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The Wendy's (NASDAQ:WEN)

Q4 2011 Earnings Call

March 01, 2012 10:00 am ET

Executives

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

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

Emil J. Brolick - Chief Executive Officer, President and Director

Analysts

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

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Jason West - Deutsche Bank AG, Research Division

Christopher T. O'Cull - SunTrust Robinson Humphrey, Inc., Research Division

Jeffrey Andrew Bernstein - Barclays Capital, Research Division

David Palmer - UBS Investment Bank, Research Division

Mitchell J. Speiser - Buckingham Research Group Incorporated

Reza Vahabzadeh - Barclays Capital, Research Division

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

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

Operator

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.

John D. Barker

Thank you. Good morning, everybody. I'm 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 were the same as the preliminary results we issued on January 30.

The agenda today, we'll 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'd 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.

Stephen E. 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 cost. 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 the 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 the 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 cost 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 cost 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've 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 carryforwards 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 2.7x.

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, 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, 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 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 on 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 digit range in 2013 and beyond.

And now let me turn the presentation over to Emil.

Emil J. Brolick

Thank you, Steve, and good morning to everybody. As I shared with many of you during our recent Investor Day, the next 3 years are going to be the most intense period of change in the history of the Wendy's brand. It will also be the 3 most intense years of capital investment in Wendy's history as we implement many strategic initiatives. I've now been Wendy's CEO for about 6 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 are working with our franchisees to do exactly that. We've 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 marketplace for many years, the 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're 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 can't be one-dimensional. We are reimaging and elevating all the touch points for our brand, 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 on street corners across America positions the Wendy's brand in the minds of consumers. That 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 1 of 4 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've 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 1 of 4 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 cost. 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 reimaging 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 5-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 reinterviewing 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 reinterviewing 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.

But let's be clear. Elevating the customer experience isn't 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 engagement 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's Real, is our best campaign effort 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've got to win the hearts and the minds of consumers. Today, brand communication is not just about selling products, but it's 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's Wendy's advertising.

Now let's talk about the product P [ph]. 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 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 and by providing relevant consumer news. We are also committed to what Dave Thomas called honest food. That's 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 Roaster 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 volume patterns. Breakfast is the most rapidly growing daypart in the restaurant industry. And by delivering 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 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-through 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's 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, reimaging 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'll turn it back to John Barker.

John D. Barker

Thanks, Emil. I'd 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’ve not already have done that.

In March, we are presenting at 3 investor conferences. The first is the BofA Merrill Lynch Consumer Conference on March 7. The Roth Capital Growth Stock Conference is scheduled and we'll be there on March 12. And the 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. Kelly, would you please give instructions and let's begin the Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Michael Gallo with CL King.

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

Couple of questions. Emil, just on breakfast, I know there's been maybe a little uncertainty as to kind of 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're still kind of tweaking. Obviously, the consumer feedback on the products has been very good. Is it just a matter of getting that profitability up? I mean, you noted, I think at your Analyst Day, that the couponing was reduced and you were able to hold the sale. So help us just to how we should think about breakfast and kind of what kind of Is you need to dot and Ts you need to cross before you can really roll that out more aggressively.

Emil J. Brolick

Sure. Michael, in fact, 2 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. And as we've shared with you in the past, that we look for what we call 3 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've got a strong green light operationally. In fact, we're seeing from our own internal metrics that 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're going to have to take a different approach in terms of your marketing communication. And as this would require incremental marketing dollars to really drive this because what we've seen in studying launches of other competitors on breakfast is that they would make a big push and then they wouldn't necessarily sustain that. And so we've laid out a program that we would make sure that we would not only have the big push but we would sustain it. And so when you build all those costs into the P&L, it's a different kind of look. And I'm not talking about our P&L, but really at the restaurant level P&L. So that's really where most of the conversations are still taking place. They're 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's very productive dialogue continuing. And I would also say, Michael, that they appreciate that over the past 5 years that breakfast has been the strongest growing daypart. And that when you look out, it's also projected to continue to be a strong growing daypart, and they understand that.

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

Okay. And well, then just a follow-up question. That's helpful. On the Image Activations, you've obviously talked about having 80 of these between new and reimages 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?

Emil J. Brolick

We do, Michael. And actually, we're actually having to turn away franchisees on this. And the way I -- and the reason for that is we'll probably have somewhere between 3 to 5 franchisees participating with us 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's almost like getting the asset piece built and that's almost the easier piece. The harder part is making sure that we retrain the employees and that we really provide consumers this cut above experience when they get in there. And so the asset piece is consistent with the people piece. And we're 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've got this many remodels and I want -- I saw these restaurants, I love them. And I want this to be mine." So there's a lot of enthusiasm for it.

Operator

Your next question comes from the line of Joe Buckley of Bank of America Merrill Lynch.

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Emil, I want to go back and revisit the people piece of the puzzle again. I tend to agree with you that that's a critical part of elevating the experience. But talk about how you're 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 effected in your people management practices?

Emil J. Brolick

Well, Joe, first of all, thank you for asking that question. Joe, what we find is really, number one, you've got -- you absolutely have to have the right general manager. And this is really obvious to all of us, and you've got to have the right leader if you're going to create a right team. And I think quite honestly that we -- we've spoken to that idea for a long time. But I'm not sure that we've really held ourselves to as tough a standard as we need to. And 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 that -- 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 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've been too guilty of focusing on people that may have exhibited functional skills but they didn't have the attitude. Well, we're really going to change that, and we've 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're 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 [ph] forward mean? What does food with integrity mean and honest food and their role in providing that to consumers? So I'm, first of all, all in on this, and I'm very optimistic that we can really make a difference with this.

Operator

Your next question is from the line of Jason West with Deutsche Bank.

Jason West - Deutsche Bank AG, Research Division

Just going back to the reimaging plans, I guess. Can you remind us, I guess, roughly what percentage of the system you think needs to be addressed in this way to really rejuvenate the brand in the way you'd like to see? I guess kind of just some rough numbers on the company side and the franchise side so we can get a sense of how much money we're talking about reinvesting here.

Stephen E. Hare

Jason, this is Steve. 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. Because it’s not just a construction project, it's also how to run the stores differently at this higher level. And we're 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's applicable, frankly, to a significant part of our system right now. Obviously, we recognize that for our franchisees, it's 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're 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've started that process now with a number of our financial institutions that know the Wendy's system quite well. I think they're enthusiastic about the potential for this financing program. On the company side, what we would do is we 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 2 in the markets but begin to sort of tackle where a majority of the stores in the market will have this new image, because we think there may be a multiplier effect there going forward. So we're interested to see that impact as we expand our program. So we're working very hard. As Emil said in the beginning, this is a huge initiative for us. We're throwing a lot of resources at it, and we would hope, over the next 3 years, to be able to really significantly change the appearance and how people view our facilities nationally.

Emil J. Brolick

Jason, let me just build upon Steve's comments. The other thing we're 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's 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're going to make sure that we have solutions that permit this to be an aggressive program that really addresses the vast majority of restaurants in the system and isn't 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 kind of a sprucing up of restaurants. This is a reimaging of the brand, which is a dramatically different statement. And as I mentioned in my comments, what we're seeing is everything we do works better in these restaurants.

Operator

Your next question comes from the line of Chris O'Cull with SunTrust Bank.

Christopher T. O'Cull - SunTrust Robinson Humphrey, Inc., Research Division

Emil or Steve, a number of Wendy's franchisees are probably close 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?

Emil J. Brolick

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. And quite honestly, Chris, they're always interested in purchasing restaurants because they kind of know what they're getting. And so we could be in a position to purchase those franchisees, as well as there are other franchisees who are very interested in growing through acquisition. So we think that that's the easy thing to solve for, quite honestly.

Christopher T. O'Cull - SunTrust Robinson Humphrey, Inc., Research Division

Steve, just as a follow-up, is the model or the approach you would take that if you were to acquire a franchisee, it would be accretive on acquisition?

Stephen E. Hare

Yes, Chris. That's what we -- 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 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 evaluation that we'll 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 midterm. But at the same time, you will also see us selectively refranchise opportunities where we have an aggressive franchisee or a new franchisee who really wants to be part of this Image Activation program.

Christopher T. O'Cull - SunTrust Robinson Humphrey, Inc., Research Division

Okay. And then one last one, Steve or Emil, I believe the New England market is franchised. Are you providing some support to the franchisees in those markets for the breakfast rollout? And if so, what form is it?

Emil J. Brolick

Well, the New England market is a combination of company and franchise. And as we detailed in our 10-K, that 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've tried to make sure, Chris, 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.

Operator

Your next question comes from the line of Jeffrey Bernstein with Barclays Capital.

Jeffrey Andrew Bernstein - Barclays Capital, Research Division

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 roughly 5% comp. But I think we talked about perhaps a deceleration a little bit through the quarter, kind of as the Hot 'n Juicy upside eased a little bit. Just wondering whether there's any kind of color you can give specific to Wendy's on a broader category in this first quarter. Obviously, there's been a lot of weather noise, and I know you didn't want to comment on the January trends at the Analyst Day. But whether you can comment just about Wendy's kind of post a lot of this new news or the broader category in terms of what you're seeing x the weather thus far in the first quarter, and then I have a follow-up.

Emil J. Brolick

Well, we've 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'm not in a position to really comment beyond that. And we are seeing some strong performances out there and you're reading, I'm sure, the same information that I'm reading. We clearly sense that there's been an economic pickup in the country and that’s buoyed consumers' attitudes out there. Obviously, we are all watching gas prices carefully and that consumers seem to, quite honestly, have digested that quite nicely. So we're 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's exactly what our commitment is, and we want to get the Wendy's brand into shape that it can produce consistent same-store sales and profit growth. And we're committed to delivering on the guidance that we've provided the financial community.

Jeffrey Andrew Bernstein - Barclays Capital, Research Division

And should we expect -- I know you guys in the past talked about a new chicken platform and potentially rehitting the Hot 'N Juicy and the W. Should we expect that in the first quarter? Or I should say, now that we're already 2/3 through the first quarter, when should we expect either of those to be rehit?

Emil J. Brolick

Well, the March window is a local window that we're 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'll tell you, we've made 2 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 that 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've 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've 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's pretty obvious of what we're talking about. But it does it in a very nice way. I think it's a spot that's very much akin to the kind of the Apple versus PC kind of spot, so you'll see that. Regarding chicken, we do have plans for the launch of or I think is a pretty special product at sometime 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 can't give you any more specifics.

Jeffrey Andrew Bernstein - Barclays Capital, Research Division

Understood. And then just as a follow-up on the remodel side. It sounds like coming just out of a franchise meeting over the past couple of weeks, it seems like pleased to see the franchisees seem to be on board with a significant investment and, obviously, the cost that goes with that. But you talked about reducing that cost through 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're getting any kind of pushback on that front?

Emil J. Brolick

Well, what franchisees haven't really asked for assistance in terms of as it relates to the reimaging, 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're definitely open to any assistance that we can provide, and certainly we've not closed the door on that. But the great news here is, Jeffrey, is that they -- there's tremendous support for the idea that we really need to reimage restaurants. So we've got like 100% alignment on that. And of course, the franchisees, as would we, we'd rather spend less than more. But at the same time, I think we've done an effective job in demonstrating to the franchisee that this is not just about a simple physical upgrade, okay? This is about reimaging the brand in a new competitive environment. And it's almost -- it's a plus the fact that they're visiting these new QSR restaurants, they're visiting some of the new reimaged McDonald's restaurants, and this has got their attention and they're saying, "Oh, okay. It's 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's happened in that restaurant, but also make sure that it's something that is financially manageable. Because what we're very sensitive to is we need to do a significant portion of our system. So we can't design something here that is only approachable by a small percent of the system. We get that very, very clearly.

Operator

Your next question comes from the line of David Palmer, UBS.

David Palmer - UBS Investment Bank, Research Division

I know from Jeff's question that you're not going to be talking about quarter-to-date sales, and I'm certainly not going there. But wondering if you can talk about your brand momentum versus that of the industry in 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 daypart, menu parts, specific products, things that are not perhaps where you want them to be that you're 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.

Emil J. Brolick

Okay. Well, David, here's something that I clearly sense that is taking place in the business. It's 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 result. Dunkin' turns in great numbers. But what is interesting about these brands is they're 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. And 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 the 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've 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. And 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 call core equity messages when they're featuring how they're sourcing produce or how they're 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'll call it the legitimacy or authenticity, that we can in those stories. 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 kind of the traditional need to drive sales through product innovation and communicate those. So I would say, we made fairly significant changes to an approach on media as well as an approach on messaging, which we've gained the support on from our franchisees.

David Palmer - UBS Investment Bank, Research Division

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

Emil J. Brolick

Yes.

Operator

Your next question comes from the line of Mitch Speiser with Buckingham Research.

Mitchell J. Speiser - Buckingham Research Group Incorporated

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?

Emil J. Brolick

Well, I did talk about that and I believe I talked about that in the context, Mitch, of our barbell strategy and how we felt that we had to get a little better balance there. And I can't give you the specifics, but we do have a team of people that are focused on this, and we're 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 here. We know the importance of the price value customer today, and we're not going to do anything that's 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'll call 6 center of the plate proteins on there. McDonald's has, I think, 2. Well, okay, and you just can't be that out of balance on there. And quite honestly, I think we're incurring the food cost for that but I don't think we're getting the sales benefit for that. So we do think that there's an opportunity to better calibrate that and do that. But we're going to have to test our way to that. And all I can tell you is that we're 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 only at the Wendy's company economic model, but also at the restaurant level that, obviously, our franchisees are very, very concerned about. So there's a lot of brain cells being burned on that, and I think we have some good ideas. I can't really give you more specifics, though.

Mitchell J. Speiser - Buckingham Research Group Incorporated

Great. 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've 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?

Stephen E. Hare

Sure, Mitch. This is Steve. The plan, as I said, did expire and so we do not have an authorized plan going into the year. That's not to say that depending on how the stock market performed and our particular stock performed, that's not to say that we wouldn't 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's 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 3-year time frame where we're trying to expand this program, the company stores, and help our franchisees also make that kind of investment. That's 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've been able to generate.

Mitchell J. Speiser - Buckingham Research Group Incorporated

Great. And if I could just slip in one last one. Is there any -- or can you give us any general guidance just on calendarization of your EBITDA growth target? I believe it's up 1% to 4% for the year. Any guidance whatsoever on how that might pan out throughout the year would be helpful.

Stephen E. Hare

Yes. We’ve not really provided that. I would say, we have -- there's a seasonality, as we talked 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 wouldn't continue this year from where I sit.

Operator

Your next question is from the line of Reza Vahabzadeh with Barclays Capital.

Reza Vahabzadeh - Barclays Capital, Research Division

Actually my questions have been answered.

Operator

Your next question comes from the line of John Ivankoe with JPMorgan.

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

Just 2 if I may. Emil, you said in your prepared remarks that you've been getting great scores in breakfast of taste, quality and freshness. And I guess, in my own experience, what hasn't been there has been speed. And I just wanted to get your thoughts of what type of investments that you think might be necessary to really focus on the speed component of the breakfast business to make the convenience side that's so important of breakfast maybe be a little bit better?

Emil J. Brolick

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

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

Both, actually.

Emil J. Brolick

Really? Well, I would tell you, John, that one of the things that we're doing and we've added actually extra labor, 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 been at the drive-through, quite honestly, we've taken our eye off the ball in terms of serving guests effectively inside the restaurant. And we know that it's mandatory that if you're 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's not the case. Through our Questar data, which is our tracking system, we're actually able to compare functional delivery at all of our dayparts. And I will tell you, in our breakfast markets, the strongest functional delivery is actually taking place at the morning daypart. So I would tell you, on average, that's not happening, but we are very, very sensitive to this. So I appreciate the feedback. And by the way, any time -- I'd love to get feedback from all of you, so if you have experiences, good or bad, I'd love to hear about them. Be as specific as you can because it's very helpful. And I do follow up on these as the people in the restaurants will tell you.

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

And I don't know if it's a appropriate forum for this, but I mean the issue has just been the fact that the product basically had to be cooked. And so when you have a great, I mean I agree it's a high-quality menu, there's a lot of variety, and 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's an issue that would happen, obviously, in either drive-through or eat-in. And secondly, if I may just, completely -- again I do hope that was appropriate. Secondly, on the point-of-sale system that you mentioned on company stores. I guess what's the measurement or the attributes that you're 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?

Stephen E. Hare

Yes, John, it's really all of the above. We've 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's an investment that's long-overdue, I would say, to be fair. And so we've stepped up to the plate. And it will be, hopefully by May or June of this year, we'll 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’ll have a lot less downtime.

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

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? I mean, is there a -- 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?

Stephen E. Hare

No. I don't know that I've been able to quantify at that. I think what's clear from the ones we've 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 transition. And it does provide the flexibility down the road when you think of what we're 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's a strategic investment, it gives us better controls and is at a lower operating cost point. So we're very excited about the overall program.

Operator

And your last question is from the line of Sara Senatore with Sanford Bernstein.

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

This is Sara Senatore. Actually, 2 questions, as that seems to be the trend here. The first is when I think about the same-store sales, the guidance for next year, it's not too different from what you managed to post this year and yet there are so many more drivers in place. So I guess what I'm trying to figure out is can you bucket for me where you think you'll get the most bang for your buck? I mean, I understand the remodel is really going to do -- is going to be 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's not going to be a big deal. But it seems 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 the second question which is just about earnings, you're 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'll start to think about earnings or EPS as the kind of metric to guide to. Do we need to see operating margins to get to a certain point where that's -- before that's the kind of thing you'll talk about?

Emil J. Brolick

Okay, Sara, I'll respond to the same-store sales and then I'll ask Steve here 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 event that builds to that. We then look at other things in terms of Image Activation if there is expansion of breakfast in it, any other kinds of factors that are going to contribute to or detract from that sales performance. And so there is a variety of things that we put in place. And I would say where we are as a brand in terms of our rejuvenation and our journey back, Sara, I don't -- 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?

Stephen E. Hare

Yes, Sara, 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 sort of a valuation metric for us that's 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'll see is maybe an evolution and we would continue to talk about EBITDA, but I think over time and also be able to address EPS. What we have said is that for a long-term growth rate target, while we've 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’ll continue to focus on that and provide more information at that level, probably in conjunction with guidance around EBITDA.

Emil J. Brolick

Okay, everybody thank you for joining our call today. The rest of the afternoon, Steve, myself and Dave Poplar, have scheduled calls with probably 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're not on the schedule, send an e-mail to myself or David and we'll get back to you. Thank you very much.

Operator

Thank you. This concludes today's conference. You may now disconnect.

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