The Wendy's Company (WEN) Earnings Call Transcript & Summary

Good morning, everyone. I'm Nelson Peltz, I'm Chairman of Wendy's, and I welcome you all to our virtual annual meeting. As you all know, we're operating in unprecedented times as the entire world works to navigate through this COVID-19 pandemic. The health, safety and well-being of Wendy's teams and customers has always been and will continue to be our top priority. Wendy's is focused on actions where we can make a positive difference to advance public health goals, safeguard, our team members and customers from the spread of coronavirus, maintain essential access to high quality affordable food and support our franchisees and first responders who work on the front lines of this crisis and thank you to the Wendy's employees, franchisees and suppliers who continue to help us feed and serve our communities. On behalf of the directors and officers of the company, I welcome you to this, our 2020 annual meeting. Due to the impact of COVID-19 and in order to support the health and well-being of our shareholders, we're conducting our annual meeting via live webcast this year. I would like to first introduce our Board members and nominees, all of whom are attending the live webcast of the annual meeting. Peter May, Kristin Dolan, Ken Gilbert, Dennis Kass, Joe Lovato, Mitch Matthews-Spradlin, Matt Peltz, Peter Rothschild and Arthur Winkleblack. Also attending today's meeting is Todd Penegor, our President and Chief Executive Officer and also a member of the Board; Liliana Esposito, our Chief Communications Officer; and E.J. Wunsch, our Chief Legal Officer and Secretary; Beth Forman from Deloitte & Touche, the company's independent registered public accounting firm, is also in attendance. I will now call the meeting to order, and I will turn things over to E.J. to report on the notice and quorum requirements for the meeting.

Thank you, Mr. Chairman. Beginning April 10, 2020, written notice of the meeting was mailed or made available to all stockholders of record as of March 30, 2020, which was the record date for the meeting, together with a proxy statement, a proxy card and our 2019 annual report to stockholders. An affidavit of distribution of the proxy materials will be included in the records of the meeting. At the close of business on the record date, there were 222,587,219 shares of common stock outstanding and entitled to vote. Each share of common stock entitles the holder to 1 vote on each item of business presented at the meeting. The inspector of elections and agent of Broadridge Financial Solutions has reported that holders of a majority in voting power of the outstanding stock entitled to vote at the meeting are present or represented by proxy. This constitutes a quorum for conducting business at the meeting. If you are a stockholder as of the record date for the annual meeting and you logged into the live webcast with your 16 digit control number, you may vote at any time until the polls close by clicking the vote here button on the bottom right of your screen. If you previously voted by proxy, telephone or the Internet, you do not need to take any further action unless you wish to change your vote. If a stockholder votes multiple times, the inspector of elections will count only your final vote in our totals. You may refer to the bottom right corner of your screen, if you wish to view a copy of our proxy statement, annual report, agenda or meeting procedures. Stockholders as of the record date who logged into the live webcast with your 16 digit control number, you may also ask questions by entering your question in a text box on the bottom left portion of their screen and clicking the submit button. As with our in-person meetings, we value your input and time permitting, we will make every effort to address as many stockholder questions as possible during the question-and-answer portion of the meeting and in accordance with the meeting procedures. Before we proceed with the business of the meeting, I would like to direct your attention to the meeting procedures that are available on the bottom right portion of your screen. In fairness to all stockholders in attendance today. And in the interest of an orderly meeting, we request that you honor and refer to these meeting procedures as we want to ensure that all of our stockholders have an opportunity today to ask questions about their various topics of concern. As a result, we ask that you limit yourself to one question or comment, up to 2 minutes will be allocated to read and respond to each question or comment. We may combine questions or comments on similar topics, and we may not address questions or comments that are irrelevant to our business or operations related to confidential matters, personal in nature or are derogatory or disparaging. With that, I would like to turn things back to our Chairman.

Thank you, E.J. The order of business for the meeting will be as follows: first, we will present the 4 items of business to be voted on at the meeting; second, we will pause to answer any questions on these 4 items of business and allow time for any final voting; and then third, we will announce the preliminary voting results. The polls will remain open throughout our discussion of the 4 items of business. After our discussion concludes, the polls will be closed, and we will announce the preliminary voting results. After the voting are announced, I will adjourn the formal portion of the meeting, and we will hear a business update from our President and CEO before finishing with the general Q&A session. I will now present the 4 items of business to be voted on at the meeting. Each of these items is listed on the proxy card for the meeting and described in greater detail in the proxy statement. The first item is the election of directors, the nominees for directors are the 11 individuals named in the proxy statement. Each nominee presently serves as a Director of the company. The second item of business is to approve the adoption of the company's 2020 Omnibus Award Plan, a copy of which was attached as annex to the proxy statement. The third item of business is to ratify the appointment of Deloitte as the company's independent registered public accounting firm this year. The fourth and final item of business is to approve an advisory resolution to approve executive compensation. I will now pause for any questions on these 4 items of business. Liliana, have we received any questions on the 4 items of business.

There are no questions on the 4 items of business at this time, Mr. Chairman.

Thanks, Liliana. The majority of shareholders that have already voted by proxy with respect to the items of business are being presented at the meeting. If you're a stockholder and have already submitted a proxy card for the meeting, you do not need to take any further action. If you're a stockholders and have not yet voted but wish to change your vote, please vote now by clicking the vote here button on the bottom right of your screen. As a reminder, if a stockholder votes multiple times, the inspector of elections will count only your final vote in our totals. I will now pause to allow any final voting to occur. [Voting]

The polls are now closed. E.J. will now give a preliminary voting report based on the proxies that were received by 8 this morning. Final voting results will be provided in a Form 8-K filed with the SEC within 4 business days of the meeting.

Thank you, Mr. Chairman. The inspector of elections has reported the voting results for each item of business based on the proxies that were processed as of 8:00 this morning. I am pleased to report that based on these preliminary voting results, each of the 11 Director nominees has been elected. The adoption of the company's 2020 Omnibus Award Plan has been approved. The appointment of Deloitte as the company's independent registered public accounting firm for 2020 has been ratified and the advisory resolution to approve executive compensation has been approved. That concludes the preliminary voting report. The certificate of the inspector of elections certifying the final voting results will be included in the records of the meeting. Now before I turn things back over to the Chairman, I would like to read the safe harbor statement required by the federal securities laws. Certain information we may discuss today concerning the company's future results of operations constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Such forward-looking statements are not guarantees of future performance and are dependent on various risks and uncertainties that are difficult or impossible to accurately predict. Actual results may differ materially from those expressed in or implied by such forward-looking statements as a result of many factors, including those described in our releases, public statements and filings with the SEC, including those identified in the special note regarding forward-looking statements and projections and Risk Factors sections of our Forms 10-K and 10-Q and other SEC filings. For all forward-looking statements, we claim the protection of the safe harbor contained in the Reform Act. Also, some of our comments today may reference non-GAAP financial measures. Such as adjusted EBITDA, adjusted earnings per share and free cash flow and key business measures, such as same restaurant sales. Stockholders should refer to our reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures as well as our disclosures regarding non-GAAP financial measures and key business measures provided in our SEC filings and posted on our Investor Relations website at www.irwendys.com. With that, I will now turn things back to the Chairman.

Thanks, E.J. That concludes the formal part of the meeting and the transaction of business to be brought before the meeting. I now declare the 2020 Annual Meeting of shareholders of Wendy's company adjourn. In a moment, I will turn things over to our President and Chief Executive Officer, Todd Penegor, who will give a brief presentation on the current state of the company's business, including actions taken by the company as we navigate through the COVID-19 pandemic. Following Todd's remarks, we then address questions from our shareholders. Todd, please go ahead.

Thank you, Mr. Chairman. Good morning, everyone, and thanks for joining us today. I hope you are all staying safe and healthy in this new environment. I'm joined on the live webcast today with our senior leadership team, and I am not shy about saying that I think we have the best team in the business. Although 2019 seems like a lifetime ago in many ways, given how much has changed in our world. I do want to take a moment to reflect on the year. It was a success on many fronts. We grew sales on an absolute and comparable basis throughout the world. We expanded our footprint with 182 new restaurants globally. We delivered on EBITDA, EPS and free cash flow commitments, allowing us to return $314 million of cash to shareholders, while still investing in our systems long-term growth. When we delivered these results in February, we were just days away from launching breakfast across our U.S. system, and we're very pleased with that performance this year even in the current environment. At Investor Day last October, I laid out the pillars of our long-term growth strategy, all of which are grounded in a healthy and growing restaurant economic model for the company and our franchisees. We aim to accelerate U.S. same-restaurant sales with a focus on successfully launching and sustaining breakfast as a core daypart in our business, accelerating our digital capabilities to expand our brand's reach and engage customers through platforms like mobile ordering, delivery and loyalty; redefining operational excellence to drive speed and throughput and continuing to execute our 1 more visit, 1 more dollar marketing strategy to increase customer frequency and restaurant profitability. Globally, we're focused on bringing more Wendy's to more customers more often by continuing to expand our U.S. restaurant footprint and accelerating growth internationally in existing and new markets. Of course, much of this has changed in the world since we outlined our long-term plan in October, and COVID-19 began impacting business in Asia earlier this year and in North America starting in March. COVID-19, of course, had a significant impact on our Q1 sales, earnings and cash flows. But when we issued our first quarter earnings earlier this month, and we recommitted to our long-term -- and we recommitted to our long-term growth initiatives, we shared that while some timing will shift as we prioritize the response to COVID-19, our future growth strategy remain consistent. As we issued our first quarter earnings in the midst of a global pandemic and a challenging economic environment, we were starting from a position of strength before COVID started to impact the business. We experienced a very strong launch to our breakfast daypart and that business continues to be a bright spot. We were encouraged to see sales improve as we exited the last week of April, down approximately 2% versus down 30% to last week of March when the crisis hit. We experienced significant growth in our digital business, driven by a strong customer demand for this offering, along with the addition of new delivery providers. We've been laser-focused on supporting our employees, customers and franchisees, so we can emerge from this as a stronger Wendy system. We have taken actions to ensure we remain in a strong liquidity position, and we maintained our dividend at a reduced rate of $0.05. Delivering high-quality food at an affordable price is more important than ever, and I am humbled by the stories of how our system continues to support our communities. We have taken steps to help protect our team members and customers during these uncertain times, including utilizing no contact and limited contact ordering options and focusing on social distancing practices at our restaurants. We have also invested in additional training across our system to ensure employee and customer safety in areas such as hand washing and hygiene recertifications, social distancing and proper mask utilization. As the operations within our restaurants have shifted primarily to a drive-thru and delivery-only business, our dedicated teams have used this time as an opportunity to focus on delivering an exceptional drive-through experience. This emphasis has resulted in overall speed of service, improving across the system through the pickup window. We are also working tirelessly with our franchise community, so they are set up in the best position to navigate you this disruption, both operationally and financially. Our team has worked to evolve our marketing programs to serve current customer needs and respond to the challenges. That has included evolving our product calendar to focus on fan favorites and compelling value offers. Making sure customers know that Wendy's is open with the drive-thru and delivery business and is serving a great breakfast every day. And we lean into our digital channels, making sure our marketing messages tell customers how easy it is to access Wendy's on a safe, no contact and convenient way. We also know that COVID-19 has impacted some aspects of the food supply chain, most notably for us, supplies of fresh beef used for our hamburgers. We have evolved their marketing messages to focus on chicken and other items, while also continuing to supply beef to all of our restaurants. While some menu items may be in short supply from time to time at some restaurants, restaurants continue to get deliveries with beef and other items 2 or 3 times a week as usual. We're working diligently to minimize the impact to our customers and restaurants and continue to work with our supplier partners to monitor this environment closely. Despite the current challenges, we are uniquely positioned with drive-thrus, delivery and digital to win the Wendy's way. I believe that we have put ourselves in a position to be fast out of the gate when customers return to some kind of new normal. I am more confident than ever that we will achieve our vision of becoming the world's most striving and beloved restaurant brand. Our company-wide response to this pandemic reinforces the values that Dave Thomas instilled over 50 years ago when he founded this great brand, the values that continue to guide us today. Part of living those values means also ensuring we continue to do business responsibly with a focus on environmental, social and governance issues. Earlier this year, we branded our CSR ESG work under the platform of good done right, and we issued our 2019 CSR report focused on our actions with our food, people and footprint. We also began the process of formalizing our approach to ESG issues by engaging in a multi-stakeholder materiality assessment process. Just prior to the onset of COVID-19 in North America, we had largely completed our initial assessment, and we're in the process of validating our results. The materiality assessment process has been a helpful one and will help guide some of our decisions. You can expect to see us focused on these key areas, identified as most material to Wendy's business and where Wendy's has the most opportunity to make an impact in the environmental category, packaging and waste. We recognize that sustainable packaging and waste reduction is important to our stakeholders and critical to our environment, climate, energy and water, preserving and protecting our environment is critical. Our climate, energy and water efforts will focus on our corporate office spaces and company owned restaurants, and we'll look to incorporate franchisees where appropriate. Our supply chain partners are also key in helping us move to this important work forward. As it relates to social issues, we will continue to focus on food, safety and quality. Wendy's has built on quality and freshness, and we will continue to raise the bar to deliver on consumers' expectations of fresh safe, high-quality food, and our commitment to food safety will never waver. Animal care and welfare. Wendy's was the first QSR to audit animal care and establish an animal welfare council and more than 20 years later, we're still committed to progress. We strive to create a comprehensive accounting of animal welfare best practices within our supply chain, including responsible use of antibiotics and housing conditions. People and ethics. Our core values include treating people with respect and doing the right thing by our people who include true members on the front lines, employees at our restaurant support center and in field offices around the world, along with franchisees, shareholders, supply chain partners, customers and beyond. Nutrition. Our customers tell us that nutrition doesn't have a one size fits all solution. We are committed to responding to our customers' wants and needs with a variety of menu options and improvements for everyone. Across governance topics, we're focused on traceability and transparency, which are at the heart of everything we do, from our supply chain to our people to governance of our company to demonstrate and reinforce our commitments to ethical business practices, sustainability and social responsibility. And finally, data security and privacy, which is -- which are integral to Wendy's operations. We believe that in today's market, it is more important than ever to have the technology, including information security, to support our business needs and protect our customers. We are committed to completing the materiality assessment process. Many of our employee leaders and key supplier partners who are critical to this process are understandably consumed with COVID-19 incident response needs. And as a result, our publication of this report will be a bit later than we originally intended, but we will be engaging with all of our stakeholders who have been involved in this process and remain on track. As we move into the second phase of this materiality assessment process, our next steps will include establishing additional goals for the relevant material topics identified in the assessment determining the external reporting framework we will adopt to share our progress and engaging stakeholders to solicit feedback on our goals and time lines. And finally, publishing this information for public disability. Our entire Wendy's family will remain focused on continuing to provide essential access to quality, affordable food to all of our communities around the world and importantly, doing it the Wendy's way. Throughout our business, we continuously strive to do things Dave's way and live the values he taught us: quality is our recipe, do the right thing, treat everyone with respect, give something back and profit means growth. We look forward to engaging directly with many of you who are joining us by phone today as we continue on our journey to health, safety and well-being of our teams, customers and communities has always been our top priority. This has never been more important as we all work together to navigate the current environment safely and collaboratively. And now we will move to the Q&A session. Mr. Chairman, please go ahead.

Thanks, Todd. In a moment, we will turn to addressing questions from our shareholders. We value your input, and time permitting, we will make every effort to address all stockholder questions during this portion of the meeting. In fairness to all-in attendance today, again, please honor and refer to the meeting procedures. Liliana, please kick things off.

Thank you, Mr. Chairman. As a reminder, to ask a question, stockholders should enter their question in the text box on the bottom left portion of their screen and click the submit button. Our first question comes from [ John Levander ]. [ John Levander ] asks, have you been able to retain most employees during the coronavirus shutdown, perhaps with some reduced work hours?

Yes, Liliana, I'll take that question. We've been very blessed that we've been able to retain the vast majority of our staff. We've been an essential business to help feed and serve America. Our focus has been, first and foremost, on employee safety and customer safety. We did some things in the company restaurants that many of our franchisees followed. We increased pay by 10% for all of our employees at the Assistant General Manager and below. We called that recognition pay for the months of April and May. And we also put in an employee paid sick leave policy to ensure that if folks were not feeling well that they did not come into the restaurant. And those initiatives have driven us to a very, very low turnover in our restaurants. And importantly, recognition of our -- some of our best employees to continue to create great experiences for our customers day in and day out.

Thank you. Our next question is from Philip Berman, identifying as portfolio manager and shareholder. Philip Berman comments, in times as these, we are fortunate to have Nelson Peltz and Peter May overseeing the long-term strategy of Wendy's. Nelson and Peter's calm, cool analytical style is second to none in the restaurant industry. Noteworthy that Wendy's stock was the first in its category to bottom out. With the successful launching of our new breakfast menu, we all look forward to Wendy's making higher highs in 2020. We also look forward to having a standard annual meeting in person and preferably in New York.

Well, thank you for the feedback. We truly appreciate that...

Todd, let me say something. Philip, thank you very much. You read it just like I wrote it. But seriously, the management team in Columbus deserves all the credit. We're just critics, and we don't have too much to criticize. So thanks, Todd. Thanks to your whole team, and thank you, Philip. Liliana, go back.

Appreciate that, Nelson.

Thank you. Next, we have 2 questions on the same topic received from Mary Beth Gallagher, identifying with the Franciscan Sisters of Allegany and also Rachel Kahn-Troster. The questions asked, why has Wendy's consistently refused to join the Fair Food Program, which the questioners characterized as the gold standard for human rights monitoring and agricultural supply chains?

Yes. I can take that, Liliana. If you want to chime in anything else after it, feel free to. But this is a recurrent topic that we've addressed at previous meetings and public statements and on our company blog, the Square Deal. At the heart, this is a commercial dispute because our fresh produce supply chain and the Fair Food Program haven't intersected for many years now. The Fair Food Program predominantly operates in commodity outdoor field grown tomato operations. We do not buy any tomatoes grown outdoors. Wendy sources tomatoes from all North American restaurants exclusively from high-tech indoor hydroponic greenhouses. Our tomatoes are superior in quality and taste to outdoor field grown tomatoes and the sourcing practices are responsible and sustainable. This indoor work environment provides shelter from the elements and environmental contaminants requires significantly less water and land use and has a significantly reduced need for chemical pesticides. There's no surprise that greenhouse grown produce is proliferating in retail grocery stores because of the superior quality and other benefits. Many leading retailers, including those who have been reported to be participating in the Fair Food Program for field grown tomatoes also purchased from the same greenhouse suppliers that we do, and we have done so for quite some time. Anything else, Liliana, you'd want to add?

No, I think that covers it, Todd. Thank you. Our next question comes from Mike Telford with the National Pork Producers Council. The question is, with COVID, have you seen any issues or concerns regarding supplier, vendors or products, any supply chain impacts?

Yes, I can take that one, Liliana. And first of all, a big thank you to all the farmers and all of our suppliers for all they're doing to support their teams and their people and our business during this challenging time. We've had a few challenges on supply chain that have been publicized, and I talked about that a little bit in my comments, particularly around beef. As there's been some challenges in some of the beef facilities that have slowed down production. Folks have been doing the right thing to make sure that the employees are taking care of first and then production starts to ramp up. But that's the only area where we've seen any major disruption, and that's largely getting behind us now. We've probably got a few more weeks of challenges the supply chain catches back up. But when you think about chicken, you think about pork, you think about all of our fresh vegetables, by and large, the supply chain has held up pretty darn well to support our business and support the needs of the customers around the globe.

Okay. Thank you, Todd. There is one follow-up question related to the Fair Food Program, specifically asking about a greenhouse operation in New York, which was reported to have a COVID outbreak. There's a question of whether that operation is in our supply chain? And the answer is no. It is not. The next question that we have is what safety measures has the company put in place to protect employees and customers? And Todd, I think you addressed that in your remarks. But if you wouldn't mind going back and clarifying, please?

Okay. Thanks, Liliana. No, we've done several things, and we will be very cautious about when and how we open up our dining rooms. We're still servicing most of our business from a drive-through only perspective. That provides additional safety for our employees as well as our customers. We do have our employee sick leave policy in place to very much encourage our employees to not come in if they're not feeling well. We do have thermometers available optional out there to the system if folks want to choose to use them as another safety precaution. We've really focused on mass procedures in the restaurants as well as glove procedures in the restaurants. And have put out a lot of training, a lot of training around hand washing, around use of gloves, around use of mask to make sure that we're really creating a safe environment and continuing to elevate the high-quality that we -- standard that we've always had on cleanliness of our restaurants even further to make sure that our system is protected, our employees are protected, and ultimately, the customers can get great tasting, affordable food in a very safe and convenient fashion.

Okay. Thank you, Todd. We have no further questions in the queue right now. And so this concludes the question-and-answer portion of the meeting. Mr. Chairman, would you please close things out?

I will. Thank you, Liliana. I want to thank you all very much for joining our virtual meeting today and for your continued support of the company, you may now disconnect. Thank you. Stay safe. Bye.

This concludes today's conference call. You may now disconnect.