The Wendy's Company Q1 FY2026 earnings call

Ken started by thanking franchisees, restaurant teams, and company employees. Focus in US is on Project Fresh turnaround strategy. Internationally, business expands in key growth markets and signed franchise agreement to expand into China. First quarter results largely in line with expectations. Discussed US Project Fresh pillars: brand revitalization (learned from customer segmentation study, launched Biggie Deals, reestablished leadership in highest quality hamburgers, modernized spicy chicken sandwiches, strengthened innovation pipeline, March Madness Dunks campaign, Minions and Monsters movie collaboration, completed media agency RFP, expanded social media presence), operational excellence (restaurants with highest customer satisfaction scores outperform lowest tier locations in same restaurant sales by ~4 - 500 basis points, company operated restaurants outperform US system by 310 basis points, expanded use of menu item label printers, launched White Glove program), system optimization (worked closely with franchisees on more than half of planned footprint optimization, on track to be substantially complete by end of second quarter, optimizing hours of operation). Susie followed with details on first quarter results, franchisee economics, 2026 outlook, and capital allocation. Capital allocation priorities: investing in business, paying attractive dividend, maintaining strong balance sheet, returning excess cash to shareholders through opportunistic share repurchases.

Global system-wide sales declined 5.5% in the quarter, driven by U.S. same restaurant sales. U.S. same restaurant sales declined 7.8% due to a decrease in traffic, including impact of severe weather and optimizing restaurant hours, partially offset by a higher average check. International system-wide sales grew 6% driven by net unit growth. Total adjusted revenue was $432.3 million, an increase of $9.2 million compared to the prior year. Adjusted EBITDA was $111.3 million, down $13.2 million versus the prior year. Adjusted earnings per share was 12 cents in the first quarter. US company operated restaurant margin was 11.4%, down compared to prior year due to decline in traffic, commodity cost increases of approximately 8% (including continued inflation and beef prices and investments to improve product quality) and labor rate inflation of approximately 4%, partially offset by higher average check and labor efficiencies. International segment delivered 6% system-wide sales growth in the first quarter, reflecting strength of globally great, locally loved strategy, driven by new unit development in key growth markets such as Philippines and Mexico. 2025 U.S. franchisees averaged a year-over-year net sales decline of approximately 6%, average EBITDA margin declined by 270 basis points to 9.3%. Canada 2025 average franchisee net sales growth was approximately 1%, average EBITDA margin declined by 160 basis points to 12.6% entirely driven by commodity inflation.

Maintaining full year 2026 outlook. Expect global system wide sales to be approximately flat for the full year, with expectation for global system wide sales to decline by a mid single digit percentage in the second quarter and return to growth for the back half of the year. Adjusted EBITDA outlook of $460 to $480 million remains unchanged. Expect U.S. company-operated restaurant margin of 13% plus or minus 50 basis points, including labor rate inflation of approximately 4% and commodity cost increase of approximately 4%. Reaffirming adjusted EPS in the range of 56 to 60 cents per share. Capital expenditures, including build to suit investments between 120 and $130 million and free cash flow between 190 and $205 million.

Q: System sales were down over 5% in the quarter, and you're reiterating flat for the year, and that obviously implies a significant ramp in trend. You know, obviously easier comparisons are going to mean something, You know, what else gives you confidence that Project Fresh is working and that performance will be improving going forward? And I have a quick follow-up.

A: Ken said they are in early innings of turnaround, seeing proof points in three areas: food (leaning into quality heritage, launched new bun, improved condiments, rebuilt innovation calendar), marketing (aligning marketing with food story through brand essence framework, changing media agencies, seeing top-of-mind awareness and visitation intent improve), operations (company operator restaurants outperforming system, broad-based improvements in customer satisfaction scores, progress in performance management cycle).

Q: If you take a step back, do you think the system ultimately needs some sort of larger scale investment or capital infusion from corporate in order to, you know, support Project Fresh and make sure that the plan succeeds in the way that you'd like?

A: Ken said system optimization pillar is important investment, increasing investment in U.S. field resources teams, evaluating more, saw progress in accuracy and cleanliness, broad-based improvement in scores of bottom performing restaurants, appreciates franchisee community engagement.

Q: Could you give some additional color on how you guys saw comps progress through the quarter, given all the weather in January, and then a little bit of a sense of where April and May trended. And then given the weather that we also saw in January, if you would give us a cleaner read on, you know, the underlying trend with the deals that you guys have launched in January.

A: Margaret May was told January comps down about 8%, February down in high 8% range, March down 6.2%, April down about 6.4%, happy with Biggie Deals performance, first quarter for education, second phase to target segments, opportunity to drive innovation later in year.

Q: Do you think the system ultimately needs some sort of larger scale investment or capital infusion from corporate in order to support Project Fresh?

A: Ken said system optimization is investment, increasing investment in U.S. field resources teams, saw progress in accuracy and cleanliness, broad-based improvement in scores of bottom performing restaurants, appreciates franchisee engagement.

Q: Wondering whether you've seen a change in consumer behavior beneath the surface. There's lots of talk about the lower income consumer increasingly cautious, more recently accentuated by the higher gas prices. Assuming it's somewhat difficult for you to assess, because it might be masked by early improvements with your project fresh, but anything you're seeing to demonstrate a change in behavior, whether it's a change in the value mix or a movement within the, well, the biggie deal is relatively new, but maybe you could offer some color on the mix across the different price tiers. And then my follow-up is just a clarification. I know in March of 25, which feels like a decade ago, but you offered 2028 guidance for unit sales, EBITDA. Obviously the business has slowed a little since then. Should we be thinking that any of those components might be more or less at risk as we think about kind of the early turnaround strategy?

A: Ken said still plan on getting to 2028, but too soon to talk specifics, from biggie platform early days, saw little incremental weakness in March and April, Suze added performing better with higher income consumer than lower income consumer, pressure on lower income consumer contemplated in outlook.

Q: I wanted to ask a little bit more about day parts and specifically the reduction in some of the morning hours and extending the late night hours. If anything more that you could share on what you're seeing there, particularly at late night. And then if you could just remind us, ballpark, what percent of the system now has breakfast? And is that a good long-term figure to think about or could that number change going forward?

A: Ken said breakfast remains important but challenged, optimizing hours with franchisees, late night best performing day part in quarter, breakfast negatively impacted U.S. SRS by more than 100 basis points, still working with franchisees on breakfast.

Q: Could you maybe expand a little bit on your outlook around company operated restaurant margins? I think around 13%. Just, I guess, taking into account your inflation guide, I think you said around 4% for both labor and food costs, if I have that correct. And then just kind of how that company-operated restaurant margin compares to what you're seeing more broadly throughout the system and your expectations here just going forward around that margin.

A: Ken said Q1 historically has lowest margin, expect more consistent margin Q2 to Q4 to get to 13% plus or minus 50 basis points, commodity inflation first half heavy with double-digit beef inflation, second half low single digits along with beef inflation.

Q: And it's very encouraging to see that your own stores are performing better than the rest of the franchise system. And I'm wondering why aren't franchises following your lead on ops excellence? And one more thing that they have greater incentive to strengthen the P&L, but they seem to be lagging despite your field ops efforts. So have they given up and maybe directing their investments elsewhere in the portfolio? And if that is the case, how could you accelerate a transition from less committed franchises to more committed ones?

A: Ken said 25% of restaurants fully adopted program, 25% in process, early innings, pleased with adoption, increase engagement with field, system-wide calls, franchisee input, seen energy from franchisees.

Q: You mentioned that positioning Wendy's as kind of the everyday upgrade in QSR, but I think one of the things we've heard over this earnings season is that some of the fast casual burger restaurants are getting more promotional and price points are slipping perhaps down to something that's competitive with QSR. So as you think about the broader competitive set, How are you, you know, I guess, first of all, who do you consider your competitors and also how are you distinguishing yourselves, you know, against perhaps like fast casual or even casual dining where, again, the price points are, you know, starting to creep into or have been creeping into the QSRs.

A: Ken said core competitors are QSR Burger, reestablishing as highest quality choice in QSR, improving food, customer experience, innovation calendar, Minions and Monsters collaboration, featuring premium sandwiches, themed packaging, collectibles.

Q: I'm just trying to figure out the math around your guidance for flat system-wide sales for this year. Can you perhaps maybe remind us what is embedded in that from a US comp perspective for the full year? You know, it seems like based on your 2Q guidance and where April trends are, the comp screen remain pressured. So just as we look towards the back half, I'm really trying to get an understanding of how big of an inflection you are embedding and getting to this flat system like sales outlook.

A: Ken said step up in second half driven by compounding initiatives, marketing improving top-of-mind awareness, new media agency for more effective audience-based approach, consistent media spend throughout year, operations improving voice of customer scores, Minions collaboration, Pretzel Bacon Pub Cheeseburger return, 53rd week in back half providing boost.

Q: I wanted to ask about the international business, which has been a relative bright spot, but would love to hear some color on potential impacts from the geopolitical dynamics and gas prices, the environment that's going on, particularly in terms of the UK, given the energy situation there.

A: Ken said thrilled about China franchise agreement, largest development deal, important market, watching geopolitical noise, small impact on total business, Susie added monitoring UK, focusing on controlling what they can control, new marketing agency for delivery business.

Q: Ken, you'd mentioned that the company-operated restaurants that have all the operational initiatives in place are seeing significant outperformance. Can you just give us a sense for what percentage of the franchisees in the U.S. have the same kind of optimized operational capabilities in place and maybe give us some sense of the timing of that rollout? part of that expansion embedded in kind of the back half acceleration implied in the guidance?

A: Ken said 25% of restaurants fully adopted performance management cycle, 25% in process, Pete Sark and U.S. field teams helping, regular business reviews, progress in menu item label printers rollout.

Q: In some of the consumer work you did recently, or I guess, you know, anything else you've seen, do you feel like the, you know, kind of the burger quality you have, like the fresh beef thing, do you feel like that's appreciated? Do you feel like awareness is high? Or do you feel like that's shifted at all? And I guess, you know, more recently, as you've made some of these investments in both burgers and chickens, do you feel like that's something that's that's standing out and that you're able to get credit for?

A: Ken said believes has best hamburger in QSR, competitive taste tests show better taste, making it even better with new bun and condiments, opportunity to tell story more, transition to biggie deal platform, will lean more into quality.

Q: Can you remind us on the CapEx breakout across the buckets for new development, remodels and maintenance, and technology on corporate CapEx? And the follow-up is on the 23 U.S. gross store open.

A: Ken said about $9 million development including Build to Sue program, ~$5.4 million IT spend, rest of $16.5 million in Q1, highlighted international net restaurant openings expected similar to last year, focus on profitable AUV growth in US over net unit development.