Good morning. Welcome to the Wendy's Company Earnings Results Conference Call. [Operator Instructions] Kelsey Freed, Director of Investor Relations, you may begin your conference.

Thank you, and good morning, everyone. Today's conference call and webcast includes a PowerPoint presentation, which is available on our Investor Relations website, irwendys.com. Before we begin, please take note of the safe harbor statement that appears at the end of our earnings release. This disclosure reminds investors that certain information we may discuss today is forward-looking. Various factors could affect our results and cause those results to differ materially from the projections set forth in our forward-looking statements. Also, some of today's comments will reference non-GAAP financial measures. Investors should refer to our reconciliations of non-GAAP financial measures to the most directly comparable GAAP measure at the end of this presentation or in our earnings release. On our conference call today, our President and Chief Executive Officer, Todd Penegor, will give a business update and highlight progress against our Good Done Right initiatives. From there, our Chief Financial Officer, Gunther Plosch, will provide a franchise health update, review our 2023 first quarter results and share our reaffirmed outlook. From there, we will open up the line for questions. With that, I will hand things over to Todd.

Thanks, Kelsey, and good morning, everyone. I am proud of the Wendy's system for building on the momentum we created in 2022 to deliver an outstanding start to the year. Our high-quality food, strong marketing programs and focus on great restaurant experiences continue to resonate with our customers and resulted in our sixth consecutive quarter of double-digit global same-restaurant sales growth on a 2-year basis. During the first quarter, we drove a significant acceleration in our global digital business, reaching over 12% digital sales mix. This growth was supported by our very successful March Madness messaging in the U.S. and continued growth across many of our international markets. Our top line growth contributed to an over 250 basis point year-over-year expansion in the U.S. company-operated restaurant margin, which is remarkable as commodity inflation remained highly elevated throughout the first quarter. We also opened 39 new restaurants across the globe, and we remain on track to achieve our development goal for the year. And our long-term development confidence continues to be bolstered by new and existing franchisee interest in our suite of development programs. We remain fully committed to driving the restaurant economic model through our three long-term growth pillars: driving sales momentum, accelerating our digital business and expanding our global footprint. This commitment and our successful start to the year give us confidence that we will deliver meaningful global growth for the remainder of 2023 and beyond. We delivered against our strong global same-restaurant sales expectations in the first quarter, achieving 8% growth on a 1-year basis and 10.4% growth on a 2-year basis. Our International business achieved another outstanding quarter with same-restaurant sales growth of 13.9% and an eighth consecutive quarter of double-digit same-restaurant sales growth on a 2-year basis. We continue to see strong results across all of our regions with Canada, our largest international market, delivering double-digit same-restaurant sales and customer count increases. Our Canadian breakfast business accelerated versus the prior quarter, supported by the launch of French Toastix and our croissant promotion. Our growth at the breakfast daypart, along with continued rest of day strength, led to another quarter of gaining dollar and traffic share in the Canadian market faster than all QSR burger competitors. Our U.S. business delivered same-restaurant sales growth of 7.2%, holding our strong dollar and traffic share within the QSR burger category and widening our share gap to several competitors. These results were underpinned by the continued benefit of our strategic pricing actions alongside year-over-year customer count growth each month of the quarter. Our Q1 marketing programs makes compelling value offerings like our successful $2 for $6 promotion with messaging behind our iconic fresh beef and hot and crispy french fries. We leveraged March Madness to reach millions of fans as the official hamburger of the NCAA, driving our premium hamburger business to its highest point in the last several years. On the breakfast front, we continue to lean into the strength of French Toastix and closed the quarter with the start of our croissant promotion, entering Q2 with an uptick in momentum. As our strong programs drive more customers to our restaurants, we are committed to delivering an experience that brings them back more often. Our first quarter customer satisfaction scores and speed of service improved markedly versus the prior year and prior quarter as restaurants were better staffed, turnover improved and our systems focused on operational excellence sharpened even further. As we turn to the second quarter, we will promote products across a variety of price points and occasions with dedicated messaging behind our ownable Biggie Bag platform, the return of the fan favorite Strawberry Frosty and bringing the heat like only Wendy's can with the addition of the Ghost Pepper Ranch Chicken Sandwich to our Made to Crave lineup. We also have plans in place to accelerate our momentum at the bookends of the day, breakfast and late night. We have plans for increased activity to drive the breakfast business in the U.S. and Canada for the remainder of the year and will lean into our playbook of building awareness around our craveable products, launching exciting menu innovation and promoting targeted trial-driving offers. Furthermore, after diligent preparations to ensure our customers will have a great experience, we plan to promote Wendy's late night business this summer. During the first quarter, we already saw an uptick in sales at the daypart, driven by a return to more normalized late-night hours, local advertising and our growing late-night delivery business. We are excited to offer our customers the high-quality late night experience they deserve and believe there's a ton of opportunity ahead of us during this daypart. We continue to expect that executing against our strong and balanced marketing calendar, leaning into underpenetrated dayparts and continued operational improvements will ladder up to mid-single-digit global same-restaurant sales growth in 2023. Our Global digital business continued to accelerate to new heights this quarter as digital sales grew over 25% year-over-year and reached over 12% sales mix. On the International side, our customers are increasingly embracing our many digital options leading to an all-time high digital sales mix of nearly 19%. In the US, our digital business accelerated every month throughout the quarter as we achieved our highest ever US digital sales mix of over 11%. This growth was driven by continued gains in delivery and mobile order sales as we offered compelling value alongside our third-party delivery partners and once again successfully advertised our digital options across the March Madness tournament. This programming drove a 5% increase in our total loyalty members and a nearly 10% increase in monthly active users versus the prior quarter. As we drive more fans into our restaurants through digital ordering, we are also delivering on a seamless operational experience that keeps customers coming back. During the first quarter, our digital customer satisfaction scores significantly increased versus prior year, and our delivery wait time and order accuracy sequentially improved. As we look ahead, we are excited to have the infrastructure in place and momentum behind us to shift into a new phase of meaningful digital growth. We made significant strides in our one-to-one marketing programs last quarter, enabling more personalized user experiences to influence key behaviors. This allows our team to quickly check and adjust against a set of established benchmarks all in service of driving increased frequency. Lastly, I'm excited to share that we have partnered with Google to pilot Wendy's Fresh AI, a voice AI solution for drive-through ordering that utilizes Google Cloud's generative AI and large language models technology. We believe this solution creates a huge opportunity for us to deliver a truly differentiated, faster and frictionless experience for our customers and allows our crew members to continue focusing on making great food and providing exceptional service. We plan to launch this pilot in June and are incredibly excited about the potential unlocks to speed of service, customer satisfaction and profitability that this technology could drive over time. You can expect us to continue pushing into new and promising technology alongside our partners as we look to maximize the restaurant economic model and grow our digital sales to approximately $1.5 billion this year. We are pleased to have opened 39 new restaurants in the first quarter and remain on track to reach our global development goal for the year. We are well underway on our development journey with approximately 45% of our 2023 pipeline open or under construction through the end of Q1. In the U.K., we closed the quarter with 29 restaurants, including our first drive-thru format in the market, which is performing ahead of expectations so far. We look forward to building on that success with our second drive-thru restaurant planned to open in the second quarter. We are seeing increased excitement around our suite of development programs from both new and existing franchisees. We expect an increased appetite for growth across our system throughout 2023 and beyond as we continue to market these programs, sales momentum continues and inflationary pressures begin to subside. We continue to believe we have the plans in place to support our goal of 2% to 3% global net unit growth in 2023. We expect all of our net unit growth will be delivered in the second half of the year, primarily driven by longer restaurant development time lines as the construction and permitting environment remains challenging, in addition to the planned permanent closure of our U.S. REEF restaurants in the second quarter. We also remain on track to achieve our longer-term global net unit growth targets of 2% to 3% and 3% to 4% in 2024 and 2025, respectively. We are excited about all of the growth that's ahead of us and the opportunities to delight even more customers around the globe. Before turning it over to GP to cover our financial results, I wanted to share an update on our progress against our food, people and footprint goals within our Good Done Right framework. I am proud of the work our team has done over the last year to advance these goals and continue building ESG into the foundation of our business. Within our food pillar, we developed responsible sourcing criteria and began to collect sustainability information from our supply partners in addition to expanding our animal welfare standards program. Within our people pillar, we advanced our key diversity, equity and inclusion focus areas and launched the Own Your Opportunity campaign to increase both accessibility and diversity across franchisee candidates. And finally, within our Footprint pillar, we transitioned more than 50% of our customer-facing packaging to be sustainably sourced and received validation of our Science-Based Target nearly a year ahead of schedule. This is just a sample of all the progress we've made over the past year, and I encourage you to read our recently released 2022 corporate responsibility report on our Investor Relations website for more information. Our strategic growth pillars remain deeply rooted in the foundation of the restaurant economic model and our Good Done Right framework. Looking ahead, we remain focused on delivering accelerated global growth behind the most impactful drivers of our business: driving same-restaurant sales momentum, accelerating our digital business and expanding our global footprint. Everything we do at Wendy's is focused on bringing to life our vision to become the world's most thriving and beloved restaurant brand. And with the momentum that we have in our business, we are well on our way. I will now hand things over to GP.

Thanks, Todd. I wanted to take this time to share an update on franchise health as we recently collected 2022 financials from our US and Canadian franchisees. As a reminder, our focus on driving the restaurant economic model led to record franchisee sales and profits in 2020 and 2021 in both the U.S. and Canada. Turning to 2022. Our U.S. and Canadian franchisees achieved another year of record sales with 7% and 13% year-over-year growth, respectively. This contributed to incredible 3-year sales growth of over 18% in the U.S. and over 24% in Canada. And despite unprecedented inflationary headwinds in 2022, which pressured year-over-year comparisons, franchisee EBITDA dollars remained approximately 2% and 11% higher versus 2019 in the U.S. and Canada, respectively. Just as we expect EBITDA expansion in our company-operated restaurants, we expect franchisees will return to EBITDA dollar growth in 2023 as inflation eases, and we continue to drive same-restaurant sales momentum and digital acceleration on supporting our global footprint expansion. Now let's turn to our first quarter financial results, which showcase the improved profitability we expect this year. We are incredibly proud of our first quarter results, which highlight the strength of our growth initiatives and the sound execution of our financial formula. Our global systemwide sales grew 10%, contributing to year-over-year growth across our financials. Our U.S. company restaurant margin reached 14.7%, increasing over 250 basis points year-over-year despite inflationary pressures remaining elevated. This expansion was primarily due to the benefit of a higher average check driven by cumulative pricing of 9.5%, partially offset by commodity and labor inflation of approximately 7% and 5%, respectively, and customer count decline. G&A held flat versus the prior year, primarily due to a decrease in stock compensation offset by higher information technology costs and a higher incentive compensation accrual. Adjusted EBITDA increased almost 18% to approximately $126 million, primarily driven by higher franchise royalty revenue and the increase in U.S. company-operated restaurant margin. The over 20% increase in adjusted earnings per share was driven by the increase in adjusted EBITDA and higher interest income. These increases were partially offset by higher interest expense, a decrease in investment income and higher amortization of cloud computing arrangement costs. Finally, our free cash flow in the first quarter increased over 40% to approximately $63 million, resulting primarily from a decrease in payments for incentive compensation and higher net income adjusted for noncash expenses. These increases were partially offset by the timing of receipt of franchisee rental payments in the first quarter of 2022. Our 2023 and long-term financial outlook remain unchanged. We continue to expect significant global system-wide sales growth of 6% to 8% this year, driven by mid-single-digit global same-restaurant sales and global net unit growth of 2% to 3%. Our 2023 adjusted EBITDA outlook of $530 million to $540 million remains unchanged as we continue to expect strong top line sales, US company-operated restaurant margin of approximately 15% to 16% and mid-single-digit commodity and labor inflation. Additionally, we continue to expect net franchise fees of less than $20 million and net rental income of approximately $105 million for the full year. We are also reaffirming our 2023 outlook for adjusted EPS of $0.95 to $1, capital expenditures of $75 million to $85 million and free cash flow of $265 million to $275 million. Looking further out, we are reaffirming our long-term outlook of mid-single-digit annual system-wide sales growth and high single-digit to low double-digit annual free cash flow growth in 2024 and 2025. Our reaffirmed financial outlook over the short and long term is a result of the momentum of our business and our dedication to driving the restaurant economic model behind our strategic growth pillars. To close, I'd like to highlight our capital allocation policy, which remains unchanged. Investing in our business for growth while holding true to our asset-light model continues to be our first priority. Secondly, we announced today the declaration of our second quarter dividend of $0.25 per share, which aligns with our commitment to sustain an attractive dividend. We continue to expect a full year dividend of $1 per share in 2023, which represents an over 100% dividend payout ratio. Lastly, we will utilize excess cash to repurchase shares and reduce debt. As of May 3, we have repurchased approximately 2.9 million shares and have approximately $438 million left on our $500 million share repurchase authorization expiring in February of 2027. Additionally, we repurchased approximately $32 million of our debentures through May 3, leaving approximately $43 million remaining on our debt repurchase authorization expiring in February of 2024. Our elevated cash balance and strong and flexible balance sheet leave us well positioned to withstand any macroeconomic headwinds as we continue to deliver meaningful global growth. We are fully committed to continue delivering our simple yet powerful formula. We are an accelerated, efficient growth company that is investing in our growth pillars and driving strong system-wide sales growth on the backdrop of positive same-restaurant sales and expanding our global footprint. This is translating into significant free cash flows, which supports meaningful return of cash to shareholders through an attractive dividend and share repurchases. With that, I will hand things over to Kelsey to share our upcoming IR calendar.

Thanks, GP. To start things off, we have an NDR in Boston with Guggenheim on May 23, followed by an NDR in New York with JPMorgan on May 24. On June 13, we will attend the Virtual Oppenheimer Conference followed, by the Virtual Evercore Conference on June 14. We will also host investor calls on June 20 and 21 with RBC and BTIG, respectively. If you are interested in joining us at any of these events, please contact the respective sell-side analyst or equity sales contact at the host firm. Lastly, we plan to report our second quarter earnings and host a conference call that same day on August 9. As we transition into our Q&A section, I wanted to remind everyone that due to a high number of covering analysts, we will be limiting everyone to one question only. With that, we are ready to take your questions.

[Operator Instructions] First question today comes from David Palmer with Evercore ISI.

You talked about a lot on that in your prepared remarks. I'm just wondering if you could sort of rank what -- where your energies are going to be applied in terms of driving sales and traffic, call it, market share between the marketing, the innovation and potentially renovation and then you mentioned some digital initiatives. Where do you think the biggest energy is going to be applied? And what do you think is going to give you the best bang for your buck?

David, thanks for the question. I think it's balanced across several things. I think the opportunity to continue to raise our game on operational excellence, we're staffed better today. We've got opportunities to continue to drive some more business into our late night as we talked about in the prepared remarks. We know we have opportunity to continue to grow on the breakfast day part. We've got some nice news coming the rest of this year. And we feel really good around the balance of our calendar for the remainder of the year. Some great new innovation coming throughout the year, a commitment to value with $4 and $5 and $6 Biggie Bags. So I do think we got a nice balanced calendar that will continue to drive our business. And we'll continue to lean in on digital. Our digital mix continued to grow each period within -- in Q1. We feel like we got some momentum. The tools are coming to life to better connect to the consumers to create even better experiences. So hard to rank them because I think they all need to come together to continue to drive great experiences for the crew and our customers. But that will allow us to continue to drive mid-single-digit growth quarter-over-quarter-over-quarter throughout the rest of this year, and we've got a lot of confidence in that visibility.

Our next question comes from Brian Harbour with Morgan Stanley.

I just wanted to ask about development. Could you comment on we're the closures in 1Q more related? And how many more of those do we kind of expect? I guess I'm just trying to think about kind of the pace of development through the year as you get to the 2% to 3% target for the full year?

Yes. So on REEF specific, we only had a couple of REEF closures in the first quarter. We had several U.S. restaurants temporarily closed. So in the second quarter, you'll see 15 U.S. REEF closures in that number. The way the calendar is lined up for this year, we're on track with our internal expectations. The 39 new restaurants, you look at our historical averages in the first quarter, we've typically, other than maybe the first quarter of last year, always open 30 to 40 restaurants. It is back end loaded on the openings, it is front-end loaded on the closures. But we got good line of sight with 45% of those restaurants now open or under construction. And as we get to the end of the second quarter, we're going to have the vast preponderance of those open or under construction. So we'll be able to report back to you on that. But we've got visibility to the work that's underway and the plans to deliver our 2% to 3% net unit growth this year. So we're feeling good about that.

We now turn to Brian Bittner with Oppenheimer.

I'm actually really interested in the comments that you made in the prepared remarks on a much heavier focus on driving the late night business. As the year unfolds, can you just talk about the drivers that made you come to the conclusion that this is the right targeted strategy? And if successful, could you frame up what type of impact late night could have on sales? Maybe you can frame the upside or help us understand what that size -- the size of the business is today and where you think it could go?

Yes. Well, what gives us confidence? We've leaned in on late night for a while in the company restaurants and we've seen some great success. We know when we look at the rest of the system relative to where we are in the company restaurants, there is an opportunity. Some of that comes with our operations. Some of that is a result of not having the staffing we need. But now that we've got ourselves staffed appropriately, as we look at where that late night business is, not only what we can do through the drive-thru with traditional drive-up customers, but what we know we can continue to do with the momentum that we have on the delivery business, and our delivery business continued to grow period -- month over month over month in the first quarter, those all give us a lot of confidence that we're in a position to really drive significant growth in that daypart. The size of the prize, hard to quantify. But when I start to look at where we have some big growth drivers, late night is going to be one of those and breakfast will continue to be one. And we'll continue to work hard to continue to win like we have been at lunch and dinner, and you've seen some nice growth in those dayparts too for us.

Our next question comes from Dennis Geiger with UBS.

Another one on development, if I could. And the commentary on franchisee profitability is certainly helpful. Just wondering on the development side of things, specific to franchisee demand in the current environment. Just if you could size up a bit more those macro headwinds offset by some of the specific drivers you mentioned and particularly as it relates to feedback on the development incentive programs, Todd, if there's anything more that you could share on what kind of franchisee feedback you're getting there.

Yes. On the development incentive program, still early. So a lot of education going on Groundbreaker 3.0, what we have on Pacesetter, the continued opportunity to take advantage of our build-to-suit program. So we'll have a lot more visibility into that in Q2. Clearly, incentives are attractive and they help the restaurant economic model. With the momentum that we continue to see with improvement quarter-over-quarter in our restaurant margins, that certainly helps create some excitement into the future. And we've got our global next Gen 2.0 design, and that's digital forward restaurant, costs down about 10%. So when you factor all of those versus the prior model, when you'll factor all of those together and you think about where we can see the strength of the consumer on the other side of all the inflationary pressure they're facing with a lot of nominal wage growth, I think you're going to start to see a lot of our franchisees want to continue to lean in to take advantage of those opportunities. And that next-gen design restaurant with the digital forward view, all the things that we're working on when it comes to voice AI and digital menu boards and other technological advancements into that restaurant, those can continue to better connect to the consumer, help our employees and drive the restaurant economic model.

Our next question comes from Joshua Long with Stephens.

Was curious if you could walk through the pricing mix, traffic components of the quarter. It sounds like during the prepared comments, you talked about traffic being down a little bit, but was just hopefully hoping we can get additional context there. And within that same vein, how are you thinking about pricing on your side of the business as we think forward to the year with inflation moderating, labor pressure is still there, but the consumer overall being relatively strong for your prepared comments?

Josh, so as you've heard in the prepared remarks, U.S. SRS was up 7.2%. Pricing was about 7% for the system, a little bit below food-away-from-home inflation. We are caught a little bit in rounding. If you actually look at the exact numbers, what you will find is traffic was up a little bit less than 1%, mix was slightly negative and pricing was a little bit below 7%. So when you add it all up, it reconciles the 7.2% we have reported. It's important to note the traffic growth was really happening in every single month. Remember, January was the easiest comparison with Omicron and really bad weather. We grew traffic there, that was kind of expected, but we also grew traffic February and in March. As far as the company is concerned, we obviously lean in, in pricing a little bit more with 9.5% in the first quarter. We kind of caught up on our pricing position versus franchisees. If you look at the year, total pricing for the year is about 7%. It's a little bit higher than what we talked about last quarter. Last quarter, we talked about 6%. The difference is we are accelerating pricing a little bit to put us in even better position. Remember, pricing, the carryover is about 5%. So the price -- the new pricing action is not a lot. And again, I think the proof is in the pudding here. We have not seen major resistance from customers on the pricing actions we have taken, as evidenced by the traffic growth that we have seen in the first quarter and maintaining and holding our dollar and traffic share in the category.

We now turn to Lauren Silberman with Credit Suisse.

I just want to ask if you can expand on what you're seeing with consumer behavior signs of check management. I think you mentioned mix was negative. And then if you can just talk about what you're seeing across different consumer cohorts, that under $75,000 and over $75,000 consumers.

Lauren, yes, as I said, the consumer is reacting well to our programs. That's why we have high single-digit growth in the quarter. From a customer satisfaction point of view, value perception, we have not gone backwards. In contrary, actually our scores have improved quarter-over-quarter and year-over-year. From an income level point of view, the below and above $75,000 income cohort, we maintain share in the category in both income cohorts.

So it's interesting on the income cohort. If you think about the under $75,000 consumer, we've maintained our share but traffic is relatively flattish there. The good news is we're seeing nice growth with the over $75,000 cohort, and we continue to hold nice the share there. So participating in that growth.

Our next question comes from Andrew Charles with TD Cowen.

GP, can you comment on your beef inflation expectation for 2020 versus what you laid out in the last call? And, Todd, I guess looking to better understand is how this impacts your promotional strategy, particularly for the Biggie Bag, to help mitigate potential cost volatility as potential inflation might weigh on value efforts.

Andrew, so our commodity outlook is unchanged versus the previous position we have taken. So it's mid-single digits. Within the commodity basket, we saw a little bit of movement. Beef goes a little bit more expensive for us, still slightly deflationary versus prior year. That was offset by favorability in other food categories. I would also point out that beef is about 15% to 20% of our commodity basket. We have now price visibility up and inclusive of the first eight weeks of the third quarter. So there is not a lot open. Could there be a little bit more headwinds, maybe. We do expect that, that offsets elsewhere, and very confident with the mid-single-digit commodity inflation guidance we have reaffirmed.

Yes. And as far as the promotional calendar, we don't think that impacts our plans at all. And we've got good visibility into what we've aligned to with the system around where we want to continue to support the $5 and $6 Biggie Bag and we'll continue to lean in there. We've got some really nice news on the premium hamburger side of the business. In Q1, we were able to really focus a lot on our core items, when you think about our hot and crispy fries, the work that we did around hamburger equity and squares the beef. And we'll continue to lean in on those equity drivers and those unique points of difference with the calendar that we have, and we'll continue to play our game.

Our next question comes from Jeffrey Bernstein with Barclays.

I just wanted to ask about the franchise sentiment -- or franchisee sentiment post-COVID, but pre potential recession. I'm just wondering what the primary topics of discussion are greatest friction points. Obviously, it's encouraging to see that the sales and profits are up versus pre-COVID levels, but what's the primary pushback there? And maybe if you could just compare your leverage position and outlook relative to franchisees. We get a lot of questions on franchisees' liquidity and ability to borrow in this environment to support that unit growth.

Jeff, the great news is we've got a strong working relationship with our franchise community, both through our advertising trustees here in the U.S.; and in Canada, we continue to stay linked in the hip on what we're trying to accomplish, and that focus is to drive the restaurant economic model. That's the area of discussion all the time, how do we continue to enhance margin to make sure we can invest back into our people, back into technology into reimaging and new builds? And that's what we'll continue to work on together. We are making progress. You're seeing that quarter-over-quarter in a highly inflationary environment that we'll continue to break through and do that and find that right balance between one more visit and one more dollar with a really balanced high-low calendar, sprinkling of value, some price point and promotions as well as a lot of focus on the core, as I just mentioned. So we feel like we've got a good partnership, but it is about driving that restaurant economic model. Around lease adjusted leverage ratios and our ratios versus theirs on the debt side. GP, I'll turn it over to you.

Yes. The company has a leverage ratio of about 4.7x, so below 5. The system is north of that, definitely increased slightly versus 2019. Debt levels have slightly increased with all the acquisitions that have happened. I would say on the leverage ratio, the system will make rapid progress to take the leverage down. You can see this from our company restaurant outlook, right? We are forecasting mid-single-digit sales growth. If you take the midpoint of our U.S. margin guidance, that's as an expansion versus prior year of north of 100 basis points, you can do the math. It's double-digit profit growth so that will go a long way to take leverage down in the system as well.

We now turn to Jon Tower with Citi.

Can you give us an idea of where breakfast average weekly sales settled out in the quarter? And more specifically, I think you've talked in the past about your awareness of breakfast being relatively high for your core customers. But I'm curious, what are you hearing from those customers as to why they aren't coming as frequently? Or what would drive them to come more frequently than they are today? Is it something on the product side? Is it speed of service? Is it price points that they're looking for? I'm just curious to kind of get some color around that.

Yes, John, on breakfast, as you did mention, our awareness continues to be quite high. I think that the consumer is looking for a couple of things from us. We've got to continue to drive speed of service, which we're doing quite nicely. We've got to continue to drive overall satisfaction, and it's still our highest overall satisfaction daypart. But I do think we've got to sprinkle in a little more value, having an opportunity to play on things like $3 croissant on a more regular basis are certainly helpful. There's a core consumer that's only going to come to breakfast and QSR if there's a product on deal. So we're going to have to continue to make sure we're competitive on that front. And we've got to continue to make sure that we got a more complete beverage business. You look at a lot of the growth in the breakfast daypart over the last several quarters, it's those with heavy beverage businesses, whether that's in QSR burger or elsewhere. We'll continue to lean in. We've got some news coming around our Frosty cold brew, which we've talked about in the past. So I think we've got those plans in place to continue to lean in. And on the breakfast side, we're no longer giving those weekly sales numbers around that breakfast daypart. But as I look at the calendar for the rest of the year, where we are on value, what we're doing on Frosty cold brews, what we're doing on some innovation and the pressure that we have to support our business for the rest of the year, I'm feeling really confident that we're going to continue to compete well.

Our next question comes from Chris O'Cull with Stifel. Chris O'Cull: Todd, could you speak a little bit more about Wendy's thinking regarding pricing later this year, and whether you think customer count growth is going to be needed to achieve positive comp growth later this year? And then when does the system start to roll off some of the larger price increases?

Chris. So as we said, right, we don't need a lot of pricing to get into attractive margin structure. We have not yet taken a new pricing this year, that comes a little bit later. And as I said, the gap between the carryover pricing and the new pricing is about 2% on the year. So it's not a massive action. If you fast forward, while if you look at our long-term sales guidance for '24 and '25, we are basically saying, yes, it's low single-digit SRS growth. We do think the pricing levels will come down. As a result of it, we are expecting flattish traffic in the outer years. So I think it's going to be healthy. With all the focus that we have on the restaurant economic model, we see no reason why our profitability in our company restaurant shouldn't expand further in the outer years with that construct. And it drives then, obviously, our high single-digit to low double-digit free cash flow outlook.

Our next question comes from Chris Carril with RBC Capital Markets.

So can you expand maybe a bit more on the pace of the remaining reimaging? I think it's about 20% of the global system. And maybe to what extent you think that can provide a tailwind to new unit development as that reimaging program winds down?

Yes. So we exited the quarter with 80% of our system global image activated, which is great progress. And originally, remember, our full goal was to have the system 100% reimaged by 2024. That could slip a little bit into 2025. So if you take advantage of the Pacesetter incentive, you can actually get an extra year to rework your reimaging, which is a choice we wanted our franchisees to make to focus and lean in on new development and continue to work hard to get all of their restaurants reimaged. I do think that, that does free up capital as we get over the hump on the reimaging, it does create opportunities for capital to be focused not just on new development but also to invest back into those restaurant economic model driving things around technology and the people. So those things then fuel even more top spin into development as that restaurant economic model gets even stronger and stronger in the future.

Our next question comes from Eric Gonzalez with KeyBanc Capital Markets.

Maybe another one on the late night opportunity. Can you talk about where we are in terms of traffic or sales versus pre-pandemic levels. And I think you mentioned that you're fully staffed. I was wondering, is the daypart currently profitable for your franchisees? And is maybe there an opportunity to value engineer the menu or to make the daypart more efficient, similar to what you've done at breakfast?

Yes, Eric, it's pre-pandemic -- when you look at overall traffic at late night, it is back to prepandemic levels. Our opportunity is to make sure that we're getting our fair share of that at the late-night daypart. We'll continue to lean in to take a look at what that menu construct should look like to be really efficient and effective to drive throughput and great food at that late-night day part. So opportunity to come as we continue to lean in to think about what that menu should look like and how we should support that business. When you look at the profitability, when you start to think about where we traditionally go and shut down the dining room after 10 and get into a late-night staffing model, there is a lot of profit to be had. So when you look at the labor model against the existing menu with the sales and transaction it takes, it can be a nice contribution to the restaurant economic model. And we'll continue to look to make sure that we make it even more efficient around the menu construct, how do you make it easier close at night to provide a better opening in the morning so they can really then continue to support your breakfast business too to make it the virtuous circle.

Our next question comes from John Ivankoe with JPMorgan.

I know we've spoken before about grocery maybe being the biggest competitor to the QSR category, in general, maybe you specifically. Can you -- just in terms of total meal share. Can we talk about that category, I mean, which is obviously shifting from pricing which is well in excess of restaurants to in the relatively near term to pricing that will be below restaurants? If you do think there's any real risk kind of share shift into grocery or maybe other factors like employment, gas prices might lead to a slightly different outcome this time. And I guess how you would like to be best positioned to keep the share for yourself and away from potentially back to the grocery category.

So it will be interesting to see, John. I think you pre-pandemic, food consumed at home was running that 81%, 82% range. During the pandemic, you got the 85, 86. It's kind of settled in today at 85%. So it's not like we've taken advantage of a lot of folks shifting back into the restaurants at this stage. There's still a lot of folks eating meals at home. You look at the convenience, you look at the overall price point, still there's been a lot of inflation over the last several years in the grocery daypart. And you think about constructs like a $5 Biggie Bag, a $6 Biggie Bag, the value we can create on a freshly prepared meal on a single or Made to Crave, we still have a lot of relative value against grocery, and we drive a lot of convenience. So I think we're well positioned to continue to compete. And as folks start to get out and think about what their patterns are and what their hybrid work environments are, getting back to work, those things will continue to get -- try -- push miles driven and continue to help the restaurant business overall, whether that's breakfast or lunch. Anything else, GP?

Yes, I would also say that net disposable income is a big, big correlator. And I would expect with inflation coming down in grocery, net disposable income will come up, right, because wage inflation is still relatively high. So as the consumer is looking quarter-over-quarter, there should be left with a little bit more net disposable income, and it should encourage them to go to the restaurants more often and spend some more money. And then hopefully, with us, I think our offerings are compelling. They're really for our consumers and it should be good for our business.

We now turn to Gregory Francfort for Guggenheim.

GP, I think you made a comment about staffing being in a much better spot. Can you maybe update us on what you're seeing on turnover levels of staffing and if you're starting to see any maybe early break on entry-level wage rate at all just as the labor market starts to free up?

Greg, so staffing levels definitely have improved. What's the metrics we are looking at? The 90-day turnover rate has definitely improved year-over-year and quarter-over-quarter. You've heard in the prepared remarks, we are going to advertise late night. That's an indication that we feel really good about staffing levels, even in difficult to staff time periods like late night. So there's definitely confidence there. We have not seen really deflationary environment in labor if that's what you were asking, Our labor inflation in the first quarter was mid-single digit, about 5%. Again, right, that on a stacked basis, that's a massive increase. If you might remember, in the first quarter of last year, wage inflation was about 15%. So that's the environment that we have. And obviously, we are trying to remove our reliance on labor. How do you do this? Obviously, drive retention as fast as possible -- as best as you can. From a competitive and benchmark point of view, our turnover rates are better than the industry, so that helps restaurant economic model. And then obviously, the push towards digital, digital ordering voice AI is also helping with productivity in the restaurants. Todd, anything else?

You're seeing all the benefits of all of that, GP. I mean, you look at where our overall satisfaction is as we've been better staffed. That's improved significantly quarter-over-quarter. We're seeing it across taste, we're seeing it across accuracy, we're seeing it across our speed perception. Importantly, we're seeing our actual speed improve. So we're making improvements on that front. Speed, convenience, affordability is what our game is all about. Differentiating on quality as the game will continue to play. being in a much better position with labor is certainly going to help us lean into all of that with better trained crews and better staffing across all dayparts.

Our next question comes from Sara Senator with Bank of America.

This is Katherine Griffin on for Sarah. Todd, I wanted to ask a couple of questions about the AI investments. Firstly, why is now the right time to be making this investment? And secondly, do you -- when you spoke about the unlock, do you expect that to be more on the throughput side or on the labor cost operational side?

Yes. I think now is the right time. We've done a lot of work on our tech stack and our restaurants. And we've had Kevin Vasconi, who joined us several years ago now from Domino's, and his team have done a nice job really setting ourselves up to lean in even more on technology. Clearly, it starts with the global next-gen design. That's all digital forward. We've got work that we can continue to do even on the digital menu board. So that's still growth in front of us. But when you look at why now, it is a great partner that we have in Google Cloud. We believe in their generative AI and large language models technology. We've been testing it. We'll have it live in a couple of restaurants as pilots here in June in the Columbus area. And we really look at this as a speed and throughput opportunity for us. Slowest point in the whole drive-through is that order station, trying to make our lives a little bit better for our employees and a heck of a lot better for our customers as we really get them focused on making great food and expediting it out that window super-fast. So that's where the opportunity really lies, to elevate the experience for both employees and customers moving forward.

Our next question comes from Jim Sanderson with Northcoast Research.

I just wanted to follow up on your commentary regarding late night and just wanted to make sure I understood. Are franchise stores in the U.S. operating to expected operating hours in breakfast and late night? Or are there still opportunities or areas where stores cannot fully operate as expected? Just to check on capacity.

Yes, still opportunities. I mean, if you go back over the last 12 months, when you think about late hours, having your dining rule put until 10, having your restaurant open until midnight or later, we weren't all the way there. And we've done a lot of work, as you heard in the prepared remarks, to get ourselves set up to actually nationally advertise now open for late night business midnight or later. So we'll have the vast preponderance of the system in a position to do that as we roll into the summer.

We now turn to Jake Bartlett with Truist.

Mine is on the value offering. You mentioned four for $4, you mentioned Biggie Bag at $5 or $6. One, I just want to confirm, are you keeping the four for $4. My understanding is that it was kind of going away at some point, I thought soon. And then one kind of feedback that I hear from franchisees is that the view is that the value offering is actually too attractive, it kind of -- versus the core menu. There's too large a difference. Is that something that you think is a problem? And is that something that you're kind of looking to address?

Yes. So if you think about where we are, we've been trying to move folks from four for $4 to $5 Biggie Bag to $6 Biggie Bag. So we've been able to drive some nice mix gains as we've shifted folks up and across those offerings over the course of the last several months. four for $4, it really is a local decision. Is it going to stay on the menu board, is it off the menu board, still be honored if you come through the restaurant, you can still manage it within the app. The focus has been on $5 and $6 Biggie Bags with the offerings that we have there. But if you look at our overall mix around value when it comes to four for $4, $5 and $6, it's been relatively stable. So we haven't seen a lot of trade down. We are watching that gap between value and premium. It's an age-old discussion that is not just happening today, but probably the same discussion we had five years ago. And how do you actually sprinkle in value in between with other offers like $2 for $6 and things like that. But we're really trying to make sure we got the right balance between value premium. And I'll tell you what, in the first quarter, with all the hamburger equity advertising, the news that we have around Made to Crave and our core, we had our best core large hamburger volumes in the last six years. So we're really feeling good about that on the premium side.

Our next question comes from Fred Wightman with Wolf Research.

There was a comment earlier the traffic was positive on a year-over-year basis each month, but I'm wondering if you could give a little bit of color. It sounded like there was some weather in January, but maybe just how that year-over-year trend throughout the quarter.

So as I said, traffic for the quarter was a little bit less than 1% in the month of January, a little bit north of 1%. And obviously for the remaining of the quarter, a little bit below.

Our final question today comes from Peter Saleh with BTIG.

It sounds like the industry is seeing improvements on the labor side really across the board, and you guys are seeing it as well. Yet on your commentary on breakfast, you indicated the need to drive faster speed of service. I think that was one of the first comments. So just curious, are you seeing improvements in speed of service across all dayparts? Is breakfast the slowest? Just trying to understand there the improvement that you're seeing on the labor side is really helping to drive the speed of service or if there's something else you need to do there?

Yes. From a speed of service perspective, our breakfast daypart is our fastest speed of service and continues to be. But we got to continue to do that reliably and make sure that we're prepared for the breakfast rush, just as we are for lunch and dinner to be rush-ready. So that's where that comment is. It's just one of the things that continue to deliver a consistent experience. I do think the other factors around how do we continue to bring some news into our breakfast business around food, what do we do to continue to expand our beverage offerings, those are things that will play even more into our growth into the future. And we've got those things planned in the pipeline right now.

Thanks, Peter. That was the last question of the call. Thank you, Todd and GP, and thank you, everyone, for participating this morning. We look forward to speaking with you again on our second quarter call in August. Have a great day. You may now disconnect.