Executive Summary / Key Takeaways

• Strategic Pivot: Wendy's has launched "Project Fresh" to revitalize its U.S. business, shifting focus from net unit growth to profitable Average Unit Volume (AUV) expansion through brand revitalization, operational excellence, and system optimization.
• Operational Excellence & Technology: Investments in enhanced training, digital menu boards, and Fresh AI are driving measurable improvements in customer experience and productivity, particularly in company-operated restaurants, which are outperforming the system.
• International Growth Engine: The international segment continues to be a strong growth driver, delivering robust systemwide sales and net unit growth, with significant expansion in key markets like Canada, Mexico, and Europe.
• Financial Reaffirmation & Outlook: Despite U.S. sales pressure and a challenging consumer environment, Wendy's reaffirmed its full-year 2025 guidance for systemwide sales, adjusted EBITDA, and adjusted EPS, while increasing its free cash flow outlook, reflecting disciplined capital allocation.
• System Optimization & Risks: A planned closure of a mid-single-digit percentage of underperforming U.S. restaurants aims to strengthen the franchisee system, though commodity and labor inflation, coupled with intense competition, remain key risks.

The Genesis of "Fresh": A Historical Context

The Wendy's Company (NASDAQ:WEN), a global quick-service restaurant (QSR) powerhouse founded in 1969, stands as the second-largest hamburger chain in the U.S. and third globally, operating 7,363 restaurants across diverse markets. Known for its "Fresh, Never Frozen" beef and a commitment to quality, Wendy's is currently executing a pivotal strategic shift to re-energize its U.S. business while capitalizing on robust international expansion. This reorientation, dubbed "Project Fresh," aims to drive profitable Average Unit Volume (AUV) growth and enhance shareholder value through a multi-faceted approach that leverages technological innovation and strengthens franchisee partnerships. The broader QSR industry faces persistent consumer spending pressures and intense competition, particularly impacting lower-income households, making Wendy's strategic adjustments critical for future success.

Wendy's has a rich history of innovation and strategic evolution. From its founding, the company built its reputation on high-quality ingredients and a distinctive menu. Leading up to 2024, Wendy's pursued a "system optimization initiative" to shift towards a predominantly franchised model, aiming to strengthen the overall system through acquisitions, dispositions, and "Franchise Flips." This period also saw significant internal transformation with a new organizational structure and leadership, including Kirk Tanner as CEO in early 2024. The company introduced a new brand promise, "Fresh Famous food, made right for you," and achieved its 14th consecutive year of global same-restaurant sales growth in 2024. Key operational achievements included over 6% growth in breakfast sales, a nearly 40% increase in digital sales, and the rollout of digital menu boards and voice-enabled AI order taking. Despite opening 276 new restaurants in 2024, strategic closures of underperforming units resulted in flat net unit growth, a deliberate move to enhance the system's long-term health.

The first three quarters of 2025, however, presented a mixed picture. While international growth remained strong, U.S. performance was challenged by adverse weather and a weaker consumer environment. A critical learning emerged from the "100 Days of Summer" campaign, which proved overly complex for both restaurant teams and customers. This led to a simplification of the programming calendar in the latter half of 2025 and, ultimately, the launch of "Project Fresh" in October 2025 under interim CEO Ken Cook, marking a decisive pivot.

Project Fresh: A Strategic Reorientation

"Project Fresh" is Wendy's comprehensive turnaround plan for its U.S. business, designed to revitalize the brand, reignite growth, and accelerate profitability. It is built on four strategic pillars:

• Brand Revitalization: This pillar focuses on re-establishing Wendy's as the freshest and highest-quality choice in QSR. The company is leveraging its core differentiators, such as 100% fresh, never-frozen beef, Applewood smoked bacon, and new barrel-breaded chicken tenders. A needs-based customer segmentation study, in collaboration with an industry-leading consulting firm, is underway to deepen understanding of customer behavior and refine marketing effectiveness. The goal is to balance "sales overnight" with "brand over time," ensuring long-term brand equity.

• Operational Excellence & Technological Edge: Wendy's is making significant investments in people, training, and hospitality to elevate the customer experience. These efforts have already yielded tangible results, with U.S. company-operated restaurants outperforming the overall system by 400 basis points in same-restaurant sales during Q3 2025, primarily driven by traffic growth. The company is scaling these enhanced training programs and operational protocols across the entire system.

  A key differentiator is Wendy's investment in Fresh AI automated ordering technology and digital menu boards. Fresh AI, deployed in 168 U.S. locations and on track for over 500 by year-end 2025, offers curated suggestions based on customer orders, leading to increased check sizes. It also enhances productivity, freeing up crew members to focus on hospitality. The technology's continuous improvement, driven by system enhancements and customer interactions, is a significant benefit, improving order accuracy and driving labor efficiency. For instance, the implementation of delivery scales and menu item label printers has dramatically improved order accuracy in restaurants utilizing these tools. These technological advancements contribute directly to a more consistent and efficient customer experience, which is crucial for increasing customer frequency and, ultimately, AUVs.

• System Optimization: This pillar represents a significant strategic shift, focusing on optimizing the restaurant footprint to maximize franchisee profitability and customer experience. The company is evaluating every underperforming restaurant in the U.S. system from both a financial and customer experience perspective. Action plans include operational changes, technology deployment, aligning operating hours to better match demand (especially in breakfast and late-night dayparts), or, in some cases, closing consistently underperforming units. Management estimates that a "mid-single-digit percentage" of U.S. restaurants (approximately 241 to 360 stores, based on the 6,011 U.S. restaurants as of November 2025) could close, with closures expected to begin in Q4 2025 and continue into 2026. This initiative is designed to unlock capital for franchisees to reinvest in their remaining, higher-performing restaurants, boosting sales and profitability at nearby locations.

• Capital Allocation Alignment: Wendy's capital allocation strategy is now explicitly aligned with "Project Fresh." In the U.S., capital is being redirected from net unit growth towards initiatives that drive profitable AUV growth. For 2025, U.S. build-to-suit capital has been reduced by approximately $20 million. Conversely, international expansion remains a top priority, with build-to-suit investments continuing to drive net unit growth in key markets like Canada and the U.K.

Financial Performance: A Mixed Landscape

Wendy's financial performance in 2025 has been characterized by strong international growth offsetting U.S. headwinds.

• U.S. Segment Performance: For the nine months ended September 28, 2025, Wendy's U.S. segment reported total revenues of $1.34 billion, a 3.03% decrease from the prior year. Adjusted EBITDA for the segment declined 2.80% to $381.42 million. U.S. same-restaurant sales decreased 4.7% in Q3 2025 and 3.7% for the first nine months of 2025, primarily due to reduced traffic. However, company-operated restaurants showed resilience, with a mere 0.7% decline in same-restaurant sales in Q3 2025, demonstrating the early impact of operational improvements.

• International Segment: The Growth Engine: The international segment continues to be a robust growth driver. For the nine months ended September 28, 2025, total revenues increased 6.28% to $113.48 million, with adjusted EBITDA growing 4.10% to $33.74 million. International same-restaurant sales increased 3% in Q3 2025 and 2.4% for the first nine months of 2025, driven by higher average check and increased traffic. The company expects international net unit growth to exceed 9% in 2025. New development agreements for over 320 international restaurants year-to-date, including 50 in Central Mexico and 190 across Italy and Armenia, underscore the segment's strong momentum.
• Global Real Estate Development: This segment saw total revenues decrease by 1.67% to $178.26 million for the nine months ended September 28, 2025, primarily due to lease assignments and lower development fees. Adjusted EBITDA remained relatively flat at $79.54 million.
• Consolidated Financials & Liquidity: For the nine months ended September 28, 2025, consolidated revenues decreased 2.30% to $1.63 billion. Net income was $138.59 million, down from $146.86 million in the prior year. Adjusted EBITDA increased 2.1% to $138.0 million in Q3 2025. The company maintains a healthy liquidity position with $352 million in cash, cash equivalents, and restricted cash as of September 28, 2025. Net cash provided by operating activities for the nine months ended September 28, 2025, was $275.26 million. Wendy's is committed to returning capital to shareholders, having repurchased $200 million in shares year-to-date through Q3 2025 and declared quarterly dividends of $0.14 per share for Q2, Q3, and Q4 2025. The company's net leverage ratio stands at 4.5x adjusted EBITDA.

Competitive Positioning: Differentiating in a Crowded Market

Wendy's operates in a highly competitive QSR landscape, primarily vying with giants like McDonald's (MCD), Restaurant Brands International (TICKER:QSR, parent of Burger King), and Yum! Brands (TICKER:YUM, including Taco Bell and KFC). While these competitors leverage vast scale and aggressive marketing, Wendy's differentiates itself through a steadfast commitment to quality ingredients, particularly its "Fresh, Never Frozen" beef, and a focus on enhancing the customer experience through technology.

Compared to McDonald's, Wendy's aims for a qualitative edge in product freshness, contrasting with MCD's more standardized offerings. While McDonald's benefits from superior scale, extensive supply chains, and robust cash flow, Wendy's emphasizes its unique value proposition, such as the "Biggie Bag" ($5 for a junior bacon cheeseburger, 4-piece nugget, fries, and a drink), which management believes offers industry-leading quality at an attractive price point. However, the "2 junior bacon cheeseburger meal for $8" in Q3 2025, while retaining existing customers, did not significantly attract new ones, indicating an ongoing challenge in communicating value effectively against aggressive competitor promotions.

Against Restaurant Brands International, Wendy's shares a similar franchising model but seeks to outperform through operational consistency and a more focused menu strategy. Wendy's real estate ownership model provides a degree of control and potential for efficiency that can be a competitive advantage. Yum! Brands, with its diverse portfolio, offers broader menu variety and faster innovation, which Wendy's counters with its emphasis on core menu excellence and targeted innovation, such as the successful launch of "Tendys" chicken tenders in Q4 2025. These tenders, in testing, performed better than its largest competitor and near the top of the competitive set, signaling a potential re-establishment of leadership in the chicken category.

Wendy's technological investments, particularly Fresh AI and digital menu boards, are critical competitive differentiators. These tools not only improve operational efficiency and order accuracy but also enhance the customer experience, directly addressing key satisfaction drivers. This technological edge helps Wendy's compete against rivals who are also investing heavily in digital transformation. However, industry-wide pressures from commodity and labor inflation, coupled with a strained lower-income consumer, present ongoing challenges for all QSR players, including Wendy's. Indirect competitors like Wawa are also impacting QSR traffic, especially in the breakfast daypart, by offering convenient, food-forward alternatives.

Outlook and Guidance: A Path to Sustainable Value

Wendy's reaffirmed its full-year 2025 outlook for global systemwide sales, adjusted EBITDA, and adjusted EPS, signaling confidence in its strategic adjustments despite persistent market headwinds. The company expects global systemwide sales to range from down 3% to 5% year-over-year, with adjusted EBITDA between $505 million and $525 million, and adjusted EPS between $0.82 and $0.89 per share. This outlook assumes that dynamic consumer behavior and a challenging competitive environment will persist.

A key assumption is continued commodity inflation of approximately 5% for the year, primarily driven by beef prices, and labor inflation of around 4%. The company plans to issue $400 million of whole business securitization notes in Q4 2025 to refinance maturing debt.

Wendy's also increased its free cash flow outlook by $35 million at the midpoint, now expecting $195 million to $210 million, reflecting reduced capital expenditures (now $135 million to $145 million) and build-to-suit investments, along with cash tax benefits from the 2025 Tax and Reconciliation Act. Net unit growth is maintained at 2% to 3%, with international development expected to exceed 9%. However, the U.S. system optimization initiative, including potential restaurant closures, could result in global net unit growth landing at the lower end of this range. Management anticipates Q4 2025 to be the trough for same-restaurant sales, with October being the lowest month, and expects improvement moving into 2026 as strategic initiatives gain traction.

Risks to the Investment Thesis

Several factors could impact Wendy's investment thesis. Continued inflationary pressures on labor and commodity costs, particularly beef, could further compress margins if menu price increases are limited by competitive pressures. The inherent volatility in commodity markets poses an ongoing risk. The U.S. market's sensitivity to consumer spending levels, especially among lower-income households, could continue to suppress traffic. The success of "Project Fresh" hinges on effective execution across a vast franchise system, and any delays or resistance could hinder its intended benefits. Furthermore, intense competition from both direct QSR rivals and indirect food service options demands continuous innovation and effective value communication to maintain market share. The planned closure of underperforming U.S. restaurants, while strategically sound, carries execution risks and could temporarily impact systemwide sales.

Conclusion

Wendy's is at a pivotal juncture, actively re-shaping its future through "Project Fresh." The company's strategic pivot towards profitable AUV growth in the U.S., underpinned by operational excellence and technological innovation, alongside aggressive international expansion, forms a compelling investment narrative. While the U.S. market faces significant headwinds from consumer pressures and competition, Wendy's proactive measures, including system optimization and a renewed focus on brand quality and customer experience, are designed to build a stronger, more resilient foundation. The company's commitment to disciplined capital allocation and leveraging its technological edge, such as Fresh AI, positions it to enhance franchisee profitability and drive long-term value. Investors should closely monitor the execution of "Project Fresh" and the sustained momentum of its international segment as key indicators of its ability to realize its full potential in a dynamic QSR landscape.