Wendy's Q3 2025: Contradictions Emerge on Marketing, System Optimization, Closures, Breakfast Strategy, and Pricing

Date of Call: November 7, 2025

Financials Results

• Revenue: Total adjusted revenue $442.5M, down $1.1M versus prior year
• EPS: Adjusted EPS $0.24 per share, versus $0.25 prior year
• Gross Margin: Global company-operated restaurant margin 12.4%; U.S. company-operated restaurant margin 13.1%, down 250 bps YOY

Guidance:

• Full-year global system-wide sales expected down 3% to 5%.
• Adjusted EBITDA reaffirmed at $505M to $525M.
• Adjusted EPS reaffirmed at $0.82 to $0.89 per share.
• Free cash flow increased to $195M to $210M (up $35M vs prior outlook).
• Net unit growth expected 2% to 3%; international >9%; U.S. net growth may be at low end due to optimization.
• U.S. company-operated restaurant margin targeted ~14% ±50 bps; commodity inflation ~5%; labor ~4%.
• Capex & build-to-suit $135M to $145M.

Business Commentary:

• U.S. Sales Challenges and Project Fresh:
• Wendy's U.S. same-restaurant sales declined 4.7% in Q3, reflecting heightened industry competition and consumer pressure.
• 
• The company launched Project Fresh, a comprehensive turnaround plan focusing on enhancing customer experience, operational excellence, system optimization, and capital allocation to drive profitable growth.

• This initiative aims to increase AUVs, improve restaurant profitability, and create value for franchisees, the company, and shareholders.

• International Growth and System Optimization:

• Wendy's international system-wide sales grew 8.6% in Q3, with significant contributions from Mexico (over 18% growth) and Puerto Rico (over 10% growth).
• The company plans to optimize its U.S. system by closing underperforming restaurants, which is expected to result in mid-single-digit percentage closures.

• This strategy is aimed at strengthening the restaurant footprint, enhancing customer experience, and unlocking capital for franchisees to reinvest in the system.

• Digital and Delivery Growth:

• Wendy's U.S. digital sales rose 14.9% year-on-year, reaching an all-time high of 20.3% of total sales.
• The company is leveraging digital menu boards and Fresh AI technology to improve order accuracy and customer satisfaction.

• Enhancements in digital and delivery processes have contributed to declines in cancellation rates, missed items, and refunds.

• Capital Allocation and Financial Outlook:

• Wendy's reduced its 2025 U.S. build-to-suit capital by approximately $20 million to prioritize AUV growth over net unit expansion.
• Free cash flow is expected to increase by $35 million to $195 million to $210 million due to reduced capital expenditures and tax benefits.
• The company is maintaining its guidance for full-year global system-wide sales, adjusted EBITDA, and adjusted EPS, despite the challenging U.S. sales environment.

Sentiment Analysis:

Overall Tone: Neutral

• Management described results as "broadly in line with our expectations," announced an increased free cash flow outlook (+$35M) and reaffirmed full-year EBITDA and EPS while acknowledging U.S. sales pressure and launching Project Fresh to revitalize the brand. They emphasized decisive actions (system optimization, operational excellence, marketing/data investments) and expected benefits to materialize into 2026.

Q&A:

• Question from David Palmer (Evercore ISI): I wanted to ask you about franchisee cash flow and balance sheet levels today and what you're hearing from the franchisees? And importantly, what quick wins do you think you have within Project Fresh? What elements might be there to help franchisee cash flow, either from sales drivers or other operational changes that you're contemplating?
  Response: U.S. franchisees are generally healthy with pockets of stress; Project Fresh will evaluate underperforming restaurants (operational fixes, transfers or closures) to unlock capital and raise AUVs, and recent product launches (chicken tenders) are early quick wins to drive traffic.

• Question from Jeffrey Bernstein (Barclays): What were the primary factors leading to the widening underperformance versus burger peers? Are peers taking value share, and are your $5 and $8 meals enough to protect value share?
  Response: Underperformance reflects a strategic shift away from short-term traffic buys toward sustainable growth; existing value offers (Biggie Bag, $8 JBC meal) drove frequency but didn’t attract enough new customers, so messaging must better combine price and quality.

• Question from Brian Mullan (Piper Sandler): Can you give guardrails around how many closures you might expect next year in the U.S., and impacts to franchise rental income?
  Response: Expect roughly a mid-single-digit percentage of U.S. restaurants to close based on current info; closures will be decided case-by-case starting Q4 and could pull net unit growth toward the low end of the guide.

• Question from Rahul Krotthapalli (JPMorgan): Does the AUV-over-development target imply just positive AUV growth or a specific magnitude? Clarify gross vs net U.S. development and timing of closing the performance gap between company and franchise stores.
  Response: Gross U.S. openings remain on track, but net unit growth will likely sit near the low end of the guide; priority is meaningful positive AUV growth and scaling company operational improvements systemwide with benefits expected into 2026.

• Question from Dennis Geiger (UBS): On the outperformance of company-owned U.S. stores, what franchisee feedback and timing for scaling actions to align the system?
  Response: Franchisee feedback has been positive; scaling operational excellence with franchisees is underway now and meaningful system benefits are expected in 2026.

• Question from Christopher O'Cull (Stifel): Can you elaborate on the work with Creed UnCo and what new insights/analytic capabilities you're implementing?
  Response: Creed UnCo is leading a large customer segmentation study to define brand essence and prioritize attributes (relevance, ease, distinctiveness) to improve targeting, marketing effectiveness and long-term brand positioning.

• Question from Margaret-May Binshtok (Wolfe Research): Color on beverage platform work, reception, and any sequential breakfast performance improvement?
  Response: Launched cold brew/cold foam and a sparkling energy lineup that performed in line with expectations (no media support); they modestly support breakfast but the breakfast daypart remains pressured.

• Question from Danilo Gargiulo (Bernstein): How are you treating breakfast given AUV focus and doing fewer things better — optional for franchisees or still national mandate?
  Response: Nationwide breakfast remains the company commitment, but low-volume restaurants can opt out or adjust hours case-by-case to improve economics and redeploy labor.

• Question from Jake Bartlett (Truist): Can you provide guardrails for 4Q U.S. comps and detail marketing/innovation plans (Tendys timing/media)?
  Response: Q4 will be weaker (a planned trough) as some programming was pulled into 2026; Tendys launched early Q4 with strong customer response and national media begins next week to drive momentum into 2026.

• Question from Eric Gonzalez (KeyBanc): If ~300 closures occur, do you still charge closure fees and are fees embedded in EBITDA outlook this year or next?
  Response: Historically fees existed but the intent now is collaborative, not to charge closure fees routinely; closures will be handled case-by-case with expectations franchisees reinvest in remaining restaurants—no material fee-driven EBITDA upside baked in.

• Question from Isiah Austin (BofA) on behalf of Sarah: What drove the 4.7% U.S. comps — marketing, menu innovation, or stronger hamburger QSR demand?
  Response: Improvement driven by simplified programming enabling better execution (Wednesday promo), operational focus and preparation for chicken tenders, which supported sequential improvement late in the quarter.

• Question from Brian Bittner (Oppenheimer): Unpack the capital reallocation from unit growth to initiatives that drive AUV growth — specifics and who funds it?
  Response: Shifting capital from U.S. build-to-suit toward technology (kitchen view improvements, digital menu boards, analytics) and marketing to boost AUVs; investments are a mix of corporate-led initiatives and prioritized franchisee investments.

• Question from James Salera (Stephens): Any characteristics of outperforming company stores (geo, tenure) and learnings to apply before mid-single-digit closures?
  Response: Outperformance correlated most with higher customer satisfaction metrics (accuracy, friendliness) and drove ~75% of the traffic-led 400 bps outperformance; those operational learnings will be rolled out systemwide.

• Question from Andrew Strelzik (BMO): How should we think about restaurant margins and franchisee willingness to invest given beef inflation and current margins?
  Response: Company reiterates ~14% U.S. company-operated margin guidance (±50 bps) despite raising commodity outlook to ~5%; focus is on profitable AUV growth, menu diversification (e.g., tenders) and operational levers to offset inflation.

• Question from Gregory Francfort (Guggenheim): How many properties do you own land for and would you consider monetizing to reinvest in brand revitalization?
  Response: Approximately 645 properties where Wendy's owns the land; monetization of land under closed restaurants is on the table to fund reinvestment and will be evaluated on a restaurant-by-restaurant basis.

• Question from Andrew Charles (TD Cowen): Q4 sales likely to decelerate—confidence that initiatives will show improvement on a 2-year basis?
  Response: Q4 (October) is expected to be the trough by design after simplifying programming; management is confident these strategic choices and Project Fresh set the business up for improvement into 2026 and beyond.

Contradiction Point 1

Marketing and Value Menu Strategy

It highlights a change in strategy regarding marketing and value menu offerings, which directly impacts consumer engagement and sales performance.

Can you explain the U.S. company-owned outperformance this quarter and the timeline for aligning the franchise system? - Dennis Geiger(UBS Investment Bank)

2025Q3: We're working with franchisees to scale initiatives, expecting benefits in 2026. The focus is on enhancing overall customer experience and increasing AUVs, creating a long-term cycle for growth. - Ken Cook(CFO)

What are the key successes and challenges with your marketing and value menu strategies this year? How are you adjusting strategy based on first-half results? - David Palmer(Evercore ISI)

2025Q2: Our initial 2025 strategy assumed better consumer behavior. We faced a noisy start with weather impacting sales and a decline in consumer sentiment. Our 100 days of summer programming didn't perform as expected due to complexity and a lack of tested marketing moves. - Ken Cook(CFO)

Contradiction Point 2

Franchisee Cash Flow and System Optimization

It involves the company's approach to managing franchisee cash flow and the need for system optimization, which directly impacts franchisee profitability and overall system performance.

Can you update us on franchisee cash flow and balance sheet levels today and feedback from franchisees? And what quick wins exist in Project Fresh to improve franchisee cash flow? - David Palmer (Evercore ISI Institutional Equities, Research Division)

2025Q3: The focus is on improving restaurant-level economics through System Optimization, which involves addressing underperforming restaurants. Project Fresh aims to drive long-term value, emphasizing operational excellence and customer experience improvements. - Ken Cook(CFO & Interim CEO)

What are your expectations for franchisee cash flows and operational excellence? - Rahul Krotthapalli (JPMorgan Chase & Co, Research Division)

2025Q1: We're rolling out a P&L benchmarking tool to enhance franchisee profitability. Our goal is to provide more data for franchisees to optimize operations and improve restaurant economics. - Ken Cook(CFO)

Contradiction Point 3

System Optimization and Restaurant Closures

It involves the strategic approach to system optimization and potential restaurant closures, which can significantly impact franchisee health and overall system performance.

Can you quantify the expected closures from the system optimization initiative? Are there potential impacts to franchise rental income to consider? - Brian Mullan (Piper Sandler & Co., Research Division)

2025Q3: Around mid-single-digit percentage of U.S. restaurants could close. - Ken Cook(CFO & Interim CEO)

What are the key components of the system optimization plan? Can you provide an update on the 450 store closures plan previously announced? - Vivek Arya (Bank of America Securities, Research Division)

2024Q4: We expect to close up to 15 percent of the company-operated restaurants by the end of 2025. - Ken Cook(CFO)

Contradiction Point 4

Breakfast Performance and Strategy

It highlights differing perspectives on the performance and strategic focus of Wendy's breakfast offerings, which is crucial for overall sales and customer engagement.

How are you approaching breakfast given expansion opportunities and profit margin pressures? - Danilo Gargiulo (Sanford C. Bernstein & Co., LLC., Research Division)

2025Q3: Breakfast remains a significant part of the strategy, despite the challenges. Wendy's works with franchisees to optimize hours based on demand, allowing flexibility in operations. - Ken Cook(CFO & Interim CEO)

What was the impact of breakfast on U.S. comp sales this quarter? - David Palmer (Evercore ISI Institutional Equities, Research Division)

2024Q4: We amended our contract with franchisees to reduce pressure on them to remain open for breakfast, and this has allowed them to better tailor their operating hours to the demand in their specific locations. - Ken Cook(CFO)

Contradiction Point 5

Value Proposition and Pricing Strategy

It demonstrates shifts in the company's value proposition and pricing strategy, which directly impact customer perception and purchasing decisions.

What are the primary factors behind Wendy's recent underperformance? Are the $5 and $8 meal deals sufficient to protect your value share in the competitive market? - Jeffrey Bernstein (Barclays Bank PLC, Research Division)

2025Q3: Wendy's offers a compelling value proposition with the Biggie Bag and $8 JBC meal. - Ken Cook(CFO & Interim CEO)

Can you discuss the new $5 Biggie Bag meal, its consumer reception, and the traction it's gained? - David Horner (Oppenheimer & Co. Inc., Research Division)

2024Q4: We're announcing today the launch of a new $5 Biggie Bag meal deal, featuring our popular 4-piece nuggets, small fries and a small drink. We believe this will help drive traffic and improve our value score. - Ken Cook(CFO)