Gunther Plosch: Good morning, Dennis. Let me start with the answer and then we’ll have Kirk chip in if I forget anything. So you’re right, the consumer is definitely under pressure, continues to be under pressure. The trend that the lower income consumer, which we define as somebody with a household income of less than $75,000. Traffic is down with them. Our share is unchanged. So we are not losing there. Same thing on the higher household income consumer. Traffic there is up. And again, our share is unchanged. That’s my overall in the quarter. Our dollar and traffic share was unchanged. So value is going to be important. I think our barbell strategy of offering a Biggie Bag up to what I would call super premium with Made to Crave, I think is definitely helping all our consumer bases.
The high income consumer is probably tending more to the higher priced items in the menu and vice versa. So that’s kind of the consumer dynamics. If you look at the history of the category, you definitely find that net disposable income and miles driven are pretty big correlators and expectation is clearly that net disposable income should go slightly up sequentially, right. Why do we believe this economy is doing pretty well? We are basically in full employment. Grocery inflation is coming down. So quarter versus quarter that the consumer should start to see net disposable income coming up slightly, feel a little bit richer, and feel a little bit like, yes, what I can treat myself and come a little bit more often into the restaurant. Fuel costs came down a little bit, so driving around mobility has come a little bit better.
So all of that explains a little bit our position on the category should do a little bit better. And we would absolutely expect that we would perform at least in line with the category.
Kirk Tanner: Yes. Look, I would just add in my early days here. I’m seeing the Biggie Bag, looking at consumer trends and consumer feedback. Consumers love Biggie, and that is a real platform we’ll continue to build on. Value is going to be incredibly important. It also gives me the confidence of why we’re building this digital capability so that we can give personalized value. We can also create that loyalty and have momentum and loyalty. So digital is another avenue for us to drive value and the quality that we have at Wendy’s.
Operator: Our next question comes from Chris O’Cull from Stifel. Chris, your line is now open.
Chris O’Cull: Thanks. Hi, Kirk. Welcome to the call. Thanks for the information about the plans for 2024. But I would like to hear your thoughts about the company’s longer-term strategic priorities, or at least if the company is going through a process to kind of evaluate whether the right long-term growth priorities are in place. And what I mean by this, for example, are things like whether the company should be focused on international development outside of North America is the right strategy, or whether it should maybe consider franchising multiple domestic brands, I’d love your thoughts on that?
Kirk Tanner: Chris, yes, good to meet you. Yes, one of the things that attracted me to Wendy’s was certainly the potential for profitable growth and the expansion opportunities that we have. I mentioned earlier that 90% of our development we can see full line of sight of through 2025. One of the big growth opportunities certainly is both domestic and international expansion. We have a brand that certainly travels outside the U.S. and has the capability to provide great value and profitability and returns to franchisees. So we’ve recently brought on another 70 franchisees and approved another group of franchisees to drive that development. We’re looking at international development as a real opportunity. We will build a – we’ll put a flag in several different countries that we can build brand awareness, drive profitable growth.
Yes, that is, I got to tell you, that is one of the things that excited me the most about joining Wendy’s. That is, in addition to driving SRS growth in our digital platform, unit growth both domestically and internationally is the clear priority for us.
Operator: Our next question comes from Eric Gonzalez from KeyBanc. Eric, your line is now open.
Eric Gonzalez: Hey, thanks for the question and welcome, Kirk. My question is about the late-night day part, I don’t think we really talked about it that much on the prepared remarks. So maybe you can discuss how that performed during the fourth quarter and whether you continue to view that as a growth driver in 2024?
Kirk Tanner: Good morning, Eric. Yes. Really happy with the late-night day part in the – really grew in the fourth quarter, about mid-teams year-over-year. So that was really a nice sales driver for us in 2023, as you know, right. We’ve managed now to get really good support from franchisees on that initiative. About 90% of our company, rest of our restaurants are open to midnight or even a little bit later. We love the business. It has higher average check. It’s really good for the delivery business. So we like all of that. I would however say is that’s in the base. I think it’s going to be a valuable sales layer going forward. But I would not expect the outsized high teen growth rate that we have seen in 2023 to repeat itself in 2024.
Operator: Our next question comes from John Ivankoe from JPMorgan. John, your line is now open.
John Ivankoe: Yes. Hi. Thank you. Hi Kirk, how are you? And I have two, if you don’t mind. The question on international and especially the idea of putting a flag in, certain international market to drive opportunity, in some cases UK specifically it’s a mature market, there’s a number of competitors that have a lot of scale in that market. You are relatively new and very subscale in that market. So you may be applying some of your PepsiCo type of experience. How can Wendy’s come-in and break-in a mature market where scale has already been established by some very long-term competitors. Just kind of give us that path to success if you don’t mind?
Kirk Tanner: Yes. Well, that’s exactly, I think you’re onto something here especially with the UK. One thing that I love about what we have is we have this quality differentiation that really plays in that market. We’ve seen real momentum in the UK and we have enough evidence with winning over customers with our quality, which is very differentiated, which is meaningful for the UK consumer. We’ve seen the growth and we will continue to build in that market along with other markets. But in that example, we have enough momentum, enough evidence where we have brand love, brand awareness and those are the things you think about when you’re building a market is, wow, the awareness, what you’re famous for, differentiation and we have momentum. So I feel really good about where we’re going internationally. And to your example, the UK is a very strong market and has tons of potential for the future.
Gunther Plosch: And John, I wanted to add that also our franchisees are super excited, right. We have ten franchise restaurants in the United Kingdom, plus 14 beef [ph] units and 12 company units. And the initial results that our UK franchisees saw excited them so much that actually early in, they increased their development commitments and said like they look there. Something there, this resonates with the UK consumers. We are so confident that we want to sign additional commitments to help you grow the market. So I think it’s another good data point to think about that we probably got the entry into the UK, right. It’s a springboard for us into Europe and we think the investment is going to pay out nicely for us and for our shareholders.
Operator: Our next question comes from Andrew Strelzik from BMO. Andrew, your line’s now open.
Andrew Strelzik: Great, thank you and good morning. My question is on the restaurant margin outlook you provided for the U.S. business. Obviously expecting some nice margin expansion there, so I guess I was just hoping you could break that down a little bit. How much are you expecting that breakfast is going to contribute in 2024? How much visibility do you have on the commodity inflation side, the fact that you mentioned? And as you think about balancing value and premium, I don’t know if you’re expecting mix to be a positive contributor or negative. I’m just curious for a little more texture on the margin outlook? Thanks.
Kirk Tanner: Good morning, Andrew. Yes, we feel really confident about the guidance of 100 basis points, up to 16% to 17%. It’s definitely sales leverage. Right. So the 50% growth of breakfast over the next two years drives some of the profitability. Same with digital. Right. As you know, check remains elevated versus the non-digital check that drives things for us. We have a couple of projects out there on kind of pure cost management to help get margin expansion going for us. Pricing, right, I talked about, about low single-digit pricing in the context of an expectation that commodities is going to be flat for us in 2024 and labor inflation in line with history, about 3% to 5%. Little bit of color on the commodity front.
We definitely expect chicken to be deflationary for us, beef and fries inflationary all of that balances out to flat. From a visibility point of view, about 75% of our commodity pricing is locked down. The remaining 25%, as you know, a decent amount of debt is beef, as you know, we cannot lock that down throughout the year. So it’s kind of the colored restaurant margin for you.
Operator: Our next question comes from Chris Carril from RBC Capital Markets. Chris, your line’s now open.
Chris Carril: Hi, thanks. Good morning. So GP, I believe you mentioned an increase in company new builds. So can you expand maybe a bit more on that? What the plan is there both near-term and long-term, just maybe touching on the impact of franchise mix, whether you plan to refranchise those new builds over time. Just any further detail on the company owned strategy. Thank you.
Gunther Plosch: Yes, good morning. So overall, it’s not a departure of our strategy. It’s a little bit of leaning in putting where money where our mouth is. We’re going to stay asset light. As you know, our company restaurant ownership is about 5.7%. At the end of this last year, it will hover around with the growth of the rest of the system to about the same level. You can definitely expect that we are going to continue to build out the UK footprint. So that’s about. We are sitting at 12 restaurants currently. In the next couple of years, you can expect a growth to about 20 restaurants. We’re also going to build out some of our existing markets in the U.S. a little bit further. So that’s kind of the color on us leading in.
It is not a departure from an asset like structure. We are just demonstrating to franchisees that there’s money to be made. There’s a great financial return to be had when you build restaurants these days with the margin structures that we have and the AUVs that we have and the margin outlook that we have.
Operator: Our next question comes from Sara Senatore from Bank of America. Sara, your line is now open.
