The Wendy's Company Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Project Fresh: Launched in October, structured around 4 pillars - brand revitalization, operational excellence, system optimization, and capital allocation. Focused on attracting new customers, enhancing guest frequency, and improving restaurant profitability.
• Brand Revitalization: Positioning Wendy's as the freshest and highest quality choice by using high-quality ingredients, conducting a customer segmentation study, and leveraging advanced data analytics.
• Operational Excellence: Investments in people, training, and hospitality driving measurable results; U.S. company-operated restaurants outperformed the system by 400 basis points in same-restaurant sales.
• System Optimization: Evaluating underperforming restaurants from financial and customer experience perspectives; working with franchisees to improve, transfer, or close them.
• Third Quarter Results: Adjusted EBITDA rose 2.1% to $138 million; adjusted EPS was $0.24 per share; global system-wide sales declined 2.6% primarily due to U.S. sales pressure, while international system-wide sales grew 8.6%.

Segment Performance

• U.S. Business: Sales under pressure; U.S. company-operated restaurants outperformed the overall system in the third quarter. U.S. same-restaurant sales declined 4.7%.
• International Business: System-wide sales grew 8.6% in the third quarter, with growth across all regions. Opened 100 new restaurants and 77 net new units through the third quarter. Globally, opened 172 new restaurants and added 123 net units.
• Absolute Terms: U.S. same-restaurant sales: -4.7%; International system-wide sales: +8.6%. Revenue Contribution: International was a growth engine, while U.S. sales were under pressure.

Guidance

• Maintain outlook for full year global system-wide sales, adjusted EBITDA, and adjusted EPS.
• Increase free cash flow outlook to $195 million to $210 million, reflecting reduced capital expenditures and tax benefits.
• Maintain net unit growth guidance of 2% to 3%; international net unit growth expected over 9% in 2025; U.S. around 100 new openings, but system optimization may affect net unit growth at the low end of the range.

Risks

• Consumer pressure and competitive environment impacting U.S. sales.
• Operational execution challenges in turning around the U.S. business.
• Uncertainty in franchisee financial health and potential restaurant closures affecting the system's long-term growth.

Question and Answer Q: David Palmer of Evercore ISI asked about franchisee cash flow, quick wins in Project Fresh.

A: Ken Cook said U.S. franchisees are generally healthy but some have acute pressure; system optimization helps improve restaurant economics; quick wins focus on long-term via Project Fresh's pillars like brand revitalization.

Q: Jeffrey Bernstein of Barclays asked about U.S. underperformance vs peers and value share.

A: Ken Cook said back half plays out as expected; focused on long-term growth; $5 and $8 meals are value propositions but need to better tell value story using data.

Q: Brian Mullan of Piper Sandler asked about system optimization closures in U.S.

A: Ken Cook estimated mid-single-digit percentage of U.S. restaurants may close; working with franchisees on a case-by-case basis; closures could start in fourth quarter and affect net unit growth guide.

Q: Rahul Krotthapalli of JPMorgan asked about growing U.S. AUVs over development.

A: Ken Cook said net unit development around low end of guide; gross development still on track; focusing on long-term restaurant economics and enhancing customer experience.

Q: Chris O'Cull from Stifel asked about work with Creed UnCo.

A: Ken Cook said launched customer segmentation study to understand consumer attributes; aim to reestablish Wendy's as quality leader via brand essence development.

Q: Margaret-May Binshtok of Wolfe Research asked about beverage platform and breakfast performance.

A: Ken Cook said beverage launches performed in line; breakfast underperforms but remains part of strategy, working with franchisees on case-by-case basis for operating hours.

Q: Danilo Gargiulo of Bernstein asked about breakfast being optional for franchisees.

A: Ken Cook said breakfast is important, but working with franchisees on case-by-case basis for operating hours to improve profitability.

Q: Jake Bartlett of Truist Securities asked about fourth quarter momentum and chicken tenders launch.

A: Ken Cook said fourth quarter on track as expected; chicken tenders launch provided strong results, building momentum into 2026.

Q: Eric Gonzalez of KeyBanc Capital Markets asked about closure fees.

A: Ken Cook said will evaluate closures on a case-by-case basis, working with franchisees on investments for remaining restaurants.

Q: Isiah Austin of Bank of America asked about 4.7% U.S. comps.

A: Suzie Thuerk said Q3 in line with expectations; reduction in program complexity and preparation for chicken tenders launch contributed.

Q: Brian Bittner of Oppenheimer asked about redirected capital for AUV growth.

A: Ken Cook said redirected capital towards technology and marketing to improve AUVs, including kitchen view system improvements and marketing analytics.

Q: James Salera of Stephens asked about company-owned vs franchisee performance.

A: Ken Cook said company-owned outperformance due to customer satisfaction improvements, focusing on training and hospitality.

Q: Andrew Strelzik of BMO asked about restaurant margins.

A: Suzie Thuerk said margin outlook maintained; focused on profitable AUV growth to offset inflation; chicken tenders launch helps balance menu.

Q: Gregory Francfort of Guggenheim Securities asked about monetizing property portfolio.

A: Ken Cook said about 645 properties own land; closing restaurants on Wendy's property could optimize land for reinvestment.

Q: Andrew Charles of TD Cowen asked about 2-year improvement confidence.

A: Ken Cook said Q4 is trough, strategic decisions to push programming into 2026 set up for better 2026 performance.