Wendy's Company (The)

Good morning. Welcome to the Wendy's Company earnings 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 fourth 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 fourth quarter results, share capital allocation priorities, and our 2026 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 discuss 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. Also, 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.

Thank you, Erin, and good morning, everyone. I want to begin by recognizing our franchisees, restaurant teams, and company employees for their ongoing commitment to the Wendy's brand. Together as One Wendy's, we are strengthening the foundation to deliver long-term profitable growth for the company and our franchisees. This morning, I'll start by discussing our fourth quarter results and full year highlights, then provide an update on Project Fresh, and lastly, I'll share our 2026 outlook before passing it over to Susie to talk through the financials in more detail. Starting with the fourth quarter, while results were in line with our expectations, we know that we have a lot of work to do to improve performance. With Project Fresh underway, we have the right plan in place to strengthen our U.S. business. As we shared on our last earnings call, we expected fourth quarter system-wide sales to be down significantly, and they were. global system wide sales declined 8.3% driven by our US business where marketing spend was down significantly as a result of front end loaded ad spending in 2025 and sales trends throughout the year. In addition to a tough comp with our SpongeBob collaboration in the prior year and our decision to shift the launch of our new chicken sandwiches into 2026 to ensure excellent execution. A bright spot for the US was the rollout of our chicken tenders and new sauce lineup which delivered strong customer satisfaction scores demonstrating the power of focused execution. Turning to our international business performance remains strong with system wide sales up 6.2% in the fourth quarter it's 21st consecutive quarter of growth. International expansion remains a key priority and we continued our momentum opening 59 new locations in the fourth quarter. New restaurant openings came from key stronghold markets such as Canada and Mexico, as well as new markets such as Armenia and Scotland, both of which delivered strong sales following their launch. From a profitability perspective, total company adjusted EBITDA was $113.3 million and adjusted EPS was 16 cents. Turning to our full year performance, 2025 was a challenging year. But it was also an important year, as we began laying the foundation to rebuild global system wide sales declined 3.5% driven by us same restaurant sales highlighting the need for change across many areas of our business, including heightened focus on both operations and marketing effectiveness. we're encouraged by the operational improvements throughout our US company operated restaurants, which are making a difference for our customers. These efforts have driven increases in customer satisfaction scores, including improvements in accuracy, friendliness, and overall satisfaction. And same restaurant sales at U.S. company-operated restaurants outperformed the broader U.S. system by 310 basis points. Many franchisees have already begun implementing similar improvements, and we expect adoption to accelerate throughout 2026. We also made significant progress scaling our digital business throughout 2025 with us digital sales growing 12.4% versus the prior year and bringing our full year us digital mix to an all time high of 20%. we've continued to make improvements to the Wendy's APP including a redesigned home screen and gamification features which drove higher customer engagement and record conversion rates. Next, our international business continued to be a strong growth engine throughout the year, delivering an 8.1% increase in system-wide sales with growth across all regions and 159 new restaurant openings. Net unit growth was up over 9% with 121 net new restaurants in 2025, marking a new record in the history of our international business, a clear sign that our international strategy is working and that investments in on the ground local resources, including regional franchisee recruiting, marketing, and the globalized supply chain are delivering benefits. We achieved growth in both existing markets like Canada and Mexico, as well as entry into seven new markets, including Australia and Romania, expanding our total number of international markets from 31 to 38. This is a meaningful proof point that the Wendy's brand resonates across the globe as we execute our globally great, locally loved strategy. We also secured new development agreements to build a total of 338 new restaurants that will drive international growth in the years to come. Turning to our cash flow and capital strategy, we generated $345 million of cash flow from operations in the year. We optimized our capital deployment to match our growth strategy by reducing U.S. build-to-suit spend by over $20 million in the year as we shifted our focus to profitable AUV growth. As a result, we delivered $205 million of free cash flow for the full year. Returning cash to shareholders also remains a key priority, and we returned $330 million to shareholders through dividends and share repurchases, up more than $48 million from the prior year. Lastly, we established our one Wendy's approach to the business and are actively working to strengthen the system by focusing on franchisee economics and improving the customer experience. Over the last year, we've learned a great deal. We've invested in deeper data and insights on our customers, and we've improved visibility to restaurant-level performance. We now have a clear picture of what needs to improve in our marketing, menu, and operations, and how to optimize the store footprint within our system. Project Fresh is our turnaround strategy to clearly address these issues, and we are implementing it with urgency. 2026 will be a rebuilding year for Wendy's. we are making the right decisions to strengthen our foundation for the long term. Project Fresh is structured around four strategic pillars, brand revitalization, operational excellence, system optimization, and capital allocation. Together, these initiatives will strengthen the business and accelerate our progress in the years ahead. Let me take a moment to share some of the specific actions underway. The first pillar of Project Fresh is revitalizing the brand to reestablish Wendy's as the highest quality choice in QSR, which centers around improving how we connect and engage with customers in more relevant and distinctive ways. Our focus this year is restoring relevance and rebuilding trust with customers through disciplined execution and marketing. To understand exactly what our customers are looking for, we completed a comprehensive consumer segmentation study that used a needs-based approach to identify the key drivers that influence when, why, and where consumers choose to eat. We've pinpointed where Wendy's quality positioning has the strongest appeal and are focusing our marketing and menu efforts on the consumer segments identified that represent the greatest growth opportunity. Our efforts are targeted towards their specific needs states while consistently reinforcing Wendy's leadership in food quality and value. We have translated these insights into a brand essence framework, a north star that serves as guiding principles for the entire organization. This framework clarifies how we set priorities, elevate our brand, communicate our value, and enhance the customer experience. Going forward, it will guide not only our marketing approach, but decision-making around menu and operational priorities throughout the organization, enabling better alignment and execution in everything we do. and keeping us focused on being squarely better than anyone else in QSR. Our learnings have already informed a new marketing and menu approach, which has significantly strengthened our marketing calendar for 2026. We're taking a balanced approach across core, innovation, and value offerings supported by improved messaging that connects with customers in socially and culturally relevant ways. In addition, we've established a more disciplined programming structure to ensure a steady stream of new news that keeps the brand top of mind and supports higher customer frequency while providing restaurant teams adequate time to train and execute with excellence. We're taking meaningful action to strengthen our everyday value offerings, centering on a new strategic platform as opposed to short-term promotions. In January, we built on the brand equity of Biggie and launched new Biggie deals as our everyday value architecture. A tiered structure at four, six, and $8 price points, This isn't a limited time offer. It's a permanent value platform to broaden our appeal, give customers more choice and capture incremental eating occasions like snacking at attractive price points. On the premium side of our menu, the segmentation study reaffirmed that Wendy's quality remains a core differentiator compared to competitors. And we're focused on highlighting that for more consumers. Quality leadership starts with our core menu. Our hamburgers are what Wendy's is famous for, and we will bring consumers focus back to what makes Wendy's different and special. Our brand was built on serving the best tasting hamburgers in QSR using fresh, never frozen beef, and we will reestablish that position in 2026. This starts with a new cheesy bacon cheeseburger launching next week, and you'll continue to see hamburger innovation as we move throughout the year. Additionally, We were pleased by the strong response to the launch of our chicken tenders, and we are continuing to build on that momentum by leveraging the quality of our product to expand our chicken offerings. Next week, we're bringing new and exciting news to our chicken menu with the launch of a chicken tenders ranch wrap. In 2026, we will prioritize meaningful innovation across both hamburgers and chicken, focusing on launches that restaurants can execute with excellence while reinforcing our quality positioning. In addition to a new menu approach, we are elevating the effectiveness of our marketing and optimizing our mix by allocating more spend towards digital, social, and streaming platforms. We are increasing culturally relevant marketing in these channels, leveraging our consumer segmentation insights and new data and analytics capabilities for more targeted messaging. Maintaining top of mind awareness is important for Wendy's. We've significantly increased our always on social engagement and that awareness will translate into traffic over time. As we continue to incorporate learnings to enhance the menu strengthen our marketing calendar and improve messaging and media effectiveness, we expect momentum to build sequentially as we move through 2026. Moving on to our next two pillars of project fresh operational excellence and system optimization, both of which are centered on elevating the customer experience and improving franchisee economics. Well-run restaurants drive sales and profitability, and our U.S. company-operated restaurants continue to serve as a powerful proof point that demonstrates the benefits of strong operational execution. Our U.S. company-operated restaurants outperform the overall system by 310 basis points in 2025, demonstrating that when we execute with excellence, our customers respond. Throughout the year, our operational initiatives drove improvements in customer satisfaction scores, including accuracy, taste, and friendliness. Operational excellence starts with what we call people activation, which is about having the right capabilities and experience in our restaurants. We completed this initiative across us company operated restaurants last year, which strengthened our company operated restaurant teams and we have been sharing these learnings with franchisees. we've made progress on rolling out enhanced training and have implemented a new learning management system specifically designed for restaurant employees. We are partnering with franchisees to extend the performance management strategy implemented at U.S. company operated restaurants more broadly across the system. This ensures accountability to a consistent cycle of planning, managing, and evaluating operational performance by restaurant teams to improve the customer experience. Our field operations team is central to scaling pupil activation and enhanced training across the U.S. system. Based on the benefits we saw last year, We're further expanding our field operations team in 2026, allowing them to spend more time in restaurants, providing greater support, coaching, and training in close partnership with franchisees. Our franchisees have responded positively to these operational initiatives, recognizing their direct benefit to customer satisfaction and sales. We expect further adoption of these initiatives to positively impact results as we move through 2026. We're also continuing to add capabilities to our restaurant technology that will make it easier for our restaurant teams to execute with excellence. We're focused on improving order accuracy, a critical driver of customer satisfaction, and this month we'll begin rolling out software enhancements to our kitchen order screens to streamline the preparation process and make it easier for our restaurant teams to deliver the right order every time. We're also completing an initiative to modernize our restaurant tech architecture enabling a substantial increase in product and promotion testing, reducing deployment timelines for new product launches, and allowing us to bring innovation to life faster and more efficiently across the system. Turning to system optimization, which is about having the right footprint in each market to improve franchisee economics and enhance the customer experience. By closing consistently underperforming restaurants, we are enabling our franchisee partners to increase focus on locations with the greatest potential for profitable growth. Since we announced this program in November, we have been working with our franchisees to evaluate restaurants on a store by store basis and make collaborative decisions to optimize performance across the US system as one Wendy's. Under this program we expect approximately five to 6% of US restaurants to close, including 28 restaurant closures that occurred during the fourth quarter of 2025 with the remaining closures expected during the first half of 2026. We're also working with franchisees to better align operating hours to demand, particularly for the morning day part. While many restaurants perform well at breakfast, we recognize it may not work in every restaurant, as certain markets have customer dynamics that do not support a thriving breakfast business. To strengthen franchisee profitability, we're providing more flexibility around operating hours for the morning day part, which allows them to reallocate resources towards the greatest potential for growth across daytime, evening, and late night occasions. This positions the morning day part to perform where it matters most delivering greater value for customers, while supporting franchisee profitability and we continue to believe that breakfast is an important day part for the US system moving forward, we will provide updates on our progress. The fourth pillar of project fresh is disciplined capital allocation prioritizing investments with the highest return opportunities, while sustaining our international expansion momentum. We are redeploying resources from US development initiatives towards driving profitable AUV growth. This includes investments in field team resources to better support operational excellence in our restaurants, restaurant technology to improve workflow, and digital infrastructure investments to improve our data capabilities that support marketing effectiveness and digital mix growth. We also remain committed to returning cash to shareholders through our quarterly dividend. This balanced capital allocation strategy ensures we're investing in the growth initiatives that will drive long-term value creation while maintaining our commitment to shareholder returns. We're acting with urgency to execute our project fresh turnaround plan. While turnarounds take time, we're making bold decisions together as one Wendy's that will create a better future for all stakeholders. Now turning to our outlook, 2026 is a rebuilding year. centered on the initiatives of our turnaround plan. Our outlook reflects the results of the decisions that we're making to strengthen the system and position the business for long term success. We expect improvement in our performance as project fresh initiatives take hold. Our outlook also reflects the impact of a 53rd week planned system optimization actions, including restaurant closures and the optimization of operating hours and the impact of challenging weather in the first quarter. As a result, we anticipate global system-wide sales to be approximately flat to the prior year and expect U.S. same restaurant sales to improve as we move throughout 2026. Moving to international, our international business remains an important growth engine and we're building on the strong momentum we achieved in 2025. We expect continued robust net unit growth and anticipate approximately the same number of international net new units in 2026 as in 2025. We anticipate adjusted EBITDA to range from $460 million to $480 million, which reflects the impact of system optimization and higher G&A expense compared to the prior year, driven by a reset of incentive and stock compensation. We expect adjusted EPS in the range of $0.56 to $0.60 per share. Finally, we expect free cash flow of $190 to $205 million. Before I close, I'll turn it over to Suzy to provide more details on our fourth quarter results and outlook. Suzy, over to you.