Good morning. Welcome to the Wendy's Company Earnings Results Conference Call. 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 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, Kirk Tanner, will give a business update; and our Chief Financial Officer, Gunther Plosch, will provide a franchise health update, review our first quarter results and share our reaffirmed outlook. From there, we will open up the line for questions. And with that, I'll hand things over to Kirk.

Thanks, Kelsey, and good morning, everyone. The momentum we built across our business in the first quarter puts us on track to achieve our 2024 commitment and on a path towards unlocking our full potential. But before we dive into the results, I wanted to share some of my thoughts on the business now that I'm almost three months in. The things that brought me to Wendy's still ring true. We have an amazing brand, the highest quality food in QSR and a great foundation for growth. After spending time learning from our restaurant support team, listening to our franchisees and customers, and working alongside our crew members, I'm even more fired up about the momentum we're building here at Wendy's. As I continue to immerse myself in the business, there's one thing I know for certain: the experience we deliver to our customers is the most impactful driver of our business. I've now had a chance to see that firsthand in so many ways, from working in our restaurants to our incredible activation at the Final Four. You can expect to see us always put the customer first with the goal of exceeding their expectations in everything we do. We are committed to ensuring each interaction our customers have with us is brand-building. As part of this commitment, we are reviewing every aspect of our business, and we'll come back to you later this year with our plans to deliver profitable growth over the short and long term. Those plans will be centered on three things: number one, driving strong same-restaurant sales growth in all our restaurants, including continued momentum in our digital channel; number two, a significant acceleration in global net unit growth; and number three, unlocking meaningful improvements in restaurant-level profitability. Progress against these focus areas will provide the oxygen we need to build the Wendy's flywheel, enabling us to bring our ownable propositions of fresh, high-quality favorites at affordable prices to more people in more places. Turning now to our first quarter highlights. Global same-restaurant sales grew by 90 basis points during the quarter. This led to 8.9% on a two-year basis as we lapped our highest quarter in the prior year, representing an acceleration of 120 basis points versus Q4. Our international business achieved 3.2% same-restaurant sales growth and 17.1% on a two-year basis. This marks a twelfth consecutive quarter of double-digit two-year same-restaurant sales growth for our International segment and continued QSR burger category dollar and traffic share gains in Canada, our largest international market. In the U.S., we delivered 60 basis points of same-restaurant sales growth and 7.8% on a two-year basis, holding our dollar and traffic share position within the QSR burger category. Our Q1 performance was driven by carryover pricing that continued to support average check growth, partially offset by customer count declines. We exited the quarter with momentum as year-over-year customer count improved each month of Q1. Our breakfast strategy began to reaccelerate the daypart, driving high single-digit year-over-year growth in U.S. breakfast sales. This success was the result of delighting our customers through purpose-driven innovation with our Breakfast Burrito and Cinnabon Pull-Aparts, consistent quality and compelling value with our 2-for-3 Biggie bundle, and increased media support as we began spending incremental media dollars from our company investments. On the digital front, we continue to gain significant momentum reaching nearly 17% global digital sales mix and over 30% year-over-year increases in digital sales. Our international segment grew to over 20% digital sales mix with strong digital adoption continuing in the U.K., Canada, and much of our APMEA region. In the U.S., we drove meaningful increases in our mobile order and delivery channels, growing total digital sales by over 15% versus the prior quarter, and 35% year-over-year. This supported an acceleration in U.S. digital sales mix each month of the quarter for an average of over 16%. Our digital momentum resulted from the success of our March Madness programming, which highlighted our fresh, never frozen beef that our customers know and love alongside compelling offers within our mobile app. This led to an increase in our monthly active users to over six million at quarter end, up over 40% versus Q4. Our total rewards members also increased to over 40 million, illustrating that our digital efforts are resonating with our customers. This growth drives the restaurant economic model, and our progress across breakfast and digital supported a 60 basis point year-over-year increase in U.S. company-operated restaurant margin to 15.3%. Finally, our Q1 development progress achieved our expectation as we opened 35 new restaurants across the globe. Looking ahead, we remain focused on executing against our plan and investments through a customer-centric approach supporting profitable growth across our system. As we shared during our Q4 earnings call, our growth plans are supported by our breakfast and digital investment, alongside our strong development pipeline, all of which support our restaurant economic model. In 2024, we continue to expect global same-restaurant sales growth of 3% to 4%. As we look towards the rest of the year, this expectation implies that our two-year growth for the remainder of the year will be roughly in line with what we delivered in Q1, driven by our company investment in breakfast advertising, which is already driving meaningful increases in U.S. breakfast sales, continued ownership of our biggest quality differentiators through our core menu, craveable innovation that excites our customers and inspires more visits, and compelling value that drives customer satisfaction and supports restaurant margin. We also remain on track to reach over $2 billion in global digital sales this year, supported by our digital investments, continued improvement of our digital customer experience in our app and our restaurants, and our increased ability to build personalized relationships with our growing base of loyalty members. Finally, our progress through Q1 supports our goal of two-plus percent net unit growth in 2024, which includes approximately 250 to 300 new restaurant openings. This next phase of our profitable growth journey is just beginning. The progress we made in the first quarter highlights that we have the right investments and plans in place to begin our next chapter. With that, I'll hand it over to GP to walk through our first quarter financial results.

Thanks, Kirk. Our first quarter results highlight the momentum we are building across our business. Our global system-wide sales grew by 2.6%, contributing to year-over-year growth across our financials. Our U.S. company restaurant margin reached 15.3%, increasing 60 basis points year-over-year, primarily due to the benefit of a high average check driven by carryover pricing of over 3%, partially offset by customer count declines and an increase in labor costs driven by rate inflation of approximately 3.5%. The increase in G&A was primarily driven by an increase in stock compensation and an increase in employee compensation and benefits. These were partially offset by lower outside professional services, driven by lapping implementation costs for the company's human capital management system in the prior year. Adjusted EBITDA increased 1.8% to approximately $128 million, resulting primarily from higher franchise royalty revenue and an increase in U.S. company-operated restaurant margin. These were partially offset by an increase in the company's incremental investment in breakfast advertising and higher G&A. The almost 10% increase in adjusted earnings per share was driven by fewer shares outstanding from our share repurchase program, an increase in adjusted EBITDA, and lapping a decrease in investment income in the prior year. These were partially offset by higher depreciation and higher amortization of cloud computing arrangement costs. Finally, the decrease in free cash flow resulted primarily from the company's incremental investment in breakfast advertising, partially offset by the timing of receipt of vendor incentives. Now let's turn to our expectations for 2024. Our financial outlook for 2024 remains unchanged, as our first quarter performance and plans across the year keep us on track to deliver on all our financial targets. We continue to expect strong global system-wide sales growth of 5% to 6%, U.S. company-operated restaurant margin of 16% to 17%, and G&A of $265 million to $275 million, resulting in our adjusted EBITDA outlook of approximately $535 million to $545 million. Our capital expenditure outlook for the year remains unchanged at $90 million to $100 million. Lastly, we continue to expect free cash flow to grow to approximately $280 million to $290 million and are also reaffirming our adjusted EPS outlook of $0.98 to $1.02. Our focus on profitable growth is foundational to Wendy's, and our reaffirmed outlook underscores this commitment. Now I'd like to highlight our capital allocation policy, which remains unchanged. Our first priority remains investing in profitable growth, and our recent investments across our growth pillars showcase exactly that. Secondly, we are committed to sustaining an attractive dividend. We announced today the declaration of our second quarter dividend of $0.25 per share and continue to expect a full year dividend of $1 per share in 2024. Lastly, our capital allocation policy gives us the flexibility to utilize excess cash to repurchase shares and reduce debt. Year-to-date through April 25, we have repurchased approximately 0.6 million shares and have approximately $298 million remaining on our $500 million share repurchase authorization expiring in February of 2027. We are fully committed to delivering our simple, yet powerful formula. We are a predictable, efficient growth company that is driving strong system-wide sales growth on the backdrop of positive same-restaurant sales and expanding our global footprint. This translates into significant free cash flow, which supports meaningful return of cash to shareholders through an attractive dividend and share repurchases. Lastly, let's turn to our 2023 franchise financial results. Franchisee profitability remains a key focus area of ours that we have committed to providing visibility to. We are pleased that the strong 2023 performance we saw in our company-operated restaurants was also experienced by our U.S. and Canadian franchise systems. This growth is driven in part by the strong and productive partnership we continue to have with our franchisees. Our U.S. and Canadian franchisees achieved 4% and 6% year-over-year sales growth, respectively. This momentum contributed to strong EBITDA dollar growth year-over-year of approximately 9% in the U.S. and 25% in Canada. Franchisees' strong restaurant EBITDA performance in 2023 supported an improvement in balance sheet health with lease adjusted leverage ratios improving year-over-year. We expect the sales and profit momentum to carry into this year just as we expect sales and margin expansion in our company-operated restaurants. This growth directly supports our new restaurant acceleration plan by putting our current franchisees in an even stronger position to build more restaurants aimed at continuing to attract new franchisees into the Wendy's system. We look forward to achieving continued profitable growth together with our franchisees for years to come. With that, I will hand things over to Kelsey to share our upcoming IR calendar.

Thanks, GP. This quarter, we will attend the Oppenheimer Conference on June 11, followed by the Evercore Conference on June 12. We'll then hold an investor call hosted by Guggenheim on June 18. Lastly, we plan to report our second quarter earnings and host a conference call that same day on August 1. As we transition to our Q&A section, I wanted to remind everyone that due to the high number of covering analysts, we will be limiting everyone to one question only. With that, we're ready to take your questions.

Our first question comes from Brian Bittner from Oppenheimer.

It seems like the base case assumption from an industry perspective is that many feel the need to get more aggressive on value, which historically has caused more of a street fight dynamic within the quick service industry. How do you feel that Wendy's is positioned if this environment unfolds with intensity? What weapons can you use to compete in a more value-focused environment? Because historically, you've actually competed pretty well when the industry resorts more to value.

I think that's a good question and a topic that a lot of folks are talking about. Let me give you my perspective on where Wendy's is. First, on a value standpoint, we have a platform that delivers everyday value. It's our Biggie platform, and consumers love that platform. That's an important part of the menu. Separately, we're leveraging our digital communication to drive value. It has a dual benefit. One, it allows us to build loyalty. It allows us to add customers to our platform. It's an exciting way to engage and drive personalization. So value at Wendy's is going to be done with everyday value like our platform in Biggie, and we'll continue to use digital value to drive loyalty and build our customer base. I think we're well positioned to deliver on value. But I would say it's a balance for us as well. If you look across our menu, we go from premium, fresh offerings all the way to value propositions. I think the structure of our menu and how we address customers allows us to win across consumer segments.

Our next question comes from Jeffrey Bernstein from Barclays.

Great. I had a question on the unit growth outlook, which for years has been a big priority to accelerate. I think you mentioned the 250 to 300 units this year. Kirk, I'm just wondering if you could talk a little bit about your early conversations with franchisees, both U.S. and international, maybe the time frame you think to accelerate that unit growth. Obviously, it is a more challenged macro, and some would believe that franchisees might be a little bit more hesitant to put up more capital and accelerate growth. So your early thoughts on the unit growth outlook and the ability to accelerate in terms of franchisee demand would be great.

Thank you for the question, and good morning. I have had numerous conversations with franchisees about this topic. We've briefly discussed the concept of creating a flywheel, which is why we focus on franchisee profitability, as mentioned by GP in the opening comments. Let me provide some background. This year, we're expecting unit growth to exceed 2%. For 2025, we are projecting unit growth between 3% and 4%. This is based on our development agreements, with 90% currently confirmed. This gives us a positive short-term outlook. Long term, we have significant potential to build profitability, with ample opportunities both in the U.S. and internationally. We estimate that 30% of our unit growth will occur in the U.S. and 70% will come from outside the U.S. In discussions with franchisees, the opening of new restaurants proves to be very beneficial, and they can observe the impact firsthand. The average unit volumes of new restaurants significantly surpass those of older ones, which is quite important. Therefore, we will continue investing in platforms alongside our franchisees to facilitate this growth. There remains strong potential for us to partner further. Overall, our outlook remains positive and on track.

Our next question comes from Brian Harbour from Morgan Stanley.

Maybe just continuing that topic, could you comment on sort of, there were some unit closures in the first quarter. Do you think that tends to subside through this year? Or should we expect some of those to continue? Just comment on how that factors into your outlook.

Brian, yes, our unit performance was in line with our expectations. We opened 35 restaurants. We had closures; it's all part of our rhythm in our business. We're expecting, as we said, 250 to 300 restaurants to open this year and expecting a little bit more than 100 closures for the year, so that then, if you do the math, gets you to the 2%-plus guidance range that we have. Nothing unusual is happening here. Everything went to plan.

Our next question comes from David Palmer from Evercore ISI.

Thanks for your insights. I would like to revisit the discussion on franchisee cash flow and new unit returns in the U.S. What is the cash flow per restaurant for franchisees? I believe it exceeds $200,000 for 2023, but could you provide an exact figure? How does this measure up against pre-COVID levels? Additionally, what is the return on new units before accounting for any incentives? We've heard that construction costs surged significantly during COVID, by over 30%, which seems to have resulted in notably low returns before incentives, according to the lending community. Any clarity on these two points would be greatly appreciated.

David, so on franchise profitability, we haven't given cash flow per restaurant out. What we are watching is definitely the adjusted leverage ratios. Last year, that was about a little bit north of 5.5x. This time around, it is hovering at a little bit more than 5x, right? So we made significant progress. Our system got much healthier. I would also expect that the EBITDA performance in the franchise system in 2024 will follow the performance of the company restaurants. As you know, we are guiding for the U.S., a 100 basis point expansion. So that obviously translates into EBITDA growth and should improve lease adjusted leverage ratios further, and it helps us on our journey of accelerating unit growth. In terms of returns, we've done a good job, I think, to contain building costs, if I remember eight years ago, a freestanding building would cost about $1.9 million. Our next chain restaurant that's now at a global building standard is also costing $1.9 million, eight years later. So we've contained inflation as best as we could. From a return point of view, on a levered basis, the most attractive incentive program is build-to-suit, where you're getting a levered return in about 3.5 years. If you have no incentives whatsoever, so that's the other bookend, you're getting about a 6-year return. Relatively competitive. We have a lot of interest from franchisees to join the system, and that's obviously a great foundation to accelerate our growth.

Our question comes from Danilo Gargiulo.

I would like to continue again on the topic of franchisees. Specifically, in your roundtables with franchisees, what is the one area of excitement that you heard more consistently? What is the one area of opportunity that they're asking of you?

Great question. Yes, the number one excitement is building the daypart of breakfast. This gives a lot back to the franchisees. We've talked about it in the past. It allows us to build out and use the restaurant, utilize the labor model, and build out a profitable daypart that we're working with. We have a lot of system excitement around building that daypart, which allows us to grow faster and increase our profits. The big conversation we've been having with our franchisees is driving restaurant-level profitability. I think that’s a good part of this flywheel that we want to create. If we can expand margins by operating more efficiently and drive levels of productivity, those are meaningful partnerships that we are working on with our franchisees. We're both in the boat together rolling in this, as we feel like that will generate a lot of momentum for our future.

Our next question comes from Alex Slagle from Jefferies.

I realize we're only four months into the year, but with the 3% to 4% comp guidance and the underlying assumption that just our burger traffic would be slightly positive, which I don't have hard data on, but now it's been a soft start. Indications seem to suggest a negative Q1 maybe a negative trend for the year. I'm just curious if this has an impact on your outlook at this point? The incremental offsets you envision and the flexibility. I know the investments give you a lot of positive optimism but thoughts there.

Good morning, Alex. Yes, we will be comfortable with our unchanged global same-restaurant sales outlook of 3% to 4%. As you've heard from the prepared remarks, both in the U.S. and internationally and globally, we accelerated versus Q4 on a two-year basis. Our two-year stack in the first quarter was 8.9%. If you take our guidance into consideration, you will find that for the rest of the year, our two-year stack is about in line with the first quarter. From a programming point of view, we feel really good. We started to spend money on breakfast in the second half of the quarter and achieved already high single-digit sales growth that will accelerate. We are spending more money on it. Also, from a programming perspective for the rest of the day, we have a great focus on core. We're investing a significant amount in digital, and we have more innovation coming out for Frosty, as well as more innovation coming out of our chicken lineup. All of that gives us a good level of momentum, especially since we increased traffic every single month of the quarter. So, we are comfortable with the outlook. Our marketing plan for the year is going well, and our guidance is realistic.

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

Thanks for the question. Maybe if you could speak a little bit more about dayparts. You have the high single-digit growth at breakfast, which I suspect is well above the industry's growth rate, perhaps expected given the investments. So first, how much of your incremental investment did you deploy in the first quarter? And then the second part is, presumably with a low single-digit comp growth in the U.S., it appears that the other dayparts were underperforming the industry. Could you comment on how the lunch and new dayparts fared in the quarter and maybe what are some of the growth drivers in place to reaccelerate those trends?

Thanks for the question. On breakfast, let me start with that. We really only spent about $2.5 million, because we activated late in March for breakfast. We saw that performance, and we just started the investment. Maybe the question is why did we wait that long? I think that it was really important for us to get system-wide alignment with our franchisees. We've added a couple of menu items like Breakfast Burrito and Cinnabon Pull-Aparts. We wanted to get that lined up, and then we started to spend the money so that we had great activation in the restaurant. We see that momentum continuing. Just really one month of investment and you have a lot to look forward to on the breakfast side. We also saw momentum in the evening daypart that continues to late-night; that daypart has been successful for us. We saw a lot of momentum in that regard. We see that continuing, and our menu sets up for that as well. Overall, we held share across the dayparts, which I think is important. There are still opportunities for us to accelerate, but we're in a competitive position right now where we held share across traffic and dollar across all those dayparts.

Our next question comes from Jim Salera from Stephens Inc.

This is Tyler on for Jim. I was going to see if you can update on consumer and how they might be interacting with your brand by income cohort or daypart.

Yes. Regarding income cohorts, I want to emphasize that the consumer is still facing pressure. Despite this, we performed well and maintained our share in both traffic and sales. We are segmenting income households earning below $75,000, which are definitely under strain as they are visiting less frequently. However, we are still holding our share with that group. On the flip side, we are seeing increased traffic and frequency from higher-income consumers, and we are also maintaining our share with that cohort. This isn't a new trend; it's something we noticed in the fourth quarter and has continued into the first quarter. Looking ahead at the category outlook, we expect it to accelerate over the year. We believe there will be some favorable momentum, a sentiment that aligns with that of our research agency.

Our next question comes from Dennis Geiger from UBS.

I just wanted to ask one on the digital side of things, given the impressive results there in the quarter. Perhaps if you could share whether you were surprised by the digital strength or based on the focus and investment there if the digital performance kind of went as planned. Based on the strength you saw and then perhaps some of the compelling digital value offers you had in the quarter, what that might mean going forward over the balance of the year as you think about continuing to attract folks to the app and what that value digital strategy might look like.

Thanks for the question. Yes, we are very pleased with the digital performance. We believe there is still significant growth potential. This was intentional; we invested heavily in 360 advertising around our digital platform during the Final Four, which resulted in increased engagement and loyalty. We have now reached about 40 million users on the platform, and our average monthly users have risen to around six million. We've observed considerable momentum. We view this as a valuable tool for fostering loyalty and engagement, as it helps us better understand our customers. We still see plenty of opportunities ahead, so we will keep investing in our app and our loyalty platform, as we believe this is a promising direction. One of the main reasons I appreciate this approach is that digital orders tend to be larger, positively affecting our profitability and our restaurants. I am enthusiastic about the potential ahead and pleased with the progress we've made in Q1.

Our next question comes from Gregory Francfort from Guggenheim Securities.

Thanks for the question. GP, maybe this is for you. Can you just talk a little bit about the commodity basket for the balance of the year? We've all seen a big spike in hamburger prices, but when you guys had a great quarter from a margin perspective, particularly on COGS. Just the pushes and pulls on what you're seeing from that as you go forward.

Greg, yes. In the first quarter, we had flat commodity inflation and labor inflation of about 3.5%. Despite that, we managed to enhance the U.S. company margin by 60 basis points. From a commodity outlook point of view, it's unchanged. I told you last time, it's flat, and it remains flat. We obviously have gained a little bit more visibility now. About 80% of our commodity basket is now locked down. We continue to expect that beef and fries are inflationary, and chicken remains deflationary for us. Overall, things are going to plan. Very comfortable with the commodity outlook we have.

Our next question comes from Lauren Silberman from Deutsche Bank.

I wanted to just follow up on the same-store sales outlook on the two-year stack. It implies a pretty meaningful one-year acceleration throughout the year. Is it right for us to assume you expect one-year trends to build throughout the year? Anything you're willing to share on what you're seeing quarter-to-date? Are you seeing any differences across regions?

Yes, I can give you a little bit of color by quarter. We definitely expect, on a one-year basis, to see a step up in Q2 versus Q1 and then a further step up in Q3. That's how that's going to lay out, as I said, for the year to go. The two-year stack is very much in line with what we had in the first quarter. From a regional difference point of view, as you know, there are always regional differences. We don't go into that level of detail, but we are happy with our performance across the whole system.

Our next question comes from Andrew Straus from BMO Capital Markets.

This is Jared Hludzinski on for Andrew Strelzik. So I wanted to touch on the planned $55 million company investment into breakfast advertising over the next two years. I was hoping to get your thoughts on whether more investments might be required there if we kind of remain in a more competitive environment. Putting that into the context of the high single-digit U.S. breakfast sales growth in the quarter relative to your target to achieve 50% sales growth over the next two years.

Yes, our perspective on investments needed to reach our potential in breakfast is unchanged. We told you guys about $55 million, roughly split 50-50 between $24 million and $25 million. That started to ramp up. This essentially allows us to keep reminding consumers that we have the best breakfast in the business, driving trial and repeat out of it. So for the time being, there is no change in opinion. We are obviously watching the performance closely, the financial returns we get out of it. So far, I feel good about it. And as Kirk explained, we will not fully ramp up from a media pressure point of view in the first quarter; we took our time to line up our innovation for it. There's obviously more to come. We know what works in the breakfast business. You need to offer value on a regular basis, so the two-for-three construct we have out there is resonating well. Mixing in innovation and reminding consumers, 'Hey, you should try the best breakfast in town,' all of that continuing to repeat will get us on our way to our potential of about $6,000 per restaurant per week.

Our last question comes from Sara Senatore from Bank of America.

I had a question about pricing. I think the pricing that you're running is below what your direct competitors are doing. And so I have two questions about that. First, your franchisees have perhaps seen more margin compression over the last couple of years, so is the expectation that you can claw back all of the margin, or are your franchisees willing to wait on that margin percentage if it means they can underprice competitors? It's a broader question about value and your franchisees’ tolerance or willingness to pursue that. Secondly, what is your definition of value? Do you see an increasing need for price point value or these sort of focused on bundled value? I know you talked about this a little bit at the beginning of the Q&A, but I'm trying to understand sort of the value contract.

Sara, you packed a couple of questions in there. So on the system, we had a little bit more than 4% pricing. So you're right, it was a little bit below food away from home inflation. Most of it was carryover pricing. Franchisees are actually happy with the financial progress they made in 2023. When you grow U.S. profits in the system by 9%, the Canadians are really happy; they grew profit by 25%. There's definitely good alignment there, and we're not stopping there. We're going to, for sure, push profitability further. I must say we're going to stay careful on pricing. We've always said that. We are expecting low single-digit pricing that the system will execute this year. I don't think we're going to get too greedy. Flow-through on pricing remains 70% to 80%. We need to be careful; we have an external pricing consultant out there that helps the system ensure we're making the right pricing decisions. That's kind of our outlook in life. From a value point of view, Kirk, do you want to talk a little bit more about that?

Yes. I mentioned it earlier. Look, I think we're positioned well with value. One, we have a menu item that is, I'd say, consumer-famous in Biggie, so consumers know they can get great value at Wendy's. That's in concert with the rest of the menu, where we have balance. We have the ability to reach consumers across multiple demographics. I think you will see us continue to use our digital platform to drive value. I think those are the key things. I feel like we're well positioned to win customers over in this environment.

Our last question comes from John Ivankoe from JPMorgan.

The question is on the U.K. and Europe. First, just remind us how many units we had in the U.K. at the end of the first quarter. What are you really looking to achieve there to go for a more scale-driven strategy? I mean, you're a relatively small fraction of some of your peers, which have been in the market in some cases, for decades. But are you seeing the kind of performance where you say you should have hundreds of stores in the U.K.? These guys kind of like the first question of the economics would support that. Secondly, Kirk, as you have more time in the seat, how are you thinking about Continental Europe? As I think about the percentage of your international development that you do expect to come from the U.K. and Europe, I know you gave the split between the U.S. international, if we can just dive one step further in terms of how important the U.K. and Europe strategy is in terms of future contribution to that growth?

John, maybe I'll kick it off. So from a numbers point of view, we had 37 restaurants in the U.K. at the end of the first quarter, 12 of which were company-operated. To give you a little bit of margin point of view in the U.K., as you've probably seen already, the impact of the investments we are making in the U.K. had an adverse impact on our consolidated margin of about 60 basis points. Interestingly enough, however, year-over-year, our consolidated margin improved by 90 basis points. More of an improvement than we've seen in the U.S. Also, we are making progress in U.K. profitability. We continue to expect for the year headwind on the U.K. operations in our consolidated margin of about 50 basis points. From a short-term outlook, we would expect to have by the end of the year about 45 to 50 restaurants in the U.K. We're building company restaurants and have signed up several franchise partners who are excited about investing in the business to help us develop that market. We've always said that the U.K. is a key strategic market for us; it's kind of the beachhead for the rest of Europe. We absolutely expect that over time, that market should yield 400 restaurants for us. We'll see how long that takes us, but we believe it is our fair share in that market. As you also know, we are exploring Continental Europe with the prime candidates we have always talked about: Ireland and Spain.

Yes. No, I think you nailed it, GP. The opportunity is there for us. I think we have a great deal of potential in the U.K., as GP mentioned, is a beachhead, and we continue to work across Europe right now. We do think that this is a significant opportunity for us. Getting the U.K. right, we are in a great position to continue to grow in the U.K. to 400 units; that's the potential. Outside of the U.K., leveraging our business there to be the beachhead for the rest of Western Europe. We feel strong about that opportunity. Thanks for the question.

Thanks, John. That was our last question of the call. Thanks, 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.