Q2 2025 The Wendy's Co Earnings Call
Speaker #1: There will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad.
Speaker #1: If you would like to withdraw your question, press star, followed by the number two. Thank you. You may begin your conference.
Speaker #2: Good morning. And thank you for joining our fiscal 2025 second quarter earnings conference call. After this brief introduction, Ken Cook, interim chief executive officer, will provide a business update and then Susie Turk, chief accounting officer and global head of FP&A, will review our second quarter results, share capital allocation priorities, and our updated 2025 outlook.
Speaker #2: From there, we will open up the line for questions. Today's conference call and webcast includes a presentation which is available on our investor relations website.
Speaker #2: Ir.wendys.com. Before we begin, please take note of the safe harbor statement that appears at the end of today's earnings release. This disclosure reminds investors that certain information we discuss today is forward-looking and reflects our current expectations about future plans and performance.
Speaker #2: 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.
Speaker #2: Investors should refer to our reconciliations of non-GAAP financial measures to the most directly comparable GAAP measure at the end of this presentation or in today's earnings release.
Speaker #2: If you have questions following today's conference call, please contact me, I will now hand the call over to Ken.
Speaker #3: Good morning. We appreciate you joining us today for our quarter 2025 earnings call. Before we dive in, I want to how honored I am to lead this great company.
Speaker #3: Wendys has a powerful brand, a strong foundation, and significant opportunity ahead. I want to start by thanking our franchisees and employees for their commitment to our ustomers and the progress we have made on our strategic initiatives.
Speaker #3: Our US top-line results and rest your outlook are below the expectations we set at the beginning of the year, as the consumer and competitive environment looks much different today than we anticipated.
Speaker #3: While our long-term strategy remains unchanged, we are increasing our focus to improve both execution and performance. I'll walk through the lessons we learned and the actions we're taking as a result shortly, but first, I want to share why I'm so excited about the future and the opportunities we have to create value for our franchisees, employees, and shareholders.
Speaker #3: Wendys is an iconic brand loved by generations around the world, built on having the highest quality food in QSR, made from the best ingredients like fresh, never frozen beef, and has a track record of successful innovation for more than 55 years.
Speaker #3: We have over 7300 restaurants across 35 countries and territories, with significant white space opportunities to expand our global footprint. Our franchisees and employees are deeply committed and passionate about the long-term success of the business.
Speaker #3: And we have a solid financial foundation with over $315 million of cash on our balance sheet, over half a billion dollars in annual adjusted EBITDA, and significant free cash flow generation to continue investing in long-term growth and returning cash to our shareholders.
Speaker #3: When I took on this role in July, the first thing I did was speak with our franchisees, reinforcing that our primary focus is enabling their success while accelerating long-term growth for the system.
Speaker #3: I firmly believe in the importance of a strong partnership between the company, and our franchisees, part of a concept you will hear me refer to as one Wendy's.
Speaker #3: The next thing I did was spend time in our ants. And I saw firsthand the passion and enthusiasm our teams have for the brand and the quality of our food.
Speaker #3: These visits have provided me with valuable insights on areas for improvement that we will put into action. With that context in mind, I'd like take a few minutes to share what's working, what's not, and where we are taking immediate action to improve the business and strengthen our foundation.
Speaker #3: Let's start with what's going well. First is net unit growth. We have opened 118 new restaurants in the first half of the year, and we remain on track to deliver between 2 to 3 percent net new unit growth for the full year.
Speaker #3: Next, our international business continued its strong growth trajectory. In the second quarter, the international segment delivered system-wide sales growth of 8.7 percent, and grew adjusted EBITDA by 23.9 percent, while continuing to make investments that enhance our global capabilities.
Speaker #3: Third, we are seeing early progress that our investment in operational excellence is paying off. In the US, we have improved both our traditional and our digital customer satisfaction scores.
Speaker #3: We know there is a high correlation between customer satisfaction and sales growth, and are confident that the continued improvements here will result in increased frequency by our customers.
Speaker #3: Turning to our US business, we are not happy with our sales performance. Our recent results are driven by a combination of dynamic consumer behavior and a more challenging competitive environment.
Speaker #3: This highlights the need to sharpen our focus and execution. Let me share the three key actions we are taking to drive improvement. The first is knowing our customers better and reaching them more effectively.
Speaker #3: You will see Wendy's be more agile in addressing changing consumer tastes and the competitive environment. We are leveraging new data analytics capabilities to enhance our understanding of how consumers are behaving both inside the Wendy's system and at our competition, all in close to real time.
Speaker #3: While we have historically done this through leveraging our loyalty program and third-party data, we now have the capability to analyze the large majority of our transactions.
Speaker #3: This provides us with better and more comprehensive insights and enables us to tailor both our marketing and menu innovations directly to customer preferences. We've also initiated a review of our media effectiveness to ensure our advertising dollars are working as hard as possible in the areas that will have the greatest impact for our brand.
Speaker #3: We must be more precise and efficient in how we support key product activations and will continue to evaluate and maximize our capabilities in this area.
Speaker #3: The second is reducing programming complexity and increasing focus. This summer, we learned that when we have too many priorities, we have none. Our 100 Days of Summer programming included promotions on beverages, breakfast, meal deals, digital exclusives, our Takis collaboration, and more.
Speaker #3: This looked great on paper as it had something for everyone. However, the volume of initiatives made it challenging for our restaurant teams to execute effectively and sent too many different messages to our customers.
Speaker #3: Based on this experience, we have simplified our calendar for the back half of the year. Lastly, and most importantly, is strengthening the partnership with our franchisees.
Speaker #3: Our franchisees play a critical role in our success. We recently brought US franchisees together to align on upcoming menu innovations, and they left excited about the new products and our strategy to drive growth.
Speaker #3: In recent weeks, they provided feedback on the volume of change in the second half of the year which helped shape our decision to re-time some of our planned programming and innovation so we can execute them with excellence and continue elevating the customer experience across our system.
Speaker #3: By continuing to strengthen our franchise relationships, we will drive improved results and ultimately reach our full potential together as one Wendy's. Additionally, we are thrilled have Pete Serkin leading our US business.
Speaker #3: Pete has earned the trust of franchisees over his five years leading our purchasing co-op. He has a bias for action and is already working to better integrate franchisee perspectives into our plans.
Speaker #3: Now, turning to our second quarter results. Global system-wide sales declined 1.8 percent, driven by a decrease in U.S. same restaurant sales. In the U.S., April results were soft.
Speaker #3: And while we did see improvement in the last two months of the quarter, driven by the launch of new additions to our Frosty platform, overall demand recovered more slowly than we expected.
Speaker #3: Moving to our international business, we continued to see strong performance with system-wide sales growth of 8.7%, including growth across all regions. For the total company, we delivered adjusted EBITDA of $146.6 million and earnings per share of $0.29.
Speaker #3: Both were above the second quarter last year as we increased productivity in our restaurants and continued to manage costs prudently. We also returned over 88 million dollars to shareholders through dividends and share repurchases in the second quarter for a total of over 262 million dollars returned to shareholders through the first half of the year.
Speaker #3: Now, let me provide an update on our three strategic priorities that will fuel long-term profitable growth. Starting with fresh famous food. Following the success of our Girl Scouts Thin Mints Frosty collaboration in the first quarter, we launched Frosty Swirls and Frosty Fusions in mid-May.
Speaker #3: These new launches performed well with Frosty sales up over 30 percent year over year in the second quarter. Looking ahead, based on the lessons from the first half of the year, and feedback from our franchisees, we have simplified our programming calendar in the second half of the year to ensure that we can execute with excellence and effectively reach our customers.
Speaker #3: During the second half of the year, we're focused on two things. Chicken innovation and the launch of our new beverage lineup. Starting with chicken, we launched a collaboration with Netflix for Wednesday, one of the streamers' most popular series.
Speaker #3: This coincided with the much-anticipated season two premiere this week. We are featuring a meal of misfortune, including chicken nuggets, a new lineup of four mystery sauces, hot and crispy fries, and a Raven's Blood dark cherry Frosty Swirl, all with Wednesday-themed packaging.
Speaker #3: In the fourth quarter, we'll extending our chicken lineup by launching new chicken tenders. Our chicken tenders are crafted using the highest quality ingredients, including 100 percent white meat, coated in light, crispy, and flavorful breading.
Speaker #3: Through testing, it was clear that consumers could taste the difference. I believe we are delivering exactly what customers want. A craveable, juicy, and all-around delicious product, in a fast-growing part of the protein market.
Speaker #3: We're also rolling out a modernized and improved sauce lineup with the launch of our chicken tenders, with six new varieties sauces, including my personal favorite, Sweet Chili, and a new Wendys signature sauce with a tangy kick.
Speaker #3: I think our tenders and sauces are fantastic, and I'm confident our customers will love them too. Now, turning to beverages. Beverage innovation will be a key enabler of growth across multiple day parts, especially breakfast and snacking occasions.
Speaker #3: Customers are deeply habitual in the morning and behaviors often center around beverages. We're thrilled with our new beverage innovation. Our new lineup that launched this week includes a cold brew formulation in indulgent offerings with cold foam.
Speaker #3: Each crafted to elevate our breakfast and beverage experience. Over the past several years, coffee preferences have shifted towards cold brew, as approximately 40 percent of QSR coffee servings are now cold.
Speaker #3: This new cold brew lineup allows us to better serve our existing customers and attract new ones. And aren't stopping there. For our customers who like their coffee hot in September, we're transitioning to a new hot coffee blend crafted for a lighter roast and made from 100 percent Arabica beans.
Speaker #3: This week, we also extended our caffeinated offerings to include refreshing sparkling energy drinks, the fastest growing beverage category in QSR, with servings growing approximately 50 percent over the past year.
Speaker #3: Our delicious new cherry limeade and pineapple citrus energy drinks are enabled by the customization available through our Coca-Cola Freestyle machines. We have the highest quality food in QSR, and we now have a beverage lineup that is just as compelling.
Speaker #3: Moving on to our next strategic pillar, we are focused on delivering an exceptional customer experience, which is a critical step to increasing customer frequency.
Speaker #3: We recently completed the staffing of our expanded U.S. field teams and are making progress on restaurant assessments and training. These investments are already showing positive results.
Speaker #3: Our teams are gaining valuable insights to drive greater accuracy, productivity, and hospitality. In addition to the in-restaurant experience, we are also improving the digital customer experience.
Speaker #3: Our US loyalty sales grew 25 percent in the second quarter, driven by strong digital conversion that reached another all-time high. This drove global digital mix to 20.5 percent of total sales.
Speaker #3: Additionally, our fresh AI platform is getting smarter and continues improving the drive-through experience. With unique menu recommendations for each order, taking into account factors such as seasonality and popular items in the area, fresh AI is driving stronger sales.
Speaker #3: We are pleased with how fresh AI is enhancing the customer experience and is one of the reasons same restaurant sales at US company-operated restaurants outperformed the US system in the second quarter.
Speaker #3: While we are in early innings of our ustomer experience journey, we are pleased with the initial results that our investments are generating. Moving to our third strategic pillar, accelerating net unit growth.
Speaker #3: Global expansion continues to be a powerful growth engine for us. In the second quarter, we opened 44 new restaurants across the globe, 21 in the United States and 23 internationally, reaching a total of 118 new restaurant opens year to date.
Speaker #3: In addition to these openings, I'm excited that EJ and his team have strengthened our development pipeline this quarter with new agreements to build 190 restaurants outside the U.S.
Speaker #3: This includes 170 restaurants in Italy over the next 10 years and 20 restaurants in Armenia over the next five. Our expansion into these European markets was enabled by the strategic investments we have made to enhance local resources, including a regional headquarters in London and the development of an integrated European supply chain.
Speaker #3: These new agreements are in addition to commitments we shared last quarter for 25 new restaurants in Mexico and 30 in Chile over the next five years, and are proof points that the Wendy's brand continues to resonate around the world.
Speaker #3: These represent important steps that will help us reach our 2028 targets. And for 2025, we remain on track to grow net units between 2 and 3 percent.
Speaker #3: Turning to our outlook, the environment today is very different than we anticipated at the beginning of the year, driven by dynamic consumer behavior and a more challenging competitive environment.
Speaker #3: Our updated outlook includes these factors as well as the changes made to our programming plans in the second half of the year. We now anticipate full year global system-wide sales to decline between 3 and 5 percent.
Speaker #3: We expect adjusted EBITDA to range between 505 million dollars and 525 million dollars. And adjusted EPS of 82 cents to 89 cents. Importantly, we are maintaining our guidance for net unit development and are well on our way to achieving our full year net unit growth target of 2 to 3 percent.
Speaker #3: Before I close, I will turn it over to Susie Turk to provide more details on our second quarter results and our outlook. Susie is our Chief Accounting Officer and Global Head of FP&A.
Speaker #3: She has been with Wendys for over 11 years, serving in finance roles increasing responsibility. Susie, over to you.
Speaker #4: Thank you, Ken, and good morning, everyone. I'm excited to join today's call and continue supporting the teams as we execute against our shared strategic priorities.
Speaker #4: Together, as one Wendy's, we are focused on driving long-term value for our franchisees and shareholders. I will start with our second quarter results, including an update on our operational initiatives and capital allocation during the quarter.
Speaker #4: Followed by an update on franchisee financial performance. And last, I share more details around our outlook for the remainder of 2025. In the second quarter, global system-wide sales, declined 1.8 percent on a constant currency basis.
Speaker #4: This was driven by a decline in the U.S., where same-restaurant sales were down 3.6 percent. This was partially offset by higher system-wide sales in our international business.
Speaker #4: The decline in US same restaurant sales was driven by a decrease in traffic, partially offset by a higher average check. Same restaurant sales at our US company-owned restaurants outperformed the US system by almost 300 basis points, declining 0.7 percent.
Speaker #4: This out. Was driven by a strong third-party delivery growth and the implementation of our digital menu boards and fresh AI automated ordering technology. We are encouraged by this performance because it demonstrates that the changes we're ementing in our company-owned restaurants are working and can be scaled across the system.
Speaker #4: Shifting to our international segment, the Wendys brand continued its strong momentum across the globe, delivering growth of 8.7 percent in system-wide sales, and 1.8 percent in same restaurant sales in the second quarter.
Speaker #4: We achieved system-wide sales growth across all regions, with some of fastest-growing markets including Japan, where we have brought to life local partnerships, driving a 27 percent increase in system-wide sales.
Speaker #4: And in Mexico, where we saw a 16 percent increase in system-wide sales and continued to bring innovation and value to our local customer. This underscores the strength of our global brand and the investments we are making in regional capabilities.
Speaker #4: Moving to the P&L, total adjusted revenue was 449 point 6 million dollars, a decrease of 6.1 million dollars, due to lower US system-wide sales.
Speaker #4: Company advertising spend decreased by 5.5 million dollars, and G&A expenses decreased by 2 million dollars. These items were partially offset by a modest decline in US company-operated restaurant margins.
Speaker #4: This resulted in adjusted EBITDA of $146.6 million, an increase of 2.5 percent. Shifting to margins, the global company-operated restaurant margin was 15.6 percent for the second quarter, and the U.S. company-operated restaurant margin was 16.2 percent, a contraction of 30 basis points year over year.
Speaker #4: The change in US company-operated restaurant margin was driven by higher commodity costs, wage rate inflation, and a decline in traffic. These were partially offset by higher labor productivity, supported by lower turnover and improved training, which are a result of executing on our operational improvements in the restaurant.
Speaker #4: As well as higher average check compared to the prior year. Adjusted earnings per share was 29 cents, an increase of 7.4 percent to the prior year, driven by 13.5 million fewer shares outstanding and the increase in adjusted EBITDA.
Speaker #4: Turning to free cash flow, a hallmark of Wendy's is strong free cash flow generation, and we continue to do that, generating $109.5 million of free cash flow in the first half of the year.
Speaker #4: As we shared last quarter, our definition of free cash flow now reflects investments in our build-to-suit programs to accelerate global net unit growth. Our new definition of free cash flow is net cash provided by operating activities, less capital expenditures, less build-to-suit franchise development fund investments.
Speaker #4: Moving on to capital allocation. Our first priority is investing in the business, and we are optimizing spend to areas with the atest growth potential.
Speaker #4: During the second quarter, we invested a total of 32.1 million dollars into the business, including capital expenditures and our build-to-suit development programs. Capital expenditures included 10 million dollars in technology initiatives like our digital menu board and fresh AI rollout.
Speaker #4: We also invested 16.9 million dollars in restaurant development for both company-owned restaurants and through our build-to-suit franchise development program. Through the build-to-suit program, we opened six new restaurants, one in the US and five in the UK and Canada in the second quarter.
Speaker #4: Our second priority is paying an attractive dividend, and today we announced our third quarter dividend payment of 14 cents per share. Our next priority is maintaining a strong balance sheet.
Speaker #4: We ended the second quarter with over 315 million dollars of cash on the balance sheet. And a net leverage ratio of 4.5 times, which is in line with prior quarter.
Speaker #4: Year to date, we have paid down 14.6 million dollars of our whole business securitization debt principal. Finally, we believe cash belongs to our shareholders, and have continued to use share repurchases to return cash to shareholders.
Speaker #4: During the second quarter, we repurchased 4.8 million shares for approximately 62 million dollars. And year to date, through August 1st, we have repurchased 13.8 million shares for approximately 195 million dollars.
Speaker #4: Through the first half of the year, we have returned $262.2 million of cash to our shareholders. This includes $76.2 million in dividends and $186 million through share repurchases.
Speaker #4: We are on track to return approximately 325 million dollars of cash to our shareholders in 2025. This is an increase of 40 million dollars compared to 2024.
Speaker #4: This return to shareholders highlights our focus on responsible and disciplined capital allocation that supports our long-term strategy. Before I turn to outlook, I like to provide an update on our franchisee financial performance.
Speaker #4: We recently completed the annual collection and analysis of financials across the system for 2024. In 2024, our US franchisees achieved average year over year sales growth of 1 percent, an average EBITDA growth of 2 percent.
Speaker #4: And in Canada, 2024 average franchisee sales growth was 4 percent, with average EBITDA growth of 12 percent. This represents a healthy growth rate across a five-year period.
Speaker #4: Focused on continuing to strengthen the profitability of the system. As a reminder, we implemented a new system to collect and analyze franchisee data at the restaurant level.
Speaker #4: Rather than collecting information at the franchisee level, this granularity is more useful to our franchisees, as it enables them to benchmark performance against restaurants with similar characteristics.
Speaker #4: It also enables our field teams have more meaningful conversations with our franchisees. And now that we have the data, we're turning to the analysis and the insights to help both our franchisees and our company-operated restaurants improve profitability.
Speaker #4: Now let's turn to our financial outlook. We continue to anticipate net unit growth between 2 to 3 percent for 2025. We also continue to expect strong sales and profit growth in our international business.
Speaker #4: However, based on our US business's second quarter performance, what we seen so far in the third quarter, and the shift of certain programming initiatives from 2025 into 2026, we have updated our outlook for the full year 2025 accordingly.
Speaker #4: Our updated outlook assumes the dynamic consumer behavior and challenging competitive environment persists throughout the remainder of the year. For the full year 2025, we now expect global system-wide sales, to range from down 3 to 5 percent year over year.
Speaker #4: US company-operated restaurant margin is expected to be 14 percent, plus or minus 50 basis points. This includes an updated commodity inflation outlook for year of approximately 4 percent.
Speaker #4: Primarily reflecting continued inflation and beef prices. We expect G&A to be between 260 and 270 million dollars, and continue represent approximately 1.9 percent of system-wide sales for the full year.
Speaker #4: We will continue to invest in the resources and technology needed to deliver on our strategic priorities. While tightly managing discretionary spending, we expect incentive compensation to be lower than our outlook.
Speaker #4: As a result, we expect adjusted EBITDA to be between 505 and 525 million dollars. Interest expense will be approximately 130 million dollars, as we continue to expect to issue 400 million dollars of whole business securitization notes late in 2025.
Speaker #4: We will use these proceeds to pay off 400 million dollars debt, which includes 50 million that matures in December 2025, and 350 million in September 2026.
Speaker #4: Taking all of these items into account, we now expect adjusted EPS to range from 82 cents to 89 cents per share. We continue to expect investments between 165 and 175 million dollars across capital expenditures and our build-to-suit program.
Speaker #4: Resulting in free cash flow under our new definition to be between 160 and 175 million dollars. In looking at the shape of the second half of the year, we expect the third and fourth quarter to be uneven.
Speaker #4: With a significantly larger decline in the fourth quarter due to prior year comparison. In closing, we are focused on disciplined execution, and as one Wendy's, we are taking deliberate actions to better position our business for long-term growth.
Speaker #4: And with that, let me now hand it back to Ken.
Speaker #2: Thank you, Susie. In closing, I want to reiterate my confidence in Wendys' strategic direction and our ability to capture the significant opportunities in front of us.
Speaker #2: Our global footprint is expanding, and international sales growth continues to be strong. We are acting with urgency to improve our US business, by knowing our ustomers better, increasing our focus, and strengthening our partnership with franchisees.
Speaker #2: I'm confident that by operating together as one Wendy's, these actions will strengthen our foundation and enable us to reach our long-term potential. I'll now hand it over to Aaron to share our third quarter investor relations calendar.
Speaker #5: Thank you, Ken. On September 18th, we will be in New York City for an NDR hosted by JP Morgan. Then on September 23rd, we will be in Boston for an NDR hosted by Truist Securities.
Speaker #5: If you are interested in joining us at either these events, please contact the respective cell-side analyst or equity sales contact at the host firm.
Speaker #5: We will now transition to the Q&A part of the call. Due to the high number of covering analysts, please limit yourself to one question only.
Speaker #5: Operator, please queue up the first question.
Speaker #6: Thank you. As a reminder, if you'd like to ask a question, please press star followed by one on your ephone keypad. Our first question for today comes from David Palmer of Evercore ISI.
Speaker #6: Your line's now open. Please go head.
Speaker #7: Great, great. Thank you and thanks for all the detail on those prepared remarks. I, you know, so forgive if I'm gonna make you repeat ourself on some of this stuff, but I, I just would love to hear your just honest assessment about, you know, what is working, what is not working from a marketing value menu perspective.
Speaker #7: So far this year, I mean, it sounds like you're moving from some collaborations and flavors that maybe maybe less about Wendy's brand in the first half and maybe ou're doing some more significant platform innovation that's ally more Wendy's branded and, and chicken and beverage in the second half.
Speaker #7: I'm not ally sure how much you're planning on the investment, sort of levels changing in the second half and, you know, how much is contemplated in that second half guidance.
Speaker #7: So any, any color about, you know, how your strategically shifting, given what you've seen in the in the first half and the plans for the second half.
Speaker #7: Thanks so much.
Speaker #2: Excellent. Great question, David. so I think it'd be helpful to zoom out for a minute and look at how things have transpired over the year and then we can talk more specifically about what we're ing about it in the second half of the year.
Speaker #2: If we go in December of 2024, we went into 2025 expecting industry traffic to be better than in years past. This was supported by our own forecasts and also multiple third-party forecasts.
Speaker #2: And we built a programming calendar that was built to perform well in that environment. We had a combination of quality messaging and value. With innovation in Frosty, chicken, and beverage, and we had three big collaborations with Takis, Wednesday, and Girl Scouts.
Speaker #2: As we started 2025, it was a noisy start to the year. We had weather significantly impacting us in the first two months the year, and then in March we saw the biggest decline in consumer sentiment in recent history.
Speaker #2: Consumers started behaving very differently, which resulted in a very different environment than we originally expected. So we then went to our ventory of tested marketing moves.
Speaker #2: And candidly, we were not confident that what was in there would resonate well with customers in, in that environment. So that was a big learning for us that we're addressing by building up that inventory of, of tested marketing plays.
Speaker #2: So then we put together the 100 Days of Summer. It looked great on paper. It had something for everybody, and it did ultimately have some bright spots in there.
Speaker #2: Frosty's performed well. A core menu innovation, combined a successful media launch, Frosty's sales were up 30 percent year over year in the second quarter, which was in line with our expectation.
Speaker #2: Other programming, as part of the 100 Days of Summer, did not perform as well as we expected. $3 on a baconator, $1 drinks breakfast did not drive the incremental sales lift.
Speaker #2: That we had expected. And then Takis, we had a good week one of Takis, a little bit better than we expected. but then in July, we saw USR, US SRS, down between 5 and 6 percent.
Speaker #2: So that led to another important lesson for us: we can't throw more programming at our restaurants or our customers than what we have the capacity to deliver with excellence.
Speaker #2: And I'm king about capacity from both an operations and an advertising perspective. So what are we doing about it? Based on the lessons that we learned, we took a hard look at the capacity we had in the second half, both operations and advertising, to deliver programming with excellence.
Speaker #2: This was based on our own testing and feedback from our franchisees and restaurant teams, so we significantly simplified the second half to focus on the handful of items that we can deliver with excellence.
Speaker #2: We changed the timing of some big product innovations and moved those out of the second half of 2025 and into 2026. We stopped some of the broad $1 promotions that we were running, and we're moving to a more focused and targeted discounting through the app.
Speaker #2: That drive incremental traffic. And for the second half, 're focusing the system on two things: chicken including our collaboration with Netflix and Wednesday, and our new beverage lineup.
Speaker #2: and these are all going to be supported by the new data analytics capability that we're ally excited about and that can unlock a lot of, a lot of potential for us.
Speaker #5: Thank you very much. Our next question comes from Jeffrey Bernstein of Barclave. Your line's now open. Please go head.
Speaker #7: Great. Thank you very much. one thing just to clarify, I think Ken you just said that the, I guess, the July US comps were down 5 to 6.
Speaker #7: I just want to make sure I heard that correctly.
Speaker #5: Yes, Jeffrey, that is correct.
Speaker #7: Got it. Otherwise, right, my question is just a bigger picture on, h, the franchisees, you talk about the one Wendys partnership. I'm wondering if you can share, based on your conversations, maybe their current sentiment, their alignment to improve the comp, it would seem like value is more critical than ever.
Speaker #7: so I'm just wondering I know in your prepared remarks you talked a lot about, in the second half, collaborations, beverage innovation, and chicken tenders, but, other than that, I think you just mentioned maybe more value in the app, but just ying to get a sense for franchisees' sentiment and their willingness to perhaps be more aggressive on, on value, which seems to be what the competition is pushing more aggressively.
Speaker #7: Thank you.
Speaker #5: No, thank, thanks for the question, Jeff. I would say, I, I've spent a of time with franchisees over the past several, several months, and even more, in recent weeks.
Speaker #5: And I would say Wendys has a good relationship with franchisees today, but we have an opportunity to make it great. And by moving from good to great here, we can unlock tremendous value by operating together as one Wendy's.
Speaker #5: And when I say one Wendy's, that ans ensuring the entire Wendy's system, our employees, management teams, franchisees, restaurant teams, are all aligned on where we are going and working together to get there.
Speaker #5: So I'll, I'll share a few, a few quick examples, of the opportunities. you know, one piece of feedback from franchisees is they, they shared examples of when the brand, which share info, that would affect them with others, before before sharing it with actually our franchisees.
Speaker #5: And one example of that is the earnings call today. this causes a lot of back and forth and wasted time tracking down the truth.
Speaker #5: So, it's a small change, but we committed to tell them things in advance. Earlier this week, the SLT and I had a call with franchisees to let them know about the changes to the second half programming before we went out and announced that publicly on the call today.
Speaker #5: So that's a small thing, but it does go a long way establish a stronger partnership, and enhance trust. Another thing from franchisees is prioritization.
Speaker #5: They want prioritization. and we can help them do that in a big way. we need to better prioritize and sequence initiatives that take up capacity in the restaurants and require change in restaurants.
Speaker #5: and doing that will help better set up our restaurant teams for success. in order to prioritize, it's really important that we get all the best ideas on the table on the front end, something that we're calling fresh thinking.
Speaker #5: We want all the best ideas on the table, regardless of where they come from. We have a big opportunity to proactively solicit ideas from franchisees on a continuous basis.
Speaker #5: Part of this will be a cultural shift. Part of this will be creating a more efficient mechanism to do it. And we are actively working on both of those things.
Speaker #5: And then communicating back to the system on all those ideas and helping them understand why, you know, certain things were prioritized, and other things weren't.
Speaker #5: And really excited, to have Pete Serkin joining the team. He's gonna play a big role here. He's worked hand in hand with our franchisees over the past five years, leading our supply chain co-op.
Speaker #5: He has great relationships with them. He does a great job building culture, and he has a bias for action. So, I could not be more excited for him to be on the team.
Speaker #5: and then I guess specific to your question, you know, arding value, I think, you know, value is an important component of our menu strategy.
Speaker #5: You know, we've talked about having really three components: a raveable core, impactful innovation, and relevant value. And really excited about you leveraging the new data analytics capabilities that we have, to more effectively target customers with value, especially targeting the customers that will result in increased frequency instead of just buying, you know, one or two trips to our Wendys store.
Speaker #5: So that's where the focus is from a value perspective. And then the last thing I'd say is, we do have the best value offering in the business with piggyback.
Speaker #5: You get a Junior Bacon Cheeseburger, fries, a four-piece nugget, and a soft drink, all for $5. I think we've got value in the rest of the menu. It's to retell all of these stories.
Speaker #5: Wendys is having the largest cold food in QSR. We still do. And I ink we have a big opportunity to reemphasize that with our customers.
Speaker #5: So value and, and premium. Thank you. Our next question comes from Rahul Bro of JP Morgan. Your line's now open. Please go ahead.
Speaker #8: Good morning. Clearly, there seems to be a lot of opportunity ahead to improve franchise operations and profitability, especially given all the details and the roadmap you guys laid out.
Speaker #8: Is there top process around revisiting the US franchise development 26 and beyond, especially the standard franchise development, given the fact like the operation improvement takes five for the entire general closed between company and franchise performance and have a follow-up sector?
Speaker #5: A great, great Rahul. Thank you the question. I, I think we are committed to doing everything we can to help improve franchisee economics. We have some really exciting initiatives underway today.
Speaker #5: One of those is the new data analytics capability that we have. Historically, we've relied on, you ow, third-party data that gave us a view of national customer behavior with our competition.
Speaker #5: We're gonna get a lot more granular, and eventually have regional restaurant-level visibility to help them inform their, their decisions and tell us and form our decisions.
Speaker #5: So really excited about the, the potential for that. And then the other thing is this is the first year we've collected granular P&L details at the restaurant level.
Speaker #5: So really excited about the opportunities that we have to unlock profit growth through that. Susie, why 't you share a couple more ails?
Speaker #4: Yeah. Thanks, Rahul. so we are really excited about getting down to that restaurant level. In my prepared remarks, I mentioned, you know, the franchisee right now is we're having conversations at the franchise entity level, and now we're able to get down into specific areas of the P&L.
Speaker #4: So for example, we're having detailed conversations about line items like take food waste or labor or supplies, for example, and we're, we're comparing those to benchmark.
Speaker #4: within the system. And so we can take a restaurant that has performance within those ranges and apply those learnings into the restaurants with similar characteristics, and we're making a move.
Speaker #4: We continue to improve restaurant economics. So we're having really good decision or really good discussions. And that's a testament to the investments that we're making in the field.
Speaker #4: So the investments are paying off and we're really excited.
Speaker #5: Yeah. And, and one thing I'd add to that, ul, the more we can improve the economics of a Wendys restaurant, the more franchises that we're ultimately gonna sell the more restaurants that we're gonna open.
Speaker #5: So that is where we are focusing.
Speaker #8: Perfect. And I think what point do we start to see the customer satisfaction scores translate into the same store sales growth, not just in the company stores, but also the franchise stores and are you tracking that actively as well?
Speaker #5: We absolutely are tracking that. We believe that hospitality and enhancing the customer experience is one of most important areas that we can use to drive customer frequency.
Speaker #5: And we have tremendous opportunity to increase the frequency of the folks who are already visiting Wendys today and that customer satisfaction is a big tool that we can that we use to get there, which is why we invested in a significantly expanding the US field team earlier this year.
Speaker #5: And we are already starting to see progress in those areas. If we look overall customer satisfaction, at orders through employees, that's actually up 140 basis points year over year, second quarter of '25 versus the second quarter of '24.
Speaker #5: And then we had an even bigger improvement in our digital orders. Those orders, the improvements have really centered around two things: accuracy. So we've talked about deploying, you know, scales so that we can weigh those digital orders to make sure we're not missing anything.
Speaker #5: That has resulted in a significant improvement in accuracy in our digital orders. And then our hospitality scores are also up year over year. We're really excited about that.
Speaker #5: And when we think about when that's going to drive frequency, you know, I think it's kind of like a flywheel that has a cumulative effect.
Speaker #5: So we're 140 basis points, on employee orders year over year. We're gonna continue to build on that. And, you know, I think the higher you go, the more impactful it becomes to frequency.
Speaker #5: And the frequency also builds on itself. So if you think about somebody now, for example, that's ing to a Wendy's, you ow, once every two or three months, okay, if I increase that frequency from three months two months and then they continue to have great experiences, we have the ential to increase it from two months one month.
Speaker #5: And those continue to build on each other. And the more velocity we can drive through these restaurants, further enhances the quality of the food and the experience that customers get.
Speaker #5: So, it's a flywheel where early innings right now, but please with the progress that we've made so far. Thank you. Our next question comes from Brian Mullen of Piper Sandler.
Speaker #5: Your line is now open. Please go ahead.
Speaker #7: Hey, thank you. Ken, I would like to get your perspective on something else that may be influencing the same-store sales, but I would like to hear what you think.
Speaker #7: You know, earlier this week, the largest player in the ustry essentially said for a lot of consumers, their perception of value comes the core menu and the prices they see on the, on the menu board.
Speaker #7: I'm just curious to get your take on that for the industry. And for Wendy's, you know, separate the programming which you've discussed and even the value with the piggyback. Is there anything that needs to be done to address the pricing of the everyday core menu?
Speaker #5: you know, I appreciate the question. I ink it's absolutely something that we'll ok at, and we will have more capabilities to precisely answer that question with the new data analytics capability that we have.
Speaker #5: obviously something we look at. We know when we start talking about price, it's, you know, about several things. It's about the quality of food.
Speaker #5: It's about the experience that customers have. And price. So that's one component that we'll be looking . again, I, I, I think when you look at the legacy of Wendy's, it's really built on having that highest quality food in the industry.
Speaker #5: So you're gonna hear us talk a lot more about that moving forward, but, but yes, price and pricing constructs is one thing that we will evaluate with this new data analytics capability.
Speaker #7: Thank you.
Speaker #5: Thank you. Our next question comes from Jake Bartlett of Truist. Your line is now open. Please go ahead.
Speaker #9: Thank you very much. I had a question and then I had a clarification. actually the arification first. And that is just a comment on, you kind of running too much and having kind of, a little bit a cluttered, marketing calendar and, and what ou've done in the back half is decluttered that and, and decreased it.
Speaker #9: I just wanna make re I understand, it, it was that a, I mean, was the problem from an execution standpoint? Was it from a marketing standpoint where the consumer maybe didn't get one, one big loud message?
Speaker #9: But, you know, what was the problem with your marketing calendar to date? And why did you see a need to change it going forward?
Speaker #9: And then I had another question.
Speaker #5: Yeah, great question, Jake. I think, in hindsight, again, when we drew it up, it looked great on paper because it did have everything for everybody.
Speaker #5: I think, where what we found out and what we learned was that it created confusing messages to consumers. When I walked up to a Wendy's and I seen eight different deals at point of purchase, I wasn't sure what I was coming for.
Speaker #5: And so it created some confusion with, with customers. And then I think from a restaurant execution perspective, when you start launching all this volume of programming at them, it does require training and change.
Speaker #5: So even the, the point of sale terminals, we have to update those. And then the cashier has be trained on how that works. personal example, I was in a Wendy's and somebody came in and ordered one of the new promotions that we were running.
Speaker #5: And, you know, the cashier, it took them 30 to 45 seconds to actually find the right key on the POS. So, that's one small example that's illustrative of just the complexity of executing this in our restaurants and trying to throw too much at the system at one time.
Speaker #5: So we did simplify the menu programming in back half of the year. We're gonna focus on two big things. We're onna do it exceptionally well, while at the same time continuing to enhance the customer experience through hospitality and accuracy.
Speaker #5: And we're really excited about what the cumulative effect of those things will be, you know, as we look towards the future. Great. And then, and then just a, a question on, on chicken.
Speaker #5: you know, there's some reports that, that you've changed your, your patty. Maybe just to, to make some, some comments there just from some clarifications of what has been done to the, to the, your, your chicken patty that you're offering.
Speaker #5: And then the other question was just about, or, or part of that was, was about your focus on chicken in the back half of the year.
Speaker #5: It's obviously, a focus for others, a, a pretty, you know, an, an important, you ow, category for the consumer, but also pretty crowded. You know, what, what, what is the thinking in terms of really focusing in there?
Speaker #5: And, you know, any other details on the testing of your tender, for instance, and just your approach there? No, happy to. So, you know, we continue to use the highest quality ingredients in QSR.
Speaker #5: Obviously, you know, different products will source things different ways. Just to make re we have the best mix of, of price and value for our customer.
Speaker #5: I ink in terms of chicken, obviously it's been a very fast-growing protein within QSR. And we really like how our ts stacked up against the competition.
Speaker #5: So in the test that we ran, our chicken tenders performed better than our largest competitor. and it performed towards the top of, of the entire competitive set, including those who specialize in chicken.
Speaker #5: So we're really excited about the quality of this offering. With the launch of the tenders, we're also launching six new sauces that we're really excited about, including a Wendy's signature sauce.
Speaker #5: so I think that's gonna be great. And then this also gives us the ability to innovate off of this core menu item going forward.
Speaker #5: Which, you know, also gives us a lot more potential to do things differently in that protein chicken category. Great. Thank you so much.
Speaker #5: Our next question comes from Dennis Geiger of UBS. Your line is now open. Please go head.
Speaker #10: Thank ou. I wanted to ask a little bit more about the company compound performance, specifically what you mentioned and the link that you're seeing within third-party delivery, but more importantly, the implementation of the digital menu boards and fresh AI.
Speaker #10: Anything more to unpack there on what you're eing in, in the lift that, that you're seeing across those initiatives? Thank you.
Speaker #4: Yeah. Hi, Dennis. This is Susie. we're really proud of our, our company investments, in the technology and initiatives. And, you know, a fun fact that, you know, that you asked for.
Speaker #4: So our mix in our company restaurants is outperforming that of the system, and that's really driven by that, you know, automated ordering technology.
Speaker #4: Recommending, products based on seasonality or popularity of, of certain products. So, really happy about that. In terms of, you know, other initiatives, the training and, and employee turnover that we recommended, you know, those are, are those investments are paying off in our restaurants.
Speaker #4: And, and we're really proud of that.
Speaker #5: Thank you. Our next question comes from Andrew Strotsik of BMO Capital Markets. Your line's now open. Please go ahead.
Speaker #11: Hi, this is Jared Lozinski on for Andrew. Thanks for taking the question. In the first quarter, you called out the breakfast day part as softer than the rest of the day.
Speaker #11: Just curious if this trend has continued into the second quarter, and if you could provide any additional insights on performance across the other day parts.
Speaker #11: Thank you.
Speaker #5: Yeah. Thanks for the estion, Andrew. yes, breakfast continued to perform worse than rest of day. In the second quarter. Which makes sense when you look what's happening from a consumer behavior perspective.
Speaker #5: When consumer uncertainty increases, and consumers choose to eat another meal at home, breakfast is often the first plate that they, that they, that they do that with.
Speaker #5: So, so yes, breakfast, continues to perform worse than rest of day. What we're doing about it is we are excited about our new beverage lineup.
Speaker #5: Obviously, breakfast is also a very habitual day part that often centers around beverage. And so we are launching a new cold brew coffee to take advantage of some trends that see in the marketplace.
Speaker #5: with all, with cold foam add-ins for somebody who wants a more indulgent, drink in the morning. This is also easy for our ant teams to execute.
Speaker #5: on the cold brew side. And then really, really excited about sparkling energy, which we think also has potential to brew both the breakfast day part and rest of day.
Speaker #5: you leveraging the Coca-Cola freestyle machine so that we can offer something that's uniquely Wendy's. In the, you ow, the pineapple citrus and the cherry limeade energy sparkling energy drinks.
Speaker #5: So both of those things we think are gonna help us at breakfast. as well as rest of day.
Speaker #7: Great. Thank ou.
Speaker #5: Our next question comes from Danilo Gallillo of Bernstein. Your line's now open. Please go ahead.
Speaker #12: Great. Thank ou. first of all, it's encouraging to hear that the chisees, EBITDA grew by about 22 percent, in '24. I was wondering if you can, help us understand how you expect the, pressure that you see this year in terms of, ou know, sales deleverage and, you know, commodity inflation perhaps increasing with our, you know, some larger players talking mid-single-digit inflation due to this.
Speaker #12: I was wondering if you can help us understand what your expectations in terms of unit rowth for next year, in the context of, you know, the franchisee leverage, in the system.
Speaker #12: And, whether do you expect to see some higher pressures from a closure standpoint next year? And if so, what do you expect Wendy's to do to, step in and support franchisees in case there will be a possibility?
Speaker #12: Thank you.
Speaker #5: Yeah. Thanks, Danilo. So 'll, I'll start and then turn over to Susie to give some additional color. the good news with our franchisee system is we are starting from a position of strength.
Speaker #5: So in 2024 in the US and Canada, franchisees grew sales EBITDA and margin. So that's, that's the trifecta and we're happy about that. Obviously, when sales are down, it does put pressure on whole, on the system.
Speaker #5: that is why we are working so hard to grow the top line to improve hospitality and focus on the, the things that we can execute with excellence in the second half of the year, setting urselves up really well.
Speaker #5: For the longer term, we feel good about the health of the U.S. system. Of course, there will always be restaurants that underperform the average.
Speaker #5: and we'll work with them on a case-by-case basis. We also are very excited about the new tools and visibility we have to help them.
Speaker #5: Like the granular franchisee, restaurant-level P&Ls that we have. And Susie, why don't you share an example of that?
Speaker #4: Yeah. These are the conversations that we're having with franchisees on a regular basis with getting that information on the restaurant level. We're able have more proactive conversations and franchisees aren't just sharing information with us and us with them.
Speaker #4: They're sharing it amongst each other, so that's really exciting to see as well. They are sharing what works across the system, and that will provide a flywheel for the restaurant economic model.
Speaker #4: you know, as I stated, we're in the, the early innings. of this and, and we're transitioning into the analysis and, and insights part of that program.
Speaker #4: But what we've seen thus far is very encouraging and really exciting for the system.
Speaker #5: Yeah. And regarding your question on net unit growth, what we're focused on is creating an exceptionally compelling economic model at the restaurant level and we feel very confident that when we do that, it creates a flywheel where a big pool model where people wanna build restaurants as fast as they possibly can.
Speaker #5: So interest our line there and we feel very good about our prospects to continue our net unit growth trajectory, in 2025 and beyond. Thank ou.
Speaker #5: Our next question comes from Jim Salera of Stevens. Your line is now open. Please go ahead.
Speaker #13: Hey, Ken. Good morning. Thanks for taking our question. I was hoping you might be able to give us a little bit of a debrief on the, Takis collab and why that fell short after, kind of a strong opening.
Speaker #13: And then, if you can, maybe also give us an update on the Wednesday LTO compared to something like SpongeBob last year, just so we can get a sense for how that's performing and guest engagement on that.
Speaker #5: Yeah. Happy to. So starting with Takis, we saw week one perform well in line with our expectations. Then we saw the following weeks tail off and underperform our expectations by a little bit.
Speaker #5: that due to multiple reasons. One them was secondary trial. So we n't see as much secondary trial as we had expected. And this is another thing, a learning for us that, you know, we have the opportunity to do more robust testing on some of these collaborations in advance.
Speaker #5: That could flag things like that for us and help to help us optimize things like the duration of collaborations like Takis. Regarding Wednesday, we just launched this week, I would say is performing in line with expectations.
Speaker #5: So we're pleased about that. and excited to continue to use collaborations to get new people into Wendy's restaurants and then leverage our core menu in an exceptional customer experience to bring them back time and time again.
Speaker #7: Thank you.
Speaker #5: Our next question comes from Margaret May Binstock of Wolf Research. Your line is now open. Please go ahead.
Speaker #14: Thanks and good morning, guys. I just want to ask on the 100 Days of Summer campaign. I know you guys talked a little bit about some messiness there, but was there any silver lining in terms of a slight bump in value perception?
Speaker #14: And then, I know last time you guys talked about that platform leading into a fall/winter value calendar. Is that something that is still on the table?
Speaker #14: Thank ou.
Speaker #5: yeah. Thanks, Margaret. I, I think, you ow, the we, we need to be very lear about what the focus is to make sure everybody knows where we're going and is working together to get there.
Speaker #5: So we have simplified the programming calendar in the second half of the year to focus on chicken and beverage. And we wanna make sure that we do those two things exceptionally well.
Speaker #5: That being said, we know value is an important part of the menu. especially in this environment. And so we will continue to leverage our industry-leading value offerings there like our piggyback.
Speaker #5: We do have a big opportunity to retell the quality story and remind customers that even for $5 you are getting the best quality food in all of QSR.
Speaker #5: And we think it's a really compelling value proposition. So, you know, we'll continue to look at that. The other thing that I'll say is with the new data analytics capabilities that we have, that has the potential to unlock some really impactful learnings for us.
Speaker #5: As we start digging into the details over the coming months.
Speaker #14: Thanks, Ken.
Speaker #5: Our next question comes from John Tower of City. Your line's now open. Please go ahead.
Speaker #15: Good morning. Thanks for taking the question. I just wanted to unpack your commentary regarding advertising spend, and specifically, you had talked about the idea of, I believe, concentrating a little bit more of your spending on these fewer campaigns—more impactful. You know, when we're thinking about that, are you going to be spending a similar amount of dollars in fewer campaigns?
Speaker #15: And how, as consumers, should, folks expect that to show up, you ow, through different mediums throughout the year? And then, more broadly, you ow, as, system-wide sales dollars are, are, are lower than they were last year, are you contemplating maybe, adding company dollars to the advertising budget?
Speaker #15: I know it's something that the brand has done in the past when you've built out the breakfast platform in order to keep, in order to build that out.
Speaker #15: Is that something you're contemplating now, given the underperformance this year?
Speaker #5: Thanks for the estion, John. let me start by saying we are extremely excited about the opportunity we have to increase the effectiveness of our media programs.
Speaker #5: The first step of that is this new, data analytics capability that we have. To be able to precisely measure the performance of certain advertisements and certain media campaigns.
Speaker #5: And really get our finger on the true incrementality of those transactions, and then be able to tell how successful we are at bringing those people back after those campaigns end.
Speaker #5: So we have a, a tremendous opportunity. We're also looking at how to optimize our mix of spend. So from linear and digital and social perspective, we think we have big opportunities there as well.
Speaker #5: Especially when you think about, h, you know, Wendy's history as a leader in the social space, you know, how do we get that mojo back?
Speaker #5: And, and, and do some great things on social. So those are all things that we're looking . In terms of the, the company spend, we'll, we'll continue to evaluate all alternatives.
Speaker #5: You know, when we, when we find things that make sense and provide a good ROI for our franchisees and the company, those are investments that we'll make all the time.
Speaker #5: So, you know, that's definitely on the table as we evaluate what opportunities we have to improve sales and accelerate the flywheel. Regarding our question on advertising spend, we do expect advertising spend to be down in the second half of 2025.
Speaker #5: Both on a year-over-year basis and relative to the first half of the year. And we factor that into our guidance. If you think about the mechanics of it, as sales have come in below our ectations so far this year, it does compress the overall media budget that we have, which ultimately gets compressed into the back half of the year.
Speaker #5: So it has a larger impact as we near the end of the year and that has been reflected in our idance. But it makes it really important that we leverage these new data capabilities to maximize the effectiveness of our media spend.
Speaker #5: And that's a work stream that we have already kicked off. That was our last question of the call. That was our last question. I will now turn it back to Ken for a few closing comments.
Speaker #16: Well, I know that 2025 is not shaping up the way we wanted it to. I am so excited about our future. I've spent lots of time with franchisees and our restaurant teams over the past few weeks.
Speaker #16: And one of the things I know for sure is that there is a tremendous amount of opportunity in the Wendy's system to accelerate growth and significantly increase profitability.
Speaker #16: This requires a lot of work. It requires bold decisions and it requires us to focus on the handful of things that Wendy's can do better than anybody else.
Speaker #16: Working together as one Wendy's, we will capture these opportunities and create tremendous value for our franchisees, our employees, and our shareholders. Thank you for listening.