. O'Cull - KeyBanc Capital Markets Inc., Research Division

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

Jason West - Deutsche Bank AG, Research Division

Keith Siegner - Crédit Suisse AG, Research Division



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 First Quarter 2013 Earnings Conference Call. [Operator Instructions] Thank you.

Mr. John Barker, you may begin your conference.

John D. Barker

Thank you. Good morning, everybody. Earlier this morning, we issued our first quarter 2013 earnings release, and we filed our Form 10-Q. Today, 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 that we're making on the brand transformation. After Emil, our Chief Financial Officer, Steve Hare, will review our first quarter financial results. And then we'll, of course, 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 of our corporate website, aboutwendys.com. And for those of you who are listening by phone today, make sure you do select the appropriate webcast player option from our website. That will make sure that you can sync up the slides with our 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 as 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, and thank you for joining our call. We are pleased to report solid first quarter adjusted EBITDA following the strong fourth quarter 2012 results. We delivered adjusted EBITDA of $77.3 million in the first quarter, a $13.4 million or 21% increase. This increase was consistent with our expectations for the first quarter and in line with our adjusted EBITDA guidance of $350 million to $360 million for 2013. Adjusted EPS increased from $0.01 in 2012 to $0.03 for the first quarter of 2013.

From a same-store sales perspective, the first quarter was up 1% and 1.8% on a 2-year basis, despite holiday shifts and more severe winter weather. While the sales performance was below our expectations, we have made adjustments to our marketing calendar to better position the brand for stronger sales growth in the second half of the year. Again, we are reaffirming that we expect 2013 adjusted EBITDA between $350 million and $360 million, as the first quarter was in line with our expectations.

As a result of the refinancing we've been working on in 2013 and the expected resulting interest expense savings of approximately $0.02 per share, we have raised our 2013 adjusted EPS outlook to $0.20 to $0.22 from $0.18 to $0.20. This represents an 18% to 29% increase over our 2012 adjusted EPS of $0.17. Steve will discuss the financial and refinancing in more detail.

As we mentioned during our fourth quarter conference call, the investments and key actions that we took in 2012 paved the way for the solid performance we saw this quarter and will help us set out for a successful 2013 even with softer-than-expected first quarter sales. For example, you'll recall that in 2012, we conducted in-market testing to prepare for the launch of our Right Price, Right Size Menu. This effort paid off as we introduced Right Price, Right Size in January and kicked off January with solid momentum. We have seen improved franchise adherence to the Right Price, Right Size Menu pricing construct. It will be key to maintaining this pricing construct over time as we place increased media emphasis on Right Price, Right Size messages.

Image Activation was another area of investment for us in 2012. We opened 48 Tier 1 reimages last year. The average cost of these Tier 1 reimages represented a 40% reduction from 2011 concept restaurants. The 2012 Tier 1 openings also helped inform the designs of our Tier 2 and Tier 3 Image Activation restaurants that have recently opened. These Tier 2 and Tier 3 restaurants are producing strong sales at a considerably lower investment than our Tier 1 designs. The pace of Tier 2 and Tier 3 openings will be accelerating throughout the year.

Additionally, we announced in January we decided to discontinue breakfast operations at certain company and franchise restaurants. While this decision will negatively impact our 2013 same-store sales results as was anticipated, it will aid our earnings performance as we benefit from the reduction in breakfast advertising expense, as well as the elimination of unprofitable morning daypart operations in these restaurants. The positive sales impact from Image Activation is offsetting the lost sales from discontinued breakfast operations.

And while growth is the absolute imperative, we remain ever vigilant in identifying cost reduction opportunities. The consolidation of our Restaurant Support Center from Atlanta to Dublin, our ongoing focus on G&A efficiencies and cost optimization will contribute to our 2013 results. In 2013, we will also benefit from reduction in beverage costs as a result of our new agreements with 2 of our beverage suppliers. And we continue to look at all costs at our restaurants, ensure that they are adding value to the consumer experience.

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