Wendy's Co (WEN) 2011 Q4 法說會逐字稿

Good morning and welcome to The Wendy's Company's Q4 2011 earnings conference call.

(Operator Instructions).

I would now like to turn the conference over to Mr.

John Barker, Chief Communications Officer.

Please go ahead, sir.

Thank you.

Good morning, everybody.

Happy you could join us for the call.

This morning we issued our audited fourth-quarter and full-year 2011 earnings release, and we filed our Form 10-K.

And, as we noted in the release, the audited results are the same as the preliminary results we issued on January 30.

The agenda today will start with the review of our fourth-quarter and full-year financial results from our Chief Financial Officer, Steve Hare, and then our President and CEO, Emil Brolick, will give an update on Wendy's Recipe to Win and the progress that we have on many of our key initiatives.

And then finally, we will open up the line for questions.

Today's conference call and our webcast is accompanied by a PowerPoint presentation, and you can find it on our Investor Relations page at our corporate website, which is www.aboutwendys.com.

And for those of you who are listening by phone today, 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 would 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 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.

With that, let me turn it over to our CFO, Steve Hare.

Thank you, John, and good morning and thank you for joining us today.

Even though we released preliminary results in January, let me briefly review our performance in Q4 and 2011.

North America Company-owned same-store sales increased 5.1% in the fourth quarter.

This sales increase was driven by both positive check and transactions.

Our franchisee same-store sales increased 4.2% during the quarter.

In October we launched Dave's Hot 'n Juicy cheeseburgers.

In November we promoted the Asiago Ranch Chicken Club and extended our national advertising of the Dave's Hot 'n Juicy line.

In December we added The W to expand our array of quality hamburger offerings with a unique taste.

These product promotions drove the strong same-store sales performance across the Wendy's system.

Wendy's Company restaurant margin was 15% for the fourth quarter, reflecting a 100 basis point increase from a year ago, despite higher commodity costs.

Adjusted EBITDA for the fourth quarter was $80.9 million, a 10.5% increase over the fourth quarter of 2010.

Now let's take a look at the full year.

Total revenues for 2011 increased $56 million or 2.4% versus the prior year, primarily as a result of a 1.9% systemwide same-store sales increase and positive transaction growth.

This increase in revenues included a $9.4 million benefit from favorable Canadian foreign currency rates.

Adjusted EBITDA for both full year 2011 was $331.1 million and represented a 3.2% decrease compared to prior year.

Adjusted EBITDA in the current year excluded transaction-related costs resulting from the sale of Arby's.

To present comparable results, prior year adjusted EBITDA excluded Arby's indirect corporate overhead and prior integration-related costs.

Now I would like to talk about income from continuing operations and special items affecting this year's results.

Income from continuing operations totaled $17.9 million or $0.04 per share in 2011.

These results included Arby's after-tax transaction-related costs of $28 million or $0.07 per share.

Excluding total special items of $44.2 million or $0.11 per share, our adjusted earnings per share in 2011 was $0.15.

Now let's discuss cash flow.

2011 cash flow from operations was $247 million.

Capital expenditures were $147 million and were primarily related to restaurant remodels, maintenance CapEx and new restaurants.

One of our strengths continues to be our ability to generate positive free cash flow, which we define as cash flow from operations less capital expenditures.

We generated $100 million of positive free cash flow in 2011.

We spent $158 million on stock repurchases, and we returned $32 million to our stockholders in dividends during 2011.

During the year, our cash taxes, which include only state and Canadian taxes, totaled $14 million.

At year-end we have approximately $283 million in Federal net operating loss carry forwards and $83 million in tax credit carryforwards, which will benefit our cash flow in 2012 and beyond.

Before principal payments, our net cash flow was a positive $1.4 million.

We repaid $38.7 million of our long-term debt.

At year-end we had a total cash balance of approximately $475 million.

Now let's look at our debt capitalization.

At the end of the fourth quarter, our total debt was approximately $1.4 billion and net debt was $900 million.

Based on our full-year 2011 adjusted EBITDA, our current net debt multiple is 2.7 times.

As we have discussed before, $565 million of our 10% senior notes becomes callable in July 2012, and we intend to evaluate refinancing options with an objective to reduce our effective borrowing rate this year.

Next, I would like to share an update on our stock repurchase program and dividends.

For the full-year 2011, we purchased 31 million shares for $157 million at an average price of $5.07 per share.

From the 2009 inception of our repurchase program through 2011 year-end, we repurchased 83 million shares for approximately $402 million at an average price of $4.83 per share.

At year-end we had approximately 390 million shares outstanding.

Our Board authorization for the stock buyback program expired in December of 2011.

We intend to focus our capital resources on strategic reinvestment initiatives going forward.

Our next quarterly cash dividend of $0.02 per share will be paid on March 15 to stockholders of record as of March 1.

As you saw in the release, we reaffirmed the outlook that we issued at our 2012 Investor Day, which includes positive Company-operated same-store sales of 2% to 3%, Company-operated restaurant margins of flat to up 50 basis points despite commodity pressure of 115 to 145 basis points, both of which leads us to an estimated range for adjusted EBITDA of $335 million to $345 million for 2012.

2012 adjusted EBITDA will exclude costs related to our consolidation of restaurant support centers to Dublin, Ohio.

Also, as part of our 2012 outlook, we shared our intent to ramp up our total capital spending to $225 million, a $78 million increase over 2011.

We expect to spend a total of $80 million on new restaurants and remodels reflecting our new image.

This large investment represents our next major step toward upgrading our facility base and providing the Company and our franchisees with a compelling financial return on this strategic reinvestment in the brand.

We also expect to spend $65 million on restaurant maintenance and equipment, including the installation of new point-of-sale hardware in all company restaurants and $20 million to support our product development programs.

We used this pyramid at our Investor Day to illustrate our key long-term growth drivers.

We believe the combination of growing our core restaurant business in North America by improving our customers overall restaurant experience, significant investment in new Image Activation, daypart expansion, refinancing and global growth provides an attractive opportunity for us and supports our target for an average annual adjusted EBITDA growth rate in the high single digit to low double digits range in 2013 and beyond.

And now let me turn the presentation over to Emil.

Thank you, Steve, and good morning to everybody.

As I shared with many of you during our recent Investor Day, the next three years are going to be the most intense period of change in the history of the Wendy's brand.

It will also be the three most intense years of capital investment in Wendy's history as we implement many strategic initiatives.

I have now been Wendy's CEO for about six months, and I can share with confidence that we are taking the correct steps to rejuvenate the Wendy's brand, we have a clear vision for the Wendy's brand, and we understand what is required to bring this vision to life, and we're working with our franchisees to do exactly that.

We have made important progress, but we do recognize that much remains to be accomplished in 2012 and beyond.

Fundamental to rejuvenating the Wendy's brand is our Recipe to Win.

Our Recipe to Win is our plan to take Wendy's from where we are today to become a growing vibrant entity that resonates with consumers and produces consistent same-store sales and profit growth.

The foundation of this Recipe to Win is, of course, our brand vision.

We call it A Cut Above.

We believe that this is the natural position for the Wendy's brand.

We also believe that this position will prove to be uniquely ownable, defensible and profitable.

As part of our Recipe to Win, we have initiatives against all of the Ps -- price, product, promotion, place, performance and people -- which when executed will restore the positioning of A Cut Above that Wendy's held in the market place for many years, positioning that actually was created by our Founder, Dave Thomas.

A Cut Above simply says that we are going to be ourselves, not somebody else and says we are going to provide consumers a new QSR experience, but we are going to do that at a QSR price.

Now why will A Cut Above work?

We know that consumer reference points have changed.

Today's consumers not only have the traditional QSR options, but they have new reference points in the form of quick casual restaurants or what I believe to be the new QSRs.

These new QSRs are providing consumers what is perceived to be elevated food experience, a comfortable environment and heightened service standards.

We understand that our response cannot be one-dimensional.

We are re-imaging and elevating all the touch points for our brands -- our restaurants, our people, our service experience, our food quality and food presentation, and our brand communication.

The intent of this is to reframe how consumers think about and engage with the Wendy's brand.

So imagine the potential for a brand that provides consumers a new QSR experience but at a QSR price.

That is what Wendy's will do.

That is what A Cut Above says, and that is what our Recipe to Win is cooking up.

Our Image Activation initiative is the core dimension of our Recipe to Win.

We know that the physical presence of our restaurants and street corners across America positions the Wendy's brand in the minds of consumers, that the physical positioning is about to get a major upgrade.

Contemporizing Wendy's restaurants is key to our growth and prosperity.

Everything works better in our newly remodeled restaurants.

This should not be surprising since consumers are giving these restaurants rave reviews.

Importantly, our teams also love working in these restaurants, and it gives them the opportunity to raise execution standards to a new level and build a genuine emotional bond with guests.

In 2011 we remodeled 10 existing restaurants with one of four contemporary image designs.

Our mission is to deliver customers bold innovative designs that elevate and transform Wendy's image and deliver A Cut Above in every touch point.

We have conducted extensive research, and consumer feedback on the 10 Image Activation restaurants has been unbelievably positive.

As we made the physical changes to these restaurants, we also knew that we had to elevate our standards of customer engagement to new QSR levels and we did that.

We understand that buildings don't care for our guests; people care for our guests.

I can also assure you that our franchise leadership group recently visited our Image Activation restaurants in Phoenix, Arizona, and they were thrilled with the experience they had.

And why not?

Sales growth at the 10 restaurants we have remodeled has exceeded our expectations.

In 2012 we plan to remodel 12 restaurants -- excuse me, 50 restaurants with one of four new images.

We plan to invest between $750,000 to $850,000 in a typical Image Activation remodel.

Based on results to date, we are targeting a 15% return on investment for a typical Image Activation remodel.

We will further value engineer the current designs to produce a solution that continues to drive sales, wow customers and lower investment costs.

This reduced investment is very important to us and our franchisees.

As we validate the results of this program, we will work with our franchisees and financial institutions to develop financing sources for the Image Activation initiative.

In 2013 and beyond, we expect to generate further economies of scale and reduce unit investment with the goal of more rapidly re-imaging a significant portion of the Wendy's system.

All our customers deserve the kind of Wendy's experience that has been created in our new Image Activation restaurants.

So while beautiful restaurants are essential to rejuvenating the Wendy's brand, let there be no mistake -- our people are our greatest asset and our greatest source of differentiation, and we are building a team of five star athletes.

Image Activation is a great example of how important people are to Wendy's Recipe to Win.

Our people are an expression of our brand, and because we want to reimage the brand, we need to raise the performance of our teams to provide guests an elevated experience.

Our restaurant general managers are key to our success.

They are the backbone of the business.

We are re-interviewing general managers as part of the Image Activation process to be sure that they have the positive attitude and skill sets to lead and build high-performing teams.

In fact, we are re-interviewing and retraining the restaurant teams and making changes as necessary to ensure an experience that is A Cut Above.

For our restaurant teams, Image Activation is one of the most exciting things to happen to our brand in decades.

Many of our general managers and crew members say that they are honored to work in these new Wendy's.

This is positive news as we know that the experience that our restaurant teams provide our guests is a reflection of how our team members are treated.

The more positive the environment we create for our teams, the more positive the experience they will create for our guests.

The formula is really quite simple -- build people capability first, customer sales and profits will follow.

So let's be clear, elevating the customer experience is not just for Image Activation restaurants.

Every Wendy's customer deserves a great experience.

We are working to elevate customer experiences to be A Cut Above across the entire Wendy's system, company and franchise operations alike.

We know from our internal scorecards that we are making significant progress.

We are operating many more A and B level restaurants than a few years ago and have elevated performance so that we have virtually eliminated all F level restaurants.

As we focus on elevating our brand and improving our performance, we will elevate customer engagements from a functional connection to an emotional connection.

We know that to unlock this emotional connection, we must deliver on the basics, the table stakes -- cleanliness, friendliness, order accuracy, speed of service -- and we must execute these basics consistently in all of our restaurants.

We are committed to improve our operating systems to put our restaurant teams in a position to win and more consistently deliver our brand promise of A Cut Above.

At this point consumers become promoters of the Wendy's brand.

Now let's shift gears and talk about how we intend to reimage our brand communication and bring to life exciting future product news.

As we mentioned at our Investors Day, we will be unveiling a new advertising campaign in April.

We are also making improvements to our national advertising messages and to our media strategy.

For competitive reasons, we can only speak to these in general terms.

We believe our current campaign, "you know when it is real," is our best campaign ever since the Dave Thomas campaign ended in 2002.

But we know we can take our brand communication to another level.

The fact is that too many consumers don't have top of mind awareness of what makes Wendy's better and what makes Wendy's different.

We also see a distinct opportunity to create a consistent look, tone and feel for our advertising that will become synonymous with the Wendy's brand.

The goals that we have set for our new ad campaign are quite clear.

We have got to win the hearts and the minds of consumers.

Today brand communication is not just about selling products, but it is also competing for mind space, about making an emotional connection with consumers.

Today's consumers, and in particular young consumers, want to be engaged, so we have to create a connection with people that links them to the brand.

The most effective brands solve problems for consumers in a way that resonates with them, and that is what our advertising and our marketing messages will do.

So within this context, we are creating an original campaign that ties all the elements together with a unique look, tone and feel, so when consumers see it, they will say that that is Wendy's advertising.

Now let's talk about the product P.

We are focused on reclaiming our lead in product innovation based on our brand heritage of honest food, honest ingredients.

This effort really began with the launch of Dave's Hot 'n Juicy cheeseburger line in October 2011.

The new premium product line drove sales and initiated the product journey of restoring Wendy's to its A Cut Above position.

So what can you expect from us going forward in products?

This slide shows some examples of products we plan to add to our menu over the next several months.

You will see us leverage our equity in our core hamburger, chicken and salad platforms, but bring new news to these core products through relevant innovation.

These limited time offerings provide the opportunity to leverage unique brand equities, while lifting sales by providing relevant consumer news.

We are also committed to what Dave Thomas called honest food.

That is food with simple, clean ingredient labels and natural food ingredients.

Speaking of superior products, we continue to receive great consumer feedback on our breakfast products that we currently offer in several markets.

Consumers rate Wendy's breakfast products notably higher than the competition on key metrics such as taste, quality and freshness.

We believe our differentiated menu offering, our focus on freshness and our Redhead Roasters coffee program will help separate us from the competition as we move forward with our learning on breakfast.

We have demonstrated that we can execute breakfast successfully, our operational attribute scores for breakfast are very strong, and we are able to execute breakfast across a variety of value patterns.

Breakfast is the most rapidly growing daypart in the restaurant industry, and by delivering a A Cut Above menu and customer experience, our goal is to earn our share of the morning daypart.

In 2012 we plan to expand breakfast to a new market in the north, northeast where breakfast competition is especially strong.

We expect to gain learning and insight that will continue to prepare us for a much broader breakfast initiative.

The implementation of breakfast in DMAs also creates the incremental opportunity for considering 24-hour drive-thru operations.

We will also add our new breakfast to selected new restaurants and remodels where we believe the existing market advertising efficiencies provide a platform for success.

In summary, we are focused on building awareness of our new breakfast, driving sales and profits and continuing to make progress toward further breakfast expansion.

So to recap briefly, we have a strong iconic brand with significant latent brand equities.

We have a clear brand vision, A Cut Above.

It is the natural position for the Wendy's brand.

We have well-defined growth platforms and clear Recipe to Win in terms of same-store sales growth, re-imaging of the existing restaurants, building new restaurants, extension of dayparts, international expansion and franchise acquisition.

We are focused on execution, and we look forward to sharing our progress with you on future calls.

With that, thank you, and I will turn it back to John Barker.

Thanks, Emil.

I would like to take a moment to go over some of our recent and upcoming events.

As we mentioned earlier, we had our Investor Day on January 30 in New York.

It was a great opportunity to discuss some of the things that we went through in detail today with you, and I encourage you to take a look at our website.

Those presentations are posted there if you not already have done that.

In March we are presenting at three investor conferences.

The first is the BofA/Merrill Lynch Consumer Conference on March 7.

The ROTH Capital Growth Stock Conference is scheduled, and we will be there on March 12, and UBS Global Consumer Conference is on March 15.

Webcasts for each of these presentations will be available on our website.

And finally, we are planning to release our earnings for the first quarter of 2012 on Tuesday, May 8.

With that, we are now ready to open the phone lines to begin our question-and-answer session.

Would you please give instructions and let's begin the Q&A?

(Operator Instructions).

Michael Gallo, CL King.

A couple of questions.

Emil, just on breakfast, I know there has been maybe a little uncertainty as to how quickly things will roll out this year going into a new market in the Northeast.

Can you just talk a little more about some of the learnings, some of the things that you are still tweaking?

Obviously the consumer feedback on the products has been very good.

Is it just a matter of getting that profitability up?

You noted I think at your Analyst Day, that the couponing was reduced, and you were able to hold the sales.

So help us as to how we should think about breakfast and what kind of I you need to dot and Ts you need to cross before you can really roll that out more aggressively?

Sure.

In fact, two weeks ago we met with our franchise leadership groups from the United States, as well as the franchise leadership group from Canada, and we had them all in Phoenix, Arizona, as I mentioned, and we certainly had the opportunity to talk extensively about Image Activation, as well as breakfast.

As we have shared with you in the past that we look for what we call three green lights.

One of those is operations, one consumer and then the third is, of course, financial.

And we have demonstrated to our franchise partners that certainly we have got a strong green light operationally.

In fact, we are seeing from our own internal metrics at the breakfast daypart we probably have the strongest performances.

We have a green light from a consumer point of view.

And the area that we still are working on with our franchise partners is in the financial area.

Obviously, when you launch an initiative like breakfast, you are going to have to take a different approach in terms of your marketing communication as this would require incremental marketing dollars to really drive this.

Because what we have seen in studying launches of other competitors on breakfast is that they would make a big portion, and they would not necessarily sustain that.

And so we have laid out a program that we would make sure that we would not only have the big push but we would sustain it.

So when you build all those costs into the P&L, it is a different kind of look, and I'm not talking about our P&L but really at the restaurant level P&L.

So that is really where most of the conversations are still taking place.

They are very much behind us, continuing to get the learning, continuing to expand into the Northeast market.

Because obviously there are unique competitive situations there that would include, for example, Tim Hortons in some markets, as well as obviously Dunkin' has a strong presence.

So there is very productive dialogue continuing.

And I will also say, Michael, that they appreciate that over the past five years that breakfast has been the strongest growing daypart, and that when you look out, it is also projected to continue to be a strong growing daypart and they understand that.

Okay.

And just a follow-up question -- that is helpful -- on the Image Activations, you have obviously talked about having 80 of these between new and re-images in the Company stores by the end of the year.

I was wondering if you also expect some franchisees to begin to put the program in test in 2012?

We do.

Actually we are actually having to turn away franchisees on this, and the reason for that is we will probably have somewhere between three to five franchisees participating with us in this year.

And when I say turn away, because we are very, very serious about the people piece of this, as well as the physical asset piece, and it is almost like getting the asset piece built, and that is almost the easier piece.

The harder part is making sure that we retrain the employees and that we really provide consumers this A Cut Above experience when they get in there.

So the asset piece is consistent with the people piece.

And we are very serious about not just paying lip service to this, but to make sure that this is happening.

And so we would want to be working closely with our franchisees to make sure that that is happening.

But they want to go, and we heard in Phoenix clearly any number of them brought up that, hey, I have got this many remodels and I want -- I saw these restaurants, I love them and I want this to be mine.

So there is a lot of enthusiasm for it.

That was helpful commentary.

Joe Buckley, Bank of America/Merrill Lynch.

I wanted to go back and revisit the people piece of the puzzle again?

I tend to agree with you that that is a critical part of elevating the experience.

But talk about how you are managing that?

Are there changes in compensation that are required?

How do you plan to keep people longer?

As you know, turnover in this industry is very, very high.

So how can you get that experience to a more consistent level?

What kind of changes have to be affected in your people management practices?

Well, first of all, thank you for asking that question.

What we find is really, number one, you absolutely have to have the right general manager, and this is really obvious to all of us.

And you have got to have the right leader if you are going to create a right team.

And I think quite honestly that we have spoken to that idea for a long time, but I'm not sure that we have really held ourselves to as tough a standard as we need to.

Remember this has to happen in franchise restaurants, as well as company restaurants.

So number one is really getting an exceptional RGM that has the positive attitude, the kind of individual that people want to be around and want to work with.

That is job number one.

And then providing that individual the kind of training and support to make sure that they are able to hire people with the right attitude, and then we give them the functional skills.

I think at times we have been too guilty of focusing on people that may have exhibited functional skills, but they did not have the attitude.

Well, we are really going to change that, and we have got to make sure that you hire people that smile, that are willing to engage customers to do that.

And our experience so far has not been one of you have to pay people more.

You have to treat them differently.

You have to provide a different environment.

And we are getting extremely positive feedback from the teams in these new restaurants.

Because they feel elevated and they feel like they are actually being given a greater responsibility because part of the training in this is a whole story about, what does A Cut Above mean, what does food forward main, what does food with integrity mean and honest food, and their role in providing that to consumers?

So I am, first of all, all-in on this, and I'm very optimistic that we can really make a difference with this.

Jason West, Deutsche Bank.

Just going back to the reimaging plans, can you remind us roughly what percentage of the system you think needs to be addressed in this way to really rejuvenate the brand in the way you would like to see?

I guess just some rough numbers on the Company's side and the franchise side so we can get a sense of how much money we are talking about reinvesting here?

Let me take a crack at that.

I think the plan, as we look at it, is to make this substantial investment on the 50 remodels this year and then be able to, as Emil talked about, start to work with some of our franchisees so they also see that it is not just a construction project.

It is also how to run the stores differently at this higher level.

And we are hopeful then by the end of the year we will have a good and broad history here of performance and what really is impacting our consumers as they come in and see us here.

We think that is applicable, frankly, to a significant part of our system.

Right now obviously we recognize that for our franchisees, it is a significant investment, and so we have started conversations with a number of financial institutions just to design what kind of financing programs could be available to facilitate this process.

Because I think with the excitement that we are feeling around the Image Activation, I think this is a program that people will want to accelerate the rollout of this.

So we don't want financing to be an obstacle to that program.

So we have started that process now with a number of our financial institutions that know the Wendy's system quite well.

I think they are enthusiastic about the potential for this financing program.

On the Company side, what we would do is we have begun a process already of targeting key markets.

We also want to look at what we call sort of a model market where we don't do just an isolated store or two in the markets, but begin to tackle where a majority of the stores in a market will have this new image because we think there may be a multipler effect there going forward.

So we are interested to see that impact as we expand our program.

So we are working very hard.

As Emil said in the beginning, this is a huge initiative for us.

We are throwing a lot of resources at it, and we would hope over the next three years to be able to really significantly change the appearance and how people view our facilities nationally.

And let me just build upon Steve's comments.

The other thing we are doing is we have an intimate understanding of the silhouette, the financial silhouette of our Wendy's system.

And so we don't pretend that there is a one shoe fits all solution here and that we recognize that we have a lot of very, very high volume restaurants, and then there were some on the other end of the scale as is the case in every restaurant system out there.

So we are going to make sure that we have solutions that permit this to be an aggressive program that really addresses the vast majority of the restaurants in the system and is not limited to a small group of people.

Because we feel if we did that, we could not have the impact.

And this is not just a sprucing up of restaurants.

This is a re-imaging of the brand, which is a dramatically different statement.

And, as I mentioned in my comments, what we are seeing is everything we do works better in these restaurants.

Chris O'Cull, SunTrust Bank.

Emil or Steve, a number of Wendy's franchisees are probably closer to retirement age who may not want to make the investment in the restaurant.

So does your plan include acquiring a number of franchise locations?

Well, we will definitely be opportunistic in that area as well as thoughtful.

But we certainly feel that we have the capacity to do that.

We also know that there are a number of franchisees in our system that are excellent operators and have excellent balance sheets that are very interested to grow.

Quite honestly, they are always interested in purchasing restaurants because they kind of know what they are getting.

So we could be in a position to purchase those franchisees as well as their other franchisees who are very interested in growing through acquisitions.

So we think that is the easy thing to solve for, quite honestly.

Just as I follow-up, is the model or the approach you would take that if you were to acquire a franchisee would be accretive upon acquisition?

Yes, we would look at that.

But clearly part of that accretion would be then a commitment to have an Image Activation program for those stores.

So one of the criteria we would look at would be, are these stores in a market that where image activation would fit and then our ability to accelerate the process versus, say, a franchisee who may not be as aggressive as we would like just to seize this market opportunity now?

So it will have to be sort of a market by market evaluate that we will make.

But I think, as Emil said, I think you will see us make some acquisitions, expand the base of Company stores over the near to mid term, but, at the same time, you will also see a selectively re-franchise opportunities where we have an aggressive franchisee or a new franchisee who really wants to be part of this Image Activation program.

Okay.

And then one last one, Steve or Emil, I believe the new England market is franchise.

Are you providing some support to the franchisees in those markets for the breakfast rollout?

And if so, what form is it?

Well, the New England market is a combination of Company and franchise.

As we detail in our 10-K, we are providing some support to franchisees in these markets, and we are spending some incremental advertising dollars as are they in these markets.

Because the thing that we have tried to make sure is that these markets are as projectable as is possible to a national rollout.

So we produce results in these tests that we can then share with the broader franchise community and say that these reflect the kind of performance that you could expect to achieve at a minimum.

Jeffrey Bernstein, Barclays Capital.

A couple of questions.

Just first from a comp perspective, I know just looking back to the fourth quarter, at least on the Company side, it was a roughly 5% comp, but I think we have talked about perhaps a deceleration a little bit through the quarter as the Hot 'n Juicy upside eased a little bit.

I was wondering whether there was any color you can give specific to Wendy's or the broader category in the first quarter?

Obviously there has been a lot of weather noise, and I know you did not want to comment on the January trends at the Analyst Day, but whether you can comment just about Wendy's post a lot of this new news or the broader category in terms of what you are seeing ex the weather thus far in the first quarter and then I had a follow-up?

Well, we have indicated that we are not going to be making comments about individual months and that we have reaffirmed our guidance for the year.

So I am not in a position to really comment beyond that.

We are seeing some strong performances out there, and you are reading I am sure the same information that I'm reading.

We clearly sense that there has been an economic pickup in the country, and that buoyed consumers' attitudes out there.

Obviously we are all watching gas prices carefully, and the consumers seemed to, quite honestly, have digested that quite nicely.

So we are pleased with the level of economic activity that we see.

And, again,I want to reinforce one of the beautiful things about the restaurant business is that regardless of what the situation is, is that brands that demonstrate relevance to consumers always, always do well, and that is exactly what our commitment is.

We want to get the Wendy's brand in the shape that it can produce consistent same-store sales and profit growth, and we are committed to delivering on the guidance that we have provided the financial community.

Should we expect -- I know you guys in the past have talked about a new chicken platform and potentially re-hitting the Hot 'n Juicy and The W.

Should we expect that in the first quarter, or I should say now that we are already two-thirds into the first quarter, when should we expect either of those to be re-hit?

Well, the March window is a local window that we are about to enter into, and one of the options in that window and the one that actually is being most used by our franchisees is, in fact, The W.

And I will tell you we have made two revisions to that product that we think will further enhance its ability to drive sales results.

One of those is we actually have taken a price increase on the product.

We moved it up from $2.99 to $3.19.

We moved the combo price up $0.29, not $0.19, and also we have done a much better job of featuring fries and Coca-Cola with that.

Because one of the things we saw in the December event is we did not get the level of drag-along sales in terms of french fries and soft drinks as we should have and needed to, and we have made significant changes in the merchandising, as well as in the TV advertising.

The spot is much more directly competitive against the Big Mac.

Now it never mentions the Big Mac by name, but it is pretty obvious what we are talking about.

But it does it in a very nice way.

I think it is a spot that is very much akin to the Apple versus PC kind of spot, so you will see that.

Regarding chicken, we do have plans for the launch of what I think is a pretty special product at some time in the year, but I don't want to give you any more specifics than that.

So I'm not being coy, but I just cannot give any more specifics.

Understood.

Just as a follow-up on that remodel side, it sounds like coming just out of a franchise meeting over the past couple of weeks, it seems like you are pleased to see the franchisees seem to be on board with a significant investment and obviously the cost that goes with that.

But can you talk about reducing at costs of the economies of scale, I'm just wondering what perhaps is the desired level versus that $750,000 to $850,000, and are you willing to offer any concessions on royalty or ad spend if you are getting any kind of pushback on that front?

Well, I don't -- the franchisees have not really asked for assistance in terms of as it relates to the re-imaging anything on ad spend or royalties.

They are concerned about just minimizing the investment level but maximizing the impact, of course.

And, of course, they are definitely open to any assistance that we can provide, and we have certainly not closed the door on that.

But the great news here is there is tremendous support for the idea that we really need to re-image restaurants.

So we have got like 100% alignment on that.

Of course, the franchisees as would we we would rather spend less than more, but, at the same time, I think we have done an effective job in demonstrating to the franchisees that this is not just about a simple physical upgrade.

This is about reimaging the brand in a new competitive environment.

And it is almost -- it is plus the fact that they are visiting these new QSR restaurants.

They are visiting some of the new reimaged McDonald's restaurants, and this has got their attention.

And they are saying, okay, it is game on and the standard has changed.

So when I mentioned the silhouette of the restaurants, what we want to be sure is that there may be some restaurants that are at volume levels that you simply cannot step up to the $750,000 investment.

But we still want to give that restaurant and touch that restaurant in a way that people are going to feel special about what has happened in that restaurant, but also make sure that it is something that is financially manageable.

Because what we are very sensitive to is we need to do a significant portion of our system so we cannot design something here that is only approachable by a small percent of the system.

We get that very, very clearly.

David Palmer, UBS.

I know from Jeff's question that you are not going to be talking about quarter to date sales, and I'm certainly not going there.

But I'm wondering if you can talk about your brand momentum versus that of the industry and really sort of general, more specific ways that you don't have to talk about specific numbers.

For instance, are there things in terms of day part menu parts, specific products, things that are not perhaps where you want them to be that you are already making adjustments?

You mentioned one with the price point on The W.

And then maybe give us a sense of how things could stage in terms of the changes, small and big, medium and large?

Okay.

Well, David, here is something that I clearly sense is taking place in the business.

It is an interesting that some of the chains out there that have been reporting excellent sales momentum, our friends in Chicago and Subway continues to report great results.

Dunkin' turns in great numbers.

But what is interesting about these brands is they are also being very aggressive in terms of discounting and going after the price value business, not just with a value menu, but also with a couponing effort.

As we have looked at this and studied this, the thing that we have learned, too, is that the coupon customer is, in fact, typically a different customer than the value menu customer.

And the value menu customer has a tendency to be a little more male, younger and more economically challenged.

Where the coupon user has a tendency to be a little older, actually more stronger economically in using those.

And so I don't think we have been as bimodal as we need to be in terms of how we approach the price value customer, and we have made and are going to be making changes in the rest of the year to reflect that.

In Phoenix we got support and alignment with our franchisees in this regard.

Another change that you will see take place is that you see that there are a number of brands that are dedicating media spend against core what I will call core equity messages when they are featuring how they are sourcing produce or how they are sourcing beef or a variety of things.

And, quite honestly, as we look at some of those stories, we know that they really don't have the I will call it the legitimacy or authenticity that we can in those stores.

So we have to be in that space also sharing what makes us different and what makes us better, and there will be a component of our new advertising campaign that is designed to deal specifically with that, along with the traditional need to drive sales through product innovation and communicate those.

So I would say we have made fairly significant changes to an approach on media, as well as an approach on messaging, which we have gained the support from our franchisees.

And do you think that message can be adjusted for the peak season, the driving season?

Yes.

Mitch Speiser, Buckingham Research.

I believe at the Analyst Day, Emil, you mentioned that the value menu you might be making some changes there.

Can you discuss that, perhaps some eliminations, and might there be some additions to the value menu?

Well, I did talk about that, and I believe I talked about that in the context of our barbell strategy and how we felt that we had to get a little better balance there.

I cannot give you the specifics, but we do have a team of people that are focused on this, and we are going to be testing some evolutions that allow us to I think get a little better balance between the low-end and the high-end.

And I don't want anybody to be confused there.

We know the importance of the price value customer today, and we are not going to do anything that is going to disenfranchise the customer.

And so we feel that you have to almost create a bit of a migration strategy where you don't do anything in one fell swoop.

But if you look at our value menu, and we have what I will call six center of the play proteins on there, you know McDonald's has, I think, two.

Well, okay and you just cannot be that out of balance on there.

And, quite honestly, I think we are incurring the food costs for that, but I don't think we are getting the sales benefit for that.

So we do think that there is a better opportunity to better calibrate that and do that, but we are going to have to test our way to that, and all I can tell you is that we are committed to making that change because we truly believe as we gain that learning and evolve that, it really is going to help our long-term economic model and particularly at not late only at The Wendy's Company economic model, but also at the restaurant level that obviously our franchisees are very concerned about.

So there is a lot of brain cells being burned on that, and I think we have some good ideas.

I cannot really give you more specifics, though.

Great.

Thanks.

And if I can ask a separate question just on share repurchase, I believe you indicated that your share repurchase expired at the end of 2011.

You have been a big purchaser of stock over the past couple of years.

Obviously you have a big CapEx program going forward.

And forgive me if I missed this, but in terms of 2012 CapEx or 2012 share repurchase, you don't have a plan just yet, but can you give us your general thoughts on share repurchase over the next 12 to 18 months?

Sure.

The plan, as I said, did expire, and so we do not have an authorized plan going into the year.

That is not to say that depending on how the stock markets performed and our particular stock performed, that is not to say that we would not be opportunistic under certain circumstances.

But the message I think loud and clear should be that our focus is strategic reinvestment back into the business.

That is our priority.

Obviously the Image Activation program is capital intensive.

You see the big step-up we have in the capital budget for this year.

And I would expect, as I talked about, sort of a three-year timeframe where we are trying to expand this program, the Company stores and help our franchisees also make that kind of investment.

That is clearly our priority and what we think is the highest return for using both the cash that we have on the balance sheet, as well as the free cash flow that we have been able to generate.

Great.

Thanks and if I could just slip one in one last one.

Can you give us any general guidance just on calendarization of your EBITDA growth target?

I believe it is up 1% to 4% for the year.

Any guidance whatsoever on how that might pan out throughout the year would be helpful.

Yes, not really provided that.

I would say there is a seasonality as we talk about, a moderate seasonality to our business, so that Q2 and Q3 tend to be our stronger quarters historically.

And I would say Q1 tends to be our lightest quarter, and I don't see why those trends would not continue this year from where I sit.

Reza Vahabzadeh, Barclays Capital.

Actually my questions have been answered.

Thank you.

John Ivankoe, JPMorgan.

Just two, if I may.

Emil, you said in your prepared remarks that you have been getting great scores in breakfast of taste, quality and freshness.

I guess in my own experience what has not been there has been speed.

I just wanted to get your thoughts of what type of investments that you think might be necessary really to get focused on the speed component of the breakfast business to make the convenience that is so important to breakfast maybe be a little bit better?

Let me ask, have your speed issues been inside the restaurant or at a drive-through?

Both actually.

Really?

Yes, well, I would tell you that one of the things that we are doing and we have added actually extra labor and an extra person in our breakfast restaurants to make sure that we are attentive to this.

Because historically with the shift to so much of our business 65%, 67% of our business being at the drive-through, quite honestly, we have taken our eye off the ball in terms of serving guests effectively inside the restaurant.

And we know that it is mandatory that if you are going to be successful in the breakfast business, that the functional delivery of efficiency is very, very important to people.

So I apologize for that experience, but we know that on average, that is not the case.

Through our Questar data, which is our tracking system, we are actually able to compare functional delivery at all of our day parts, and I will tell you in our breakfast markets, the strongest functional delivery is actually taking place at the morning daypart.

So I will tell you on average that is not happening, but we are very, very sensitive to this.

So I appreciate the feedback.

And, by the way, anytime I would love to get feedback from all of you.

So if you have experiences good or bad, I would love to hear about them.

Be as specific as you can because it is very helpful, and I do follow-up on these as people in the restaurants will tell you.

And I don't know if it is the appropriate forum for this, but the issue has just been the fact that the product basically had to be cooked.

So when you have a great -- I mean I agree, it is a higher-quality menu.

There is a lot of variety, but to really focus on the freshness of it, in some cases by definition means having the product ready when the customer actually arrives.

And so that was -- that is an issue that would happen in obviously either drive-thru or eat in.

Okay.

And secondly, if I may just completely -- again, I do hope that was appropriate.

And secondly, on the point of sales system that you mentioned in company stores, what is the measurement or the attributes that you are not getting from your current point of sale system?

And by definition, is it something like speed of service or order accuracy or maybe better labor or food cost controls that you think you might get from the new program?

Yes, it is really all of the above.

We have got some fairly old POS hardware out in the field, and the reliability of the equipment causes downtime.

Nothing hits a restaurant harder than not having a working POS from a sales standpoint and then from a service and an aggravation standpoint.

So it is an investment that is long overdue, I would say to be fair, and so we have stepped up to the plate, and it will be hopefully by May or June of this year, we will have it in 100% of the restaurants.

The operators love the reliability, and so it will be a cost reduction for us going forward because we will have a lot less downtime.

And do you have a sense of what it's actually -- I guess what you see in terms of the immediate installation and what kind of data you might be able to study in terms of helping just the way the restaurants are run?

Is there -- is it like a 50 or 100 basis point benefit, which you hear in some cases of companies that change their point of sale systems?

No, I don't know that I have been able to quantify at that.

I think what is clear from the ones we have already put in is that we do get significantly less calls into the helpdesk.

There's a lot less issues at the restaurants.

It's been a very smooth transmission, and it does provide the flexibility down the road when you think of what we are doing from a menu standpoint and introducing the breakfast daypart.

It gives us the technology base that can handle that additional complexity at the restaurant.

So long-term I think it is a strategic investment.

It gives us better controls and is at a lower operating cost point, so we are very excited about the overall program.

Yes, we have time for that one last question because it is just past 11.00 AM.

So one last one and then we will close the call.

Sara Senatore, Sanford Bernstein.

Actually two questions since that seems to be the trend here.

The first is, when I think about the same store sales, the guidance for next year, it is not too different from what you manage to post here, and yet there are so many more drivers in place.

So I guess what I am trying to figure out is, can you bracket for me where you think you will get the most bang for your buck?

I mean I understand the remodels, you are only going to do -- it's going to be a very small percentage of the total store base.

So, even if you get the 25% lift, which I think your return estimates are implying, that is not going to be a big deal.

But I assume POS may help, certainly the new product development and the menu initiatives.

So I'm just trying to think through, is there -- how much conservatism do you think is in the comp guidance?

And then a second question, which is just about earnings, you are still guiding to EBITDA, which I think is fine.

You have obviously a big interest expense, which may change, but I'm wondering if ultimately for the equity holders out there, you will start to think about earnings or EPS as the kind of metric to guide to.

Do we need to see operating margin to get to a certain point before that is the kind of thing you will talk about?

Okay.

I will respond to the same store sales, and then I will ask Steve Hare to respond to your EBITDA question.

When we create our AOP for the year, we look at our marketing calendar, and we assign growth potential for each of the events that builds to that.

We then look at other things in terms of Image Activation, if there is expansion of breakfast, and any other kinds of factors that are going to contribute to or detract from that sales performance.

So there is a variety of things that we put in place.

I would say where we are as a brand in terms of our rejuvenation and our journey back, I know that 2% to 3% may not sound significant when you have somebody in Chicago reporting 9% and 10% numbers.

But I would not look at that as some kind of extremely conservative number from our perspective.

So I would just encourage you to continue to look at that as a credible number.

So, Steve?

On the earnings-per-share metric, we continue to believe that the EBITDA measure is a more comparable measure across restaurant companies with the different capital structures that are out there in terms of providing a valuation metric for us that is appropriate.

But I think to your point, over time, especially when we hopefully are able to complete a refinancing of some of our debt, that would reduce our interest expense.

I think that would help our earnings-per-share metrics at that point be a little more meaningful and usable going forward.

So I think what you will see is maybe an evolution, and we would continue to talk about EBITDA, but I think over time then also be able to address EPS.

What we have said is that, for a long-term growth rate target, while we have said that on an EBITDA basis we believe we can grow at a high single or low double-digit rate, we have said that we believe we can grow faster than that on an earnings-per-share basis.

So we will continue to focus on that and provide more information at that level, probably in conjunction with guidance around EBITDA.

Okay, everybody.

Thank you for joining our call today.

The rest of the afternoon Steve, myself and Dave Poplar have scheduled calls with literally everybody on the sell-side, so we look forward to catching up with you a little later today.

And if you have further calls and you are not on the schedule, send an e-mail to myself or David, and we will get back to you.

Thank you very much.

Thank you.

This concludes today's conference.

You may now disconnect.