Wendy's Company (The)

Good morning. Welcome to the Wendy's Company Earnings and Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, 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. If you would like to withdraw your question, press star followed by the number two. Thank you. You may begin your conference.

Good morning, and thank you for joining our fiscal 2025 third quarter earnings conference call. After this brief introduction, Ken Cook, interim chief executive officer and chief financial officer, will provide a business update, and then Susie Turk, chief accounting officer and global head of FP&A, will review our third quarter results, share capital allocation priorities, and our updated 2025 outlook. 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, 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 discussed today is forward-looking and reflects our current expectations about future plans and performance. Various factors could affect our results and cause those results to differ materially from the projections set forth in our forward-looking statements. Some of today's comments will reference non-GAAP financial measures. 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. If you have questions following today's conference call, please contact me. I will now hand the call over to Ken.

Thanks, Aaron. Good morning, everyone, and thank you for joining us today. Before I begin, I want to thank our employees and franchisees for the passion they bring to the Wendy's brand and their continued commitment to unlocking its full potential. This morning, I'll provide an update on Project Fresh, which we announced in October, and then review our third quarter results, which were broadly in line with our expectations. Across the globe, Wendy's continues to resonate well with our customers as we execute our globally great, locally even better approach. Our international business once again delivered strong system-wide sales growth supported by an increase in same restaurant sales and new restaurant openings. Momentum continues to build across our markets and we expect international net unit growth of over 9% in 2025. I am pleased by the strong performance as we continue to prioritize accelerating international expansion. In our U.S. business, sales remain under pressure. and we are acting with urgency to return U.S. comp sales to growth. We are making meaningful progress on key actions to enhance the customer experience, and we are seeing this payoff in our U.S. company-operated restaurants, which significantly outperformed the overall system in the third quarter. On our last earnings call, I outlined three key initiatives. Knowing our customers better, simplifying our programming and execution, and working more closely with our franchisees as one Wendy's. In addition to these initiatives, we made the strategic decision to prioritize growing average unit volumes over net unit growth in our US business. As part of this strategic shift, we launched Project Fresh, a comprehensive turnaround plan to drive profitable growth and long-term value across our US system. Project Fresh is structured around four strategic pillars, brand revitalization, operational excellence, system optimization, and capital allocation. designed to attract new customers to Wendy's through more compelling marketing and to increase guest frequency by providing an exceptional customer experience, which increases AUVs, improves restaurant profitability, and creates value for franchisees, the company, and shareholders. We began discussing these initiatives with our franchisees earlier this fall, and we have received overwhelmingly positive feedback, a great reflection of the confidence in the Wendy's brand and our One Wendy's approach. Let me take a few minutes to highlight some of the specific actions underway. The first pillar of Project Fresh is revitalizing the Wendy's brand. This is about positioning Wendy's as the freshest and highest quality choice in QSR by celebrating what makes us stand out from the competition. This includes using the highest quality ingredients, like our 100% fresh, never frozen beef, our applewood smoked bacon, and our new barrel-breaded chicken tenders. It's about telling our quality story with a greater focus and relevance for today's consumer. To accomplish this, we're combining our internal expertise with an industry-leading consulting firm utilizing a proven, data-driven process to strengthen our brand positioning and enhance marketing effectiveness. This starts by listening to our customers. In October, we launched a needs-based customer segmentation study that is well underway. The feedback we gather from customers will clarify which attributes drive their purchasing decisions and help us refine how we deliver and communicate value across every touchpoint. At the same time, we are expanding the use of advanced data analytics to deepen our understanding of customer behavior. We now have visibility to how consumers behave both inside the Wendy system and with the competition, which will enable us to focus our media efforts on high-value audiences and allow us to adapt quickly to shifts in consumer behavior. The next two pillars, operational excellence and system optimization, are both focused on elevating the customer experience. Operational excellence starts with putting our customers first. Our investments in people, training, and hospitality are driving measurable results, with U.S. company-operated restaurants outperforming the system by 400 basis points in same restaurant sales during the third quarter. We're proud of this progress and are scaling these initiatives across the system to generate higher AUVs and deliver an even better customer experience. For example, we've enhanced our training programs, including additional training for all customer facing employees to improve hospitality and deliver exceptional customer experiences. This has supported higher customer satisfaction scores this year, particularly in accuracy and friendliness, two key factors that keep guests coming back. These efforts have also helped lower employee turnover in the company restaurants, building a solid foundation for consistent, high-quality service. We've made progress with our digital and delivery business, with key measures like conversion, satisfaction, and app store ratings all increasing in 2025, with corresponding declines in cancellation rates, missing items, and refunds. These improvements are the direct result of enhancements we've made to the customer experience. from the welcome journey in our app to using geolocation data to help with pickup location accuracy to DoorDash delivery skills to improve order accuracy. We still have work to do and are testing additional changes to create an even better experience for our digital customers, an important segment of our business with significant opportunity for further growth. And we're leveraging technology, including digital menu boards and fresh AI, to deliver more consistent, high-quality drive-through interactions. It's improving upselling and productivity, and while still early, the results are promising for both our teams and customers. The third pillar of Project Fresh is system optimization, which is about having the right restaurant footprint in each market to maximize profitability for our franchisees and deliver exceptional food and experiences for our customers. This is a significant strategic shift that we believe will drive stronger growth over time. Let me share some details on the process. We are working with our US franchisees to evaluate each and every underperforming restaurant in our system from both a financial and a customer experience perspective and developing action plans for how to improve both. For some locations, it's about making operational changes or deploying technology. For others, we're improving productivity by aligning operating hours to better match demand, particularly in the morning and late night day parts. In other cases, the solution will be to close consistently underperforming restaurants. These actions will strengthen the system and enable franchisees to invest more capital and resources in their remaining restaurants. Investments include new kitchen equipment to ensure the highest quality, best tasting food and technology upgrades such as digital menu boards to enhance productivity and give our teams more time to focus on hospitality. Consistent with what we've seen in our company operated restaurants, we expect these actions to elevate the customer experience, increase AUVs and improve restaurant economics. Also, closures of underperforming units are expected to boost sales and profitability at nearby locations. We're partnering closely with franchisees guided by a clear set of criteria to ensure a thorough review process. Together, we'll complete this assessment over the next several months with some closures expected to begin later this year and continue into 2026. We believe these actions focused on revitalizing our brand and elevating the customer experience will drive sustainable growth powered by the Wendy's core differentiators, high-quality food with fresh ingredients and authentic customer connections. And we are aligning our capital deployment, our fourth pillar, with these strategic priorities. In the U.S., capital will be directed towards initiatives that drive profitable AUV growth rather than net unit growth. Reflecting this focus, we've reduced our 2025 U.S. Build to Suit capital by approximately $20 million from the outlook we shared at the beginning of the year, and we expect to continue this approach in 2026. Internationally, expansion remains a top priority, and we'll continue leveraging Build to Suit investments to drive net unit growth in key markets, including Canada and the U.K. Turning to our third quarter results, although we are not satisfied with our U.S. sales, Overall performance was in line with the expectations we shared last quarter. Global system-wide sales declined 2.6%, driven by a 4.7% decline in U.S. same-restaurant sales, reflecting heightened industry competition and consumer pressure. As we shared on our last call, during the third quarter, we reduced programming complexity to focus on the most important initiatives. This included our Wednesday collaboration with Netflix, launching new beverages, and providing a relevant value to customers with our two junior bacon cheeseburger meal for $8. This offer includes two of our iconic and customer favorite JBCs with fresh, never frozen beef, four pieces of Applewood smoked bacon, hot and crispy fries, and a drink. I'm pleased with our more focused and disciplined execution in the quarter. In September, we continued this focused approach by preparing our restaurant teams to launch a new core menu offering. chicken tenders, along with six new sauces. Wendy's tendies debuted at the beginning of the fourth quarter, and as expected, customers loved them. Demand was so strong that some restaurants sold out even before the national media support, which fully launches next week. We're looking forward to continuing that momentum, and this is an encouraging first step as we look to reestablish our leadership position in chicken. This successful launch highlights the progress we've made in simplifying programming and strengthening execution across our system. It also reinforces the exceptional quality of our products and the improved operational execution across our system, supported by enhanced training and sufficient preparation time for our restaurant teams. It's a clear example of what Wendy's can achieve when we're focused and aligned as one Wendy's. Turning to our international business. System-wide sales grew 8.6% in the third quarter with growth across all regions. We also celebrated several milestones, including the opening of our first restaurant in Ireland and our second restaurant in Australia, which delivered the highest opening day sales in our history. This year in Canada, we remain on track to deliver our highest number of openings in the past decade. We also continue to strengthen our long-term development pipeline, having signed new agreements for more than 320 international restaurants year to date, including a recent agreement to open 50 restaurants in central Mexico. Mexico remains our strategic growth hub for Latin America, where our investments in local resources, supply chain, and marketing are laying the groundwork for sustained expansion across the region. International remains a growth engine, delivering 100 new restaurant openings and 77 net new units through the third quarter. Globally, we've opened 172 new restaurants through the third quarter and added 123 net units, reinforcing the growing strength of our global footprint. Wrapping up our third quarter results, adjusted EBITDA rose 2.1% to $138 million, and adjusted EPS was $0.24 per share versus $0.25 per share last year. We returned more than $40 million to shareholders in the quarter through dividends and share repurchases and over $300 million year-to-date, keeping us on pace to exceed $325 million for the full year, up more than $40 million from a year ago. Now, turning to our outlook. We are maintaining our outlook for full-year global system-wide sales adjusted EBITDA, and adjusted EPS. Additionally, we're increasing our outlook for free cash flow by $35 million to $195 to $210 million, reflecting a reduction in capital expenditures and build-to-suit investments, along with tax benefits related to the 2025 Tax and Reconciliation Act. Our strong free cash flow underpins our ability to fund investments in the business, and the company remains committed to our dividend and returning capital to shareholders. Finally, we are also maintaining our outlook for net unit development growth of between 2 and 3 percent. International development in 2025 is tracking in line with our prior expectation for net unit growth of over 9 percent. In the U.S., while we expect around 100 new restaurant openings for the year, we anticipate that our system optimization initiative could result in our global net unit growth coming in around the low end of the range. Before I close, I will turn it over to Suzy to provide more details on our third quarter results.