Good morning. My name is Brandy, and I will be your conference operator today. At this time, I would like to welcome everyone to The Wendy's Company Second Quarter Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to John Barker, Chief Communications Officer. Please go ahead, sir.

Thanks, Brandy. Good morning, everybody. This morning, we issued our second quarter 2012 earnings release, and we filed our Form 10-Q. The agenda for today, our call and webcast, we'll start with opening comments from our President and CEO, Emil Brolick, which will be followed by a review of our second quarter financial results from our Chief Financial Officer, Steve Hare. Then Emil will provide an update on Wendy's Recipe to Win and the progress we're making on our key growth initiatives. Finally, we'll open up the line for questions. Today's conference call and our webcast is accompanied by a PowerPoint presentation, which can be found on the Investor Relations page at our corporate website, www.aboutwendys.com. For those of you who are listening by the phone today, please 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 news 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 of the 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. Now with that, I'd like to it over to Emil.

Thank you, John, and good morning. As we review the results of our second quarter performance, I believe we are beginning to see positive signs in our quest to become a cut above in all aspects of the Wendy's brand experience. We are very encouraged, but we're certainly not satisfied. Second quarter system same-store sales growth of 3.2% marked our fifth consecutive quarter of positive system same wide [ph] store sales. This growth was the result of improved restaurant operating experience, compelling product messages and integrated marketing that really is beginning to resonate with consumers. Our company-operated restaurant margin increased 20 basis points in the quarter, as our average check increase was mostly offset by investment in labor to improve the consumer experience and increases in commodities. As Steve will explain, we believe we have opportunities to improve margin. Based on second quarter results, we are maintaining our 2012 adjusted EBITDA outlook of $320 million to $335 million. We continue to see strong sales increases at our Image Activation restaurants and plan to accelerate the expansion of the program in 2013. We are confident that the substantial capital investment we and our franchisees are making will drive the long-term profitability and growth of the Wendy's brand. The 3 key reference points guiding our thinking strategically and tactically are: our brand positioning of A Cut Above, the growth pyramid illustrated in this slide and our Recipe to Win. Our company and franchise operators are aligned with and committed to these 3 cultural foundations as keys to producing consistent brand, sales and profit growth. The 7 growth initiatives, as illustrated by this pyramid, begin with the foundation of our business, North American sales growth. Beyond driving same-store sales growth, Image Activation is the most important initiative in our company, as our reimaged restaurants enable our marketing, our food and our people to be more effective in delivering a total experience that our customers are telling us that they absolutely love. The 6 P's in our Recipe to Win bring our growth strategies to life, and when executed in unison, are powerful. We are optimistic about the potential of each of these growth layers and our Recipe to Win. And now, I'll turn it over to Steve, and then I'll return with more thoughts on our growth strategy.

Thank you, Emil, and good morning. And thank you for joining us today. We began the second quarter with the introduction of the Spicy Guacamole Chicken Club in April. In May, we launched our new Signature Sides, featuring Mac 'N Cheese, a Baked Sweet Potato and a Chili Cheese Fry. In June, we promoted the return of a Wendy's seasonal favorite, the Berry Almond Chicken Salad. North America company-owned, same-store sales increased 3.2% in the second quarter. The second quarter sales increase was primarily the result of an increase in average check. Our franchisees' same-store sales also increased 3.2% during the quarter. Wendy's company restaurant margin was 14.1% for the quarter, reflecting a 20-basis-point increase from the second quarter of 2011. This margin increase was the result of an increase in average check, mostly offset by an investment in restaurant labor, higher commodity cost and higher paper cost. Same-store sales growth and a favorable product mix drove the margin improvement of 20 basis points. Offsetting this positive impact were higher labor costs, as we invested in our My Wendy's customer service initiative to improve the consumer experience. By improving the consumer experience, we expect to generate incremental visits to our restaurants from returning customers. As a result, we expect to improve margin flow-through over time on this labor and service program. Higher commodity cost also affected margin in the quarter, driven primarily by beef. We now anticipate some relief in beef cost versus expectations for the balance of the year. We are currently seeing a short-term benefit in beef cost from recent events, including the lean, fine-textured ground beef controversy, which has lowered retail demand for ground beef, as well as the nationwide drought, which has sent cattle to market sooner than normal, increasing short-term supply. As a result, we…

Thank you, Steve. As I have shared previously, Wendy's Cut Above brand positioning is the natural position for the Wendy's brand. Our Recipe to Win is the specific thought process that will take the Wendy's brand from where we are today to become a growing vibrant entity that resonates with consumers and produces consistent same-store sales and profit growth, building shareholder value. And organic growth is certainly the key to increasing shareholder value, so let's look at our long-term growth imperatives. Image Activation is the most important initiative in the company, because our reimaged restaurants enhance all dimensions of the Wendy's experience. Our marketing, our food and our people deliver a total experience that customers tell us they love. We're making excellent progress on Image Activation, and I'd like to share an overview. Image Activation provides guests a new QSR experience at a QSR price. And because of this, we continue to see very positive sales trends in Image Activation restaurants. The 10 prototype restaurants we opened in 2011 have attained average sales lift greater than 25%. This even more impressive, as the earliest Image Activation restaurants has sustained the sales lift for the full 12 months. The SOE or store operator evaluation inspection scores in these restaurants are also 4 to 5 points higher than our system average, which is significant and a testament to our commitment to reimage the total restaurant experience. While we are also very encouraged by the Image Activation openings to date in 2012, we opened a traditional restaurant design in Philadelphia on July 30. We had 3 Image Activation restaurants open in Philadelphia by the end of September, and we are planning franchise visits to these restaurants as part of our franchise update meeting at the beginning of October. We opened an urban-design restaurant…

Thanks, Emil. Brandy, we're now ready to have folks on the phone queue up for questions, if you could begin that.

[Operator Instructions] Your first question comes from the line of Mike Gallo with CL King. Michael W. Gallo - CL King & Associates, Inc.: Emil, I would think the new image would represent the potential for significant acceleration in new unit growth among franchisees. So I was wondering if you have a new model for new builds yet or prototype model. I was wondering if you've had franchisee interest in new build under the new image.

Yes. Essentially, Mike, the restaurant that we built in Hershey, Pennsylvania, which was a scrape-and-rebuild -- and that was built by a franchisee; it was on an existing location and so that restaurant was leveled and this new restaurant was put up -- is essentially the model that we will use. And actually, we've been very encouraged because what we see is not only enthusiasm for the Image Activation of existing restaurants, but I do believe that the franchise community is also very excited about new restaurant growth as well. So I share your enthusiasm for it. Michael W. Gallo - CL King & Associates, Inc.: Any thoughts on just what a new-build, ground-up would cost under the new image at this point? Or are you still working through that?

No, nothing specifically. We do sense that it will be incrementally a little more expensive than what we've traditionally built over the last year or 2. But based on the sales results that we're seeing, our hope is that actually, the return on that investment could be substantially higher.

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

This is Ashwin Shandilya, actually, in for Jeff. I was just basically wondering -- on comp trends, I was wondering if you could give us any information either through the quarter or over the last 5 or 6 weeks, I mean, given that many of the competitors report slowing sales in June, July. Or just generally talking, are you seeing any sign of a slowdown? And separately, I -- you noted the success of the direct-mail campaign. Any thoughts on how much that might have contributed to traffic growth during the quarter? Or any impacts that they had to mix and margins that you can speak to?

So as you know, we don't report on an interim basis. But we continue to be encouraged by the trends that we see in our business, and I won't go any further than that. And as far as the coupon, I think we talked about this a little bit on the last call. But certainly, we are very encouraged by the results that we saw in the first coupon that we used, and I say both in terms of the consumer response to it, as well as the profitability of that coupon. And that we're going to use these sparingly and strategically, but we do believe that there is a role for those, and you might recall that one of the interesting things that we learned about coupons was that, first of all, that they often were fundamentally a different customer base than was the value-menu customer. It tends to be a little older customer, actually a little more well-heeled customer. And the other thing is that, interestingly, we found that these pieces are so well done that they do a great job of actually building equity in the products, in addition to giving consumers an economic incentive to come to the brands. So we'll continue to learn. But so far, so good.

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

Just one question on the CapEx and the reimaging. I think you guys have said this, about $80 million in Image Activation CapEx this year, and I think that's on the 50 Image Activation units and includes the 17 new units. I'm just trying to understand. That implies, I guess, over $1 million per reimage. And going forward, I think the numbers are somewhat lower. Just trying to understand, are you confident that you continue to do the 25% sales lift, if you're not spending that level of money going forward on the Image Activation?

Yes. Jason, this is Steve. The -- we'll spend about $80 million this year on CapEx, and that will include the CapEx around the remodeling, the reimaging of about 50 this year. And then the new-build cost for the approximate, say, 17 that I think we'll get open this year. So it's a combination of those 2. As I -- the 50 we'll do this year will all be Tier 1, so they're going to be in that $750,000 range per unit. There will be also some component of what we call deferred capital that comes with any project of that scale. And as Emil mentioned, the new unit construction costs will be slightly higher than our traditional construction costs. But in total, that -- we think that will be right around $80 million for this year.

And just for clarity, we're going to do 17 new-builds in the reimage format. We'll have a total of about 20 new-builds, 3 of which were still going to be in the old format just because they were in the approved state in the old format that we couldn't get changed.

Okay, got it. I mean, it just sounds like the $80 million is a bit high this year on a run rate for what you guys are guiding on CapEx going forward. But I guess, there's some -- maybe some deferred numbers in there and some testing and things. So the other question is, as these stores get the reimage done, how does that work in the comp base? Do they stay in the comp base throughout the process? Or do they come out for a year and then come back in? Just wanted to understand how that's going to get reported, as you get more of these reimages opened up.

Yes. Jason, that's where -- and we've got a pretty detailed description in the Q, just to refresh your memory on that. But we went to a new methodology this year in anticipation of the expansion of the Image Activation programs. So to be able to sort of include the impact of Image Activation on a more timely basis, what we went to was where -- on the reimages, what we do is we pull them out when they shut down for construction. We leave them out of the store base for the first 3 months of -- sort of the, call it, the grand-opening period. And then they go in to the same-store sales calculation at that point, 3 months after, when you actually -- just to make it a little more complicated for them, but when you loop around, then we pull them out when they lap over the construction period and that 3-month period, and after that, then they're in on a full-time basis.

Okay, got it. And then just one more quick one on the D&A. That came in a bit higher than we had modeled, ended up quite a bit year-over-year. Is that kind of the new run rate on D&A? Or was there any kind of one-timers in there from the store portfolio review?

No, I think you're going to see D&A run higher going forward, because the CapEx kicking in as we start ramping up to this. We've said we'll spend about $225 million in total this year. So I think you should expect D&A to continue to run higher. One element of that, for example, is we've expanded the upgrade of POS hardware across all company restaurants. And so that was about a $35-million expenditure, so we will amortize that over a 5-year period. So that's part of why you're seeing a kick there in the quarter.

Your next question comes from the line of Larry Miller with RBC Capital Markets.

I just had a couple of quick questions. You guys mentioned that same-store sales was mainly driven by average check. Can you give us a sense of the price and mix that you're running and the plans that you may have in the next couple of quarters on pricing going forward? And I had another question as well.

Yes. We really do not break out transaction check mix in those numbers, other than giving you the color that it was predominantly check driven.

Okay. Can you guys talk about the forecast for beef for 2013? My understanding is you don't really contract, so is this just conversations you're having with suppliers? Or are you just sort of estimating that? And the other 20% of the cost structure being chicken, any sense on that as we head into 2013?

Yes. Larry, on the beef side, in particular, what we're -- I guess 2 messages we're trying to get across is that we do think for the second half of the year that the beef cost that we'll see will be lower than we had anticipated in our original forecast for the year. We had said our total commodity basket would be a 4% to 5% increase. Beef cost was a big part of that increase. And generally, we've been seeing about 10% year-over-year increases in terms of our cost of beef. We think that, while we were running towards that rate in the first half of the year, what we'll see is we think we'll see improvement definitely, obviously, in Q3. But now, we're actually going to see -- because we're on about a 3-month lag because of the fresh beef that we buy, we now anticipate that fourth quarter will be below that expectation, but still it'll be higher than it was in 2011. Unfortunately, when we look ahead to 2013, and this is just based on our conversations with our experts on the -- at the purchasing co-op as they are looking at beginning to put our plans together for purchasing next year, is we still think that fundamental long-term supply and demand imbalance that's out there for beef will kick back in and we think we'll be impacted in the first quarter of 2013 with much higher beef cost again.

And, Larry, this is why we -- you recall in Steve's comments that we made a specific point about we're also working very vigorously with our purchasing cooperative, QSCC, on a number of initiatives where we've identified cost-improvement opportunities because we want to make sure that we're -- we get ahead of these things and are able to some degree to mitigate any increases in beef or other commodities by initiatives that we feel that we have a line of sight on, that will not have a negative impact on consumers.

Any sense, when you talk those experts, on what chicken might look like for you guys?

No. We've talked about it. Again, when we talk about what we think will be the big driver for us next year, obviously, we're concerned with the underlying corn cost increases. That's not going to be helpful. This drought will have an impact. I think most of the drought impacts as we're looking at -- obviously, we've got some contracts in place on chicken this year. But first quarter of 2013, I would expect we'll probably see some negative cost pressures on the chicken side as well, because -- from corn and the overall impact of the drought.

Your next question comes from the line of Michael Kelter with Goldman Sachs.

This is Chase Arneson, pinch-hitting for Michael. I just wanted to ask about what you're seeing from a competitive pressure standpoint, specifically with Burger King and Taco Bell now firing on all cylinders and McDonald's beginning to focus on value a little bit more, if you're feeling any effects from those things. Any color on that would be great.

Well, as I mentioned that we felt good about the quarter, and obviously, the quarter would have reflected a competitive context from -- certainly, Burger King was doing a lot of things and certainly, Taco Bell really is doing extremely well. So our -- we would have accomplished the quarter in the context of those things. And as I mentioned, we continue to be encouraged by what we're presently seeing in the marketplace. But the indications that you've received from others in terms of the overall marketplace slowing down, I think, was an accurate indication. But I'm referencing the overall marketplace versus our business.

[Operator Instructions] Your next question comes from the line of Nick Setyan with Wedbush Securities.

You called out that new products are driving the sales momentum and that you're beginning to build positive comp momentum. What's driving your confidence in seeing this momentum continue for the rest of the year, particularly as year-over-year sales -- same-store sales growth comparables get a little bit more difficult going forward?

Sure. Well, I think it's a combination of things. One, we do feel good about the marketing messages and our ability to communicate those in an impactful manner. We do feel good about the rhythm that we've developed on the use of the national coupons, again, selectively. But we also feel good about the progress that we're making on the operations front. And as the slides clearly showed, that -- as we improve our operations, that there is a payoff there in terms of satisfied customers and customer loyalty. So as usual, I don't think it's ever just one thing, but it's the combination of factors that I think are contributing to the business. And it's interesting that when I mentioned the Hershey, Pennsylvania restaurant, that when we're speaking to the franchisee who owns other Wendy's restaurants in the marketplace, that they also saw some positive results in some of the other surrounding Wendy's. So it almost appeared to that franchisee that there was a halo effect from even that one Image Activation restaurant. So I just think that the enthusiasm that's building in our system has a contagious effect and, I think, causes people to be more focused on their business. And that can't help but translate into a more positive attitude into the restaurants as well. So it's a lot of, I would say, little things put together that ultimately produce a stronger experience for our consumers.

Great. And then just a second quick question on the pricing. Did this quarter's comp already reflect the beneficial impact of the strategic pricing model? Or will that benefit be realized later this year?

Yes, that -- well, that's an ongoing process for us, Nick. So I think that's just something that, I think, over time we feel, as we refine this pricing tool, it will just make us a little bit more effective with the price increases that we take. We'll see a little less transaction impact on the other side and so net-net, we think it will be just a more effective way to implement pricing going forward.

Your next question comes from line of Jake Bartlett with Susquehanna.

I just want to clarify, in your guidance, whether the 2% to 3% same-store sales that I think it was in it initially -- does that still hold? Or any kind of, I guess, color around that, whether you think you'd be in the bottom or the top of that range.

When we're giving our guidance now that -- as we've indicated, we're just sticking to the EBITDA guidance, but we're not giving the details in terms of same-store sales performance on that.

Okay. So I just want to clarify that omission of it means that it does not hold still. Sometimes if you didn't mention it, it might still hold. Just wanted to clarify that. And I also have another question about your commodity inflation. If you can give me any detail -- you're mentioning it's lower -- it's going to be lower than you expected previously. But if you could give us some more detail on exactly what your expectations are. And it would be helpful also in the -- if you can give us what inflation was in the second quarter.

Yes. Well, overall, what we said was we had 70 basis points of increase from all commodities for -- that was part of the -- when we talked about the margin change and the offset to the improvement that ordinarily you would see on the margin. So that was our total commodity change versus last year. When you look at beef, in particular, for the year, as I've said, we've been through 2 cycles now where we're seeing on average roughly 10% increase in beef cost year-over-year. Based on what we're now seeing with the improvement versus our initial anticipation, that will be below 10% this year.

Okay. But you can't give any sort of 4% to 5% going down to 3% to 4% or some sort of range that we can...

On the basket, no, we're still -- we've -- in terms of the overall basket -- just with the, I think, with the drought conditions that are out there and all the uncertainty in the market around all the other commodities, we're still saying we think our overall basket will be 4% to 5% for the year. But clearly, with the improvement of beef, I think we mentioned on the call last time, we're certainly hopeful we'll be at the low end of that range.

Okay. And then -- and last question. You haven't disclosed your pricing in 2012. But just -- in looking at 2013, do you think you could take a similar level? Or do you feel like just because of the inflation we've seen last couple of years, that the pricing is kind of reaching a point where you have to be more sensitive and can't take as much? Just trying to get an idea on your confidence on pricing power going forward into 2013.

Yes. I think the -- one of the things that we feel increasingly confident about is the work we've done with this pricing model, which we've talked about several times, which gives us confidence that we can understand our pricing in a way that optimizes the relationship between prices, transactions and profitability. And the other thing is that, as we are working with our marketing calendar and the testing work that we are doing both on premium promotional products as well as with the evolution of our My 99¢ menu, that we feel that there will be some positive there in terms of check influence that are more marketing-driven versus in the form of a pure price increase, because there is -- the most consumer-friendly way to take -- have a lift in check, of course, is through them selecting products as opposed to just a pure price increase. But we certainly do feel that there will be some pricing power in '13. Whether it's the exact same level as '12, I'm really not in a position to say right now.

At this time, there are no further questions.

Okay. Thank you, Brandy. That concludes our conference call today. I know it's a busy day for many of you with several companies reporting. Steve, David Poplar and myself will be doing follow-up calls. Those are scheduled this afternoon. Look forward to talking to you, and have a great day. Thanks.

This concludes The Wendy's Company Second Quarter Earnings Conference Call. You may now disconnect.