Wendy's Company Stock

Good morning. Welcome to the Wendy's Company Earnings Results Conference Call. [Operator Instructions] You may begin your conference.

Good morning, and thank you for joining our fiscal 2026 second quarter earnings conference call. After this brief introduction, Bob Wright, President and Chief Executive Officer, will provide a business update and then Steven Cirulis, Chief Financial Officer and Chief Strategy Officer, will review our second quarter results as well as our capital allocation priorities. 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 any questions following today's conference call, please contact me. I will now hand the call over to Bob.

Good morning, everyone, and thank you for joining our call today. Let me begin by saying how happy I am to be here. Wendy's is an iconic brand with distinctive attributes that have traditionally set us apart from our competition. We're at our best when we leverage those distinctions to the advantage of our customers, our franchisees and our business. Today, we are not performing in our potential. Traffic is down. Our value proposition has slipped and franchisee economics are under pressure.

That said, I've seen this brand at its best, and I know we can fix these issues. I'm incredibly optimistic about the power of the Wendy's brand and the future success we can create. I'll start by sharing a little bit of my background. I spent my entire career in the restaurant industry, including previously serving as Executive Vice President, Chief Operations Officer and International here at Wendy's. I've seen firsthand the strength of our franchise system, the capability of our restaurant teams and the power of our differentiated quality position. More recently, I served as CEO of Potbelly Sandwich Works. You'll hear from our new Chief Financial Officer and Chief Strategy Officer, Steve Cirulis in a few moments.

Steve and I worked together at Potbelly, where we drove meaningful sales growth, margin expansion, franchise unit development and created significant shareholder value. That experience reinforced an important lesson. Successful turnarounds are achieved through a focused strategy, guided by clear principles and executed with discipline and accountability. That philosophy will guide how we lead here at Wendy's.

Returning to Wendy's is especially meaningful to me. My first day with the company was over 28 years ago. In those days, I had the privilege to work alongside our founder, Dave Thomas. That experience shaped how I think about this business and help me understand the foundations of our brand from Dave himself. Wendy's is a brand rooted in quality in everything we do. We have exceptional assets a differentiated brand, a strong franchise system with an international footprint, talented restaurant teams and passionate employees. Those strengths provide us with a solid foundation on which to build.

At the same time, we're not executing to the standards we know we're capable of. Our quality differentiation has eroded. Our value proposition has weakened and we have not consistently delivered the experience customers expect from Wendy's. These issues have weighed on traffic and created pressure on the restaurant economic model, which is the heartbeat of this business. And this is reflected in our latest results. Today, I will briefly review our second quarter performance. My main focus, however, is to give you an assessment of where the business is today, followed by an outline of the initial strategic focus areas needed to improve performance.

And what near-term actions we will take to execute, then Steve will take you through the second quarter results in more detail. In the second quarter, global system-wide sales decreased by 6.5%. U.S. same-restaurant sales were down 7%, and international same-restaurant sales declined 2.3%. This sales decline drove lower adjusted EBITDA and adjusted earnings per share. These results reinforce the work needed to sharpen our execution across the system. Now there were some bright spots during the quarter. U.S. customer satisfaction scores improved and U.S. company-operated restaurants outperformed the broader system in same-restaurant sales by 280 basis points.

We also opened 21 new restaurants in the U.S. Internationally, system-wide sales grew as we continued to expand our footprint with 27 restaurant openings during the quarter. Now let me share my assessment of where the business is today. I've invested a significant amount of time visiting restaurants, speaking directly with our customers, meeting with franchisees, listening to our restaurant support center teams and talking to employees across the system. What encourages me most is the passion I see throughout the Wendy's system. Our franchisees and employees care deeply about this brand. They're eager to sharpen our strategic focus on what makes Wendy's great, drive historic levels of performance and return to sustainable growth in traffic-driven sales, profit and cash flow for the company and franchisees. This level of commitment gives me confidence in what we can accomplish together.

Recommitting to quality is essential to rebuilding our competitive advantage. Customers recognize it, franchisees believe in it, and it's at the heart of what Dave Thomas built. Wendy's quality heritage provides a strong foundation for the turnaround, but success will depend on translating that equity into a proposition that's relevant for today's fast-evolving QSR landscape. That heritage is a meaningful asset, but we need to be clear eyed about the issues weighing on the business today. Based on what I've seen so far, several themes stand out, which together have contributed to our recent performance. They include quality degradation, challenges around our value offerings inconsistent operations and marketing that is not driving customers to our restaurants. I'll walk through each of these in turn.

Wendy's has always been known for quality, fresh, never frozen beef, hamburgers made to order, bacon cooked in our restaurants and fresh produce prepared daily. But over time, we've drifted away from some of the standards that made Wendy's distinctive. While we've maintained core practices in some areas, we've let cost and efficiency drive decisions that weaken that differentiation. On value, the Biggie platform was built for value-conscious consumers, but the offering has become increasingly complex and value diluting, making it less compelling and less effective as a reason to visit Wendy's.

Operationally, our execution has become inconsistent and our performance management processes are not fully addressing the underlying challenges. Drive-thru is a good example where we need to better manage peak hour traffic, ensure restaurants are staffed appropriately for demand and equip teams with training, tools and systems they need to deliver consistently, and we need to sharpen marketing. We've been over-relying on a calendar of one-off promotions and collaborations rather than a consistent, relevant brand narrative grounded in our equity and what Wendy stands for.

All of these factors combined have created persistent traffic pressure particularly among our most frequent and loyal customers. It's going to take time, but these issues are within our control. In my conversations with franchisees, restaurant employees and customers give me strong conviction that attacking these issues head-on will yield results. In addition to acknowledging where we are and how we got here, turnarounds also require deep understanding of what needs to be done to improve performance.

Next quarter, we'll share more detail around the specific actions we're taking to drive our turnaround. But I can tell you already, we've aligned to 5 areas we believe are most critical. First, strengthening our menu with quality food at a compelling value. We win when we have fresh, craveable food that our customers identify as distinctively Wendy's. We will rebuild the menu at the ingredient level at the menu item level and the category level while also addressing the menu price architecture that brings value to our customers; second, distinct branding and marketing that drives demand.

We are one of the most recognizable brands in the industry, and we need to make our messaging, media and creative driving meaningful connection with our customers and drive traffic to our restaurants. Third, driving operational excellence that delights customers, we must set clear performance standards, establish the processes and procedures needed to meet them, provide training that enables every team member to execute consistently and ensure the organizational structure supports our restaurants and reinforces our commitment to excellence. Fourth, creating a digital experience that builds frequency. There are significant opportunities to improve analytics, customer-facing digital assets, fully integrated restaurant technology solutions and our customer loyalty approach along with the integration with third-party aggregators.

Lastly, we must ensure our most visible and prominent brand asset, our restaurants are leveraged as an engine for growth. Ultimately, that means getting back to market expansion and unit growth domestically. More immediately, our focus must ensure we have compelling 4-wall operating economics and a consistent deployment of high-return investments at existing restaurants. We must also have a franchise system that is well capitalized and poised for growth. This applies to every restaurant in the system, whether company or franchise owned.

Now in addition to adding Steve to the management team, I've already invested in critical professional services and utilized the expertise of several outside brand, business and strategy resources. This has been beneficial in accelerating the strategy development and organizational development work to this point, and it will be of great value in compressing the time to impact. Equally as important to developing our strategies having the right structure and talent to deliver upon it going forward. This means ensuring the organization is aligned and able to deliver on these strategic focus areas with meaningful impact.

In some areas, that means enhancing existing capabilities. In others, it means building new capabilities that are essential to the work ahead. We've already started looking at necessary restructuring and reorganization efforts, and I look forward to sharing more details with you as they develop. I'll be closely engaged in key decisions across the organization and ensure we are moving with focus, speed and accountability. In addition, we need to ensure we have the right level of funding for our strategic initiatives. That may include targeted investments alongside our franchisees, technology that elevates customer experience and improves efficiency, restaurant investments or acquisitions or actions that strengthen the balance sheet.

Our decision to reduce the dividend creates additional flexibility to invest in initiatives to support the turnaround and create sustainable long-term value for shareholders. I look forward to sharing more details on those strategic initiatives and the funding of our investments in them soon. We are committed to providing a full strategic plan by our next quarterly update. We're in the early stages of this work, and meaningful change won't happen overnight. What you should expect from us is transparent communication and measurable progress that builds over time. We'll measure our progress through the indicators that matter the most, including traffic, customer satisfaction, franchisee economics and return on the investments we choose to scale.

You should expect to see clear connection between the actions we take and the operating metrics and financial results we deliver. That's how we'll measure success, and that's how we expect you to measure us.

Now I'll turn it over to Steve to discuss the quarter and our financial outlook and then come back with some final thoughts.

Thank you, Bob. Good morning, everyone. I'm honored and excited to be here for my first earnings call as Wendy's Chief Financial Officer and Chief Strategy Officer. I have experience with turnarounds and transformation, and I look forward to partnering with Bob and the team to strengthen Wendy's performance and return the brand to growth. I'll begin with our second quarter results and our decision to withdraw our full year outlook, then touch on our capital allocation and balance sheet priorities before turning it back over to Bob.

Our second quarter performance fell short of prior expectations and reinforced the need for a thorough revision of the path forward. Global systemwide sales declined 6.5% on a constant currency basis, primarily driven by U.S. same-restaurant sales, which declined 7.0% and the impact of 289 U.S. restaurant closures in the first half of the year. The decline in U.S. same-restaurant sales was driven by a 12.5% decrease in traffic, which included the impact of less discounting and reducing or eliminating breakfast operating hours at certain locations, partially offset by a 5.6% increase in average check.

While our new product innovation and collaboration with Dominion and Monsters movie delivered average check benefit, traffic did not increase as expected. The U.S. business did see sequential improvement in same-restaurant sales of 80 basis points from quarter 1 to quarter 2 this year. International systemwide sales grew 3.4%, supported by continued new restaurant development. This was partially offset by softness in same-restaurant sales, which declined 2.3%, primarily driven by a challenging consumer and competitive environment in Canada.

Excluding Canada, international sales grew 8.6%, including positive same-restaurant sales. Turning to the company P&L for the second quarter. Total adjusted revenue was $443.2 million, a decrease of $6.4 million, down 1.4% compared to the prior year. This was primarily driven by lower franchise royalty revenue and lower rental income. These were partially offset by higher company-operated restaurant sales following the acquisition of franchise-operated restaurants during the third quarter of 2025.

Global company-operated restaurant margin was 13.6% for the second quarter and U.S. company-operated restaurant margin was 13.8%. U.S. company-operated restaurant margin declined compared to the prior year, primarily due to commodity cost increases of approximately 9%, including both continued inflation in beef prices and investments in upgrading our products, a decline in traffic and labor rate inflation of approximately 4%. These were partially offset by higher average check and labor efficiencies.

Adjusted EBITDA was $124.1 million, which was down $22.5 million versus the prior year. This was driven by lower franchise royalty revenue, an increase in general and administrative expense a decrease in U.S. company-operated margin and lower net franchise fees. Adjusted earnings per share was $0.18 in the second quarter. Moving on to capital expenditures and free cash flow. During the second quarter, we invested $26.0 million across capital expenditures and restaurant development. Capital expenditures included $8.3 million in technology initiatives including enhancements to the user experience and enabling more targeted marketing within the app.

We also invested $12.8 million in restaurant development, including the build-to-suit program. Turning to free cash flow. We generated $120.3 million of free cash flow through the first half of the year, an increase of $10.8 million versus the prior year. The increase was primarily driven by a decrease in cash taxes capital expenditures and investments associated with the company's franchise development fund, partially offset by lower net income adjusted for noncash items.

Moving on to capital allocation and our balance sheet. Our priority is investing in the key focus areas Bob described earlier to create durable performance improvements. As we continue to develop our strategic plan, we will provide more detail on how that funding will accelerate the turnaround. Every dollar of capital will be evaluated against 1 question. Will this materially improve traffic, restaurant economics or long-term shareholder value. On shareholder returns. Today, we announced a quarterly dividend payment of $0.07 per share. While we do not anticipate repurchasing shares in 2026, future buybacks will remain a component of our capital allocation framework as appropriate.

We have approximately $35 million remaining under our existing authorization, which expires in February 2027. Turning to the balance sheet. We ended the quarter with approximately $380 million in cash and a net leverage ratio of 5.0x. Given current performance, we expect leverage to remain elevated in the near term. As we improve operating performance, leverage should trend lower over time. Later this year or in early 2027, we anticipate refinancing approximately $430 million of debt that matures in March of 2028. With the second quarter behind us and our attention directed on the strategic focus areas of our turnaround, let me spend a moment on what investors should expect.

The trajectory of the business in the first half of the year suggests similar sales performance in the back half of the year. Traffic in July was consistent with second quarter trends. And as a result, we expect continued traffic headwinds to impact our ability to return to year-over-year system-wide sales growth in either the third or fourth quarter. We expect continued pressure on company-operated restaurant margin and adjusted EBITDA in the second half of the year from sales deleverage, full year commodity inflation of approximately 5% to 6% and a step up in G&A driven by investments in our people and in professional services in support of our turnaround plan. This will also pressure adjusted net income as we work to refine and deploy elements of our plan.

Traditionally, the dividend payout was 50% to 60% of adjusted net income. Today's dividend announcement implies an annualized rate slightly above this range for the year. As noted in our press release this morning, the company is withdrawing its 2026 financial outlook. As a new leadership team, we are fully assessing the business and our opportunities within a comprehensive turnaround plan, including the optimal deployment of capital. At the same time, we are continuing to take actions to improve performance with a focus on strengthening our core value perception, elevating restaurant operational performance and enhancing the digital experience for our customers.

Before I turn the call back to Bob, I want to emphasize that we are approaching this next phase with an objective view of both the challenges and the opportunities ahead. As we move forward, our priorities will be maintaining financial discipline, making thoughtful investment choices and supporting the actions needed to improve performance across the system. My role in this organization is to bring these disciplines to life, both as we plan strategically and as we execute on behalf of every stakeholder in the business.

With that, I'll now turn it back over to Bob.

Thank you, Steve. As I said, Wendy's is an iconic brand built on quality with talented people, committed franchisees and a strong foundation to build from. At the same time, we have been clear today that our performance is not where it needs to be. We have plenty of work ahead, but I'm confident we are focused on the right priorities and taking the decisive actions needed to drive meaningful change and restore our performance. We've been deliberate and meticulous in our diagnosis to ensure we have a deep understanding of those issues. .

We've already begun taking the right steps to shape the path forward on a turnaround and have identified 5 key strategic focus areas that will support growth and value for our franchisees and shareholders. You can expect us to communicate transparently, execute with discipline and accountability and work to earn your confidence through consistent, measurable progress over time.

Before I close, I want to thank our employees, franchisees and restaurant teams for their continued commitment to Wendy's and for the important role they play during this time. Their feedback partnership and willingness to confront challenges directly are essential as we work to turn around the business.

With that, operator, I'll turn the call over to you so we can take questions.

[Operator Instructions]

Your first question comes from the line of David Palmer with Evercore ISI.

Thanks for all the detail in your opening comments, Bob. A lot of us remember you from happier times at Wendy's, and I know you have a great reputation, especially in the system and that's obviously a great start. But investors are probably also thinking this is the third CEO in about as many years and the challenges are much different than the last time you were there. So could you perhaps give a little bit more detail on why you think a turnaround can happen now and under your leadership? And I'll have maybe a quick follow-up. .

Sure. Thanks, David. Good to hear your voice again. Look, the thing I would say about that confidence measure is that I think there's something we have to really understand about the restaurant business and restaurant companies in general. And they are so dependent upon execution. It's a very execution dependent industry. From the customer experience all the way to the support center, every level of the organization. It isn't about developing a strategy, understanding what needs to be done, it's also about knowing how to get it done. This is my 40th year in the restaurant business. This is all I've ever done. I started with Wendy's 28 years ago, and I know this brand, like I mentioned -- I knew Dave Thomas before he passed.

The other thing is that I have turnaround experience. Steve and I worked together on a very significant turnaround of Potbelly here over the last 5.5 years. And I think what you heard in my remarks is step 1 is making sure that you have a clear diagnosis of what's going on. And then being clear and candid about what those issues are and developing a plan that will address the core issues that will turn that performance around. We outlined those 5 strategic focus areas. And I'm confident that with the brand that we have and a clear understanding of the issues that are facing us that I know we can win.

I meant to remind told me a long time ago, when you have a strong brand and you have a strong culture, you have the opportunity to do something really special. It becomes a performance issue. And that's what we're facing. And that's what we try to outline very clearly is the the performance matters that are facing us and the things that we own are within our control. And I'm just delighted to see when I came back that we still, in fact, have every bit of that strong brand at the core and the foundation, whether it's our employee base or the franchisees that make up our culture is still intact, and we can build from that.

I just wanted to ask you about just on the marketing side, often these these turnaround flywheel franchise turnarounds start with innovation, marketing, sort of that jump start that kind of you can build upon and getting some operational wins and bigger and bigger asks of the system after that. How is the pipeline of innovation and marketing as you see it today? Are there any near-term wins that might bend the trend perhaps in the second half? And I'll pass it on.

Yes. I think in my comments, you'll hear me talking about where I think we stand because of the efforts that we need, and it's not just marketing. I know you know that. It's really branding and marketing that draws people in, and I'm not satisfied with how effective our marketing has been. I love the part of your question, though, is what is it that you're marketing? Is there a breakthrough in the world of product innovation or even the core menu. And I know we'll talk about this in the coming weeks and months and years, but that is what we're so focused on in that first area of focus is having a menu that's rebuilt at the item level and at the ingredient level and at the category level that breaks through to the customer, it is a very competitive environment out there.

We can just do what we've always done better. We do have to innovate, and we have to lead in the things that are core to the brand. We also have to stay close to home. Our marketing, David, has been -- our calendar, frankly, has been somewhat focused on promotions and collaborations without the continuity of the brand building that goes underneath it and a story that the customers really kind of connect with and resonates with them that that has them drawn back to Wendy's. That's still ahead of us, but I think we've got everything we need at the core of the brand to be able to do that.

Your next question comes from the line of Brian Mullan with Piper Sandler.

Thanks for the prepared remarks. You talked about the quality differentiation has maybe eroded. I'm wondering if you could just unpack that a little bit. How much do you think is the actual quality differentiation with the product itself, either on a stand-alone basis versus peers? And then maybe how much of that is just a marketing or a messaging issue, which you were just talking about, but whereby maybe just the consumer isn't as aware of the quality of Wendy's and the consumer should be. Any comments on that would be helpful. .

Yes. Look, it's always a multi-variant equation because what we say about our brand, with our marketing and how we bring that to life in a compelling way is really important. But I do want to be clear, the quality comments that I made are related directly to the quality of our food. And we don't have anything to share today to kind of talk about what we've already done or what we're working on, but in the diagnosis phase, you saw me talk about ingredients, and you heard me talk about that.

There are issues that we've created for ourselves. There are decisions that we've made in the interest of cost and efficiency that maybe have degraded a little bit of our quality. There are certainly some execution elements to that. And there's also the innovation component that David asked about, are we bringing to life the food in the very best way possible. Those are things within our control, though. And I think that's the beauty of what we're facing today is we can take advantage of the core elements of the Wendy's brand that have always been there. fresh, never frozen beef, prepping vegetables inside our restaurants and handmade sandwiches that are made to order every single time a customer orders them.

Those are things that we still own. I do think, to your point, we can leverage them far more than we have, and we can focus on the operations systems, processes and oversight and leadership that helps execute it more consistently. But the customer notices when you make a few changes, and we need to make sure that we're putting that experience ahead of everything else we do when it comes to quality.

Your next question comes from the line of Danilo Gargiulo with Bernstein.

Great. I wanted to ask about the U.S. system and the number of stores that are currently available at end I think you mentioned that in the near term, there is an assessment still in place. I'm just trying to understand whether you think that the system is in a healthy place right now in terms of the number of franchisees that you have, the number of unit per franchisee that you have? And should we be expecting some additional rationalizations as part of the turnaround? Or is the portfolio already optimized and we're going to be growing from this moment onwards?

That's a great question because as we talk about all the things we plan to do strategically with the brand. We have to do that in the context of how healthy the system is and our capabilities to execute against those things. Let me start by telling you that I mentioned, I've spent a lot of time in the field. I've been with a lot of franchisees in these few short weeks as well as the Board and employees and analysts and we met some of you guys in New York.

And this is really personal to me. This is not a system filled with private equity ownership. It's a field with family ownership of our businesses. And these are people that I know, I know their families, and I know they're personal situation. So the health of this system is a personal matter for us and understand that the health of the franchisee certainly is pressured right now because of the sales declines that we've had. You guys know this business. When you see some of the sales declines. It's going to show up in restaurant profitability and it's going to pressure the franchisees and create a little bit of fragility there.

But when it came to closures, I think what you heard in some previous quarters was closures addressed more as a program for the system. And you'll see us take a much more targeted approach. We're going to come alongside our franchisees if they need our help. And if we need to use closures of a few restaurants here and there to make a portfolio a little bit healthier and help that franchisee get to the right place. Maybe a trade area has moved on, and it's no longer a business that's viable going forward, then we'll certainly help them make that decision close a restaurant and get their portfolio healthier.

But overall, the health of the system is tied to the health of the brand. And I'm just thrilled to say that franchisees are invested in the work that we're doing. They're excited about the work that we're doing, and they're certainly looking forward to the progress on the top line. Because at the end of the day, nothing cures to financial health in the restaurant system like top line growth. Everything we're doing is going to be pushing that to the top of the list, and that will help everybody.

Your next question comes from the line of Margaret Ma Binstock with Wolfe Research.

I just wanted to ask if you could walk us a little bit through how you saw comps progressed through the quarter on a monthly. And then relatedly kind of what you're seeing across the different income cohorts? Are you seeing the gap between the higher and the lower income consumer widen or what you're seeing there?

Sure. Thanks, Margaret-May. It's great to meet you in this environment. stepping into this role and seeing the progression of sales in the quarter. It's kind of an interesting dynamic, right? The early part of the April period, we saw same restaurant sales, I should say, in the U.S. dropped 6.4%, which was kind of in keeping with the trend coming out of P3 or March. I think the challenge though was as we moved into May, we saw that actually slip back to negative 7.5% same-restaurant sales in the U.S. system. Some of that due to some promotions from the prior year, which like we had a $3 son of Bankinter promotion, which was pretty powerful, and it was a little bit of a tougher challenge to lap that.

And then as we moved into P6, we expected and we thought we would see some improvement in the progress of the business. This was -- we had launched our new chicken sandwich platform. The P6 period saw us launch our Minions and Monsters promotion. And honestly, those did not perform. They did not drive the traffic that we expected. They pushed a little bit on average check. But the real challenge for us has been that underlying traffic trend. So while comps bounced around a little bit, negative 6.4%, negative 7.5%, back to negative 7%, the traffic trend is the one that we pay the most attention to. And we had negative double-digit traffic each period of the quarter, and it did not improve over the quarter, and we ended it with a negative 12.5% as we discussed.

Your next question comes from the line of Dennis Geiger with UBS.

Great. Bob, recognizing you probably don't want to give any kind of rigid time line at this early juncture. But can you help us think a little bit about how you think about timing or cadence of of some of the turnaround plan implementation across the 5 key points of focus that you outlined? And generally, again, from your experience, how you think about where traction comes first versus what takes a little bit longer, generally speaking? .

Yes, happy to. Hopefully, what you see and the fact that we're having this conversation after only a few weeks is we are moving with urgency. And we're pulling out all the stops to make sure we have the right support to be able to get this work going and get the strategy moving. The way that we like to operate, when I say we'll start with just Steve and I, but that applies to the team, too, is that establishing that strategy is the first step. And frankly, you all should recognize those areas of focus is critical to any restaurant company, but especially to us in the current situation that we're in.

What we're working on now already is the strategic initiatives that underpin those areas and those specific things that we will take action on with an expectation of what it will cost to invest in those things and what our expected returns on those things will be. Now you often want to do the biggest thing first, but it may have a little bit more time to develop that bigger thing, but we'll go ahead and take advantage of the quicker wins in those strategic initiatives as well.

Our franchisees expect that -- we know that the investors expect us to do that, and our employees are counting on the same thing. There's a lot of energy around action in the organization. And I think a lot of enthusiasm for what those things might be. We committed to you that when we come back to have our next update, we'll have the full strategy. I think you'll have even more clarity than we've given you today. We hope to to give you quite a bit today, but we'll give you some more.

And then the other thing you can count on is for us to develop a pattern of talking about what we are doing, not what we will do. I candidly, it's just the way I like to manage the business is once we start working on something, we're going to prove that it's worth it, that the investment makes sense. The returns are there. And when we're ready to scale, that's when we'll start investing that time and communicating those things to you. And it's just a cadence that comes for a long time to come. That's our process for operating a strategic plan. Yes, in a turnaround situation like I've most recently done, but frankly, on an ongoing basis like successful companies do year-on-year on year-on-year, that is what we're entering today.

Your next question comes from the line of Brian Bittner with Oppenheimer & Co.

And Bob, for those of us that perhaps weren't as close to monitoring your success at Potbelly's over the last 5 years. Can you just maybe touch on or help us understand if there's anything specific from a skill set perspective or an experience there that benefited you at Potbelly that you can utilize here at Wendy's that's worth talking to.

And secondly, just as it relates specifically to improving the quality degradation, which you pointed out, is that something you have experienced doing? Can you help us understand the steps and how you actually take that idea into action and actually improve the quality of the product?

Absolutely, Brian. Thanks for the question. Yes, and I understand for a smaller company, you may not have a lot of that story. But Look, there are some similarities to the starting place there. First of all, it's a great brand, had been off track for some time, years of traffic losses and yet a culture and a connection to the customer that was if I can say this, we're kind of rooting for it to be its best again. There were significant issues with quality and value when we walked in the door there as well. And this strategic approach that you're hearing us discuss today is the same approach that was used there.

I think you'll note Steve's titles, Chief Financial Officer and Chief Strategy Officer. And he was there already when I walked in the door. So this approach is similar. You've got some similar foundations. Let's be clear though, every brand and every system is different. There is no one size fits all, but I like your question about lessons. You asked specifically about some of those learnings. It was clear to us that the decisions of the past around food quality, food portions, ingredients, sizes, sandwiches, the lineup of the sandwiches, how they're presented on the menu, the other add-ons, the price architecture of the menu and the promotional aspects of the way that was delivered needed so much work that, frankly, there, we had to rebuild the menu from the bottom up and did so successfully.

The results were fantastic. We put over 40% more sales on the top line inside of 5 years. And I'm not promising that here, but I'm telling you that customers respond to a great brand that recognizes the problems they've created for that relationship and they begin to reward you for it. And I think that's some of the stuff that we can do here. It is a significant opportunity for us for our franchisees.

One of the great things about being here at Wendy's, which is different than Potbelly. We expanded through franchising there. Here, we have a mature and strong and a storied generational franchise system who understands what we're talking about and can be a massive advantage for us as we start to move forward and make many of these improvements.

Your next question comes from the line of Jim Salera with Stephens, Inc.

I appreciate all the detail on your thoughts around where the business sits today. I wonder if you can give us some thoughts about managing some of these changes with pretty challenging macro backdrop and if that maybe shuffled around the rank order of your priorities about what to address first to get the trends to start to bend towards the right direction. .

Yes, absolutely. Thanks, Jim. We have to take a near-term, long-term approach to our strategy. The strategic initiatives are going to be year-long, multi-year-long things that we need to do to build the business. And I think if we're too reactive to the current situation with the macros, then we can find ourselves off strategy. I think the danger of being eager to respond to the matters of the day, it is some of what maybe we've been dealing with here recently. So of course, we have to be aware of those things.

I think one of the big ones that you see in the news and other brands talk about it, we certainly talked about where we thought we were losing some of our customers. Customers today are extremely value conscious. But I think it's important that you all understand, we think about value differently. I think traditionally in the QSR space, you would think of value as that bottom right-hand side of the menu board, where it may even have the title value menu, and that's where value was compartmentalized.

And today's consumers, especially as the broad-based pressure on consumer spending is what it is, are looking for value everywhere. And not to go back to the Potbelly question, but that's one of the things we understood very clearly there is that having value across all of the offerings, what you get for what you pay equation must make sense to the customer. In fact, we established sort of a tiered approach to and we'll be using that same thinking here at Wendy's. This notion that the menu itself, the core menu, not the bottom right-hand side of the menu, but the core menu has to be infused with what I call intrinsic value.

You should buy a double with cheese and medium-sized combo and walk away from that meal and you take that last fight of that double with cheese and feel like that was a good deal. That's something that I got what I paid for maybe a little more as well as when you buy something off the biggie platform. And so there's this intrinsic value in the core menu. There's the everyday value in the bottom right-hand corner of the menu, if you allow me that lingo to compartmentalize that a little bit.

Today, for us, it's the biggie platform. And then there's the promotional value that you deliver with promotional activity in the digital world as well as sometimes promoting things on television nationally. All 3 of those have to work. I know I've straight deeper into value. But your question about the customer is at the root of that. That's what customers are looking for, whether they're super pressured because gas is $5 a gallon or they're feeling a little flush because it's $3 a gallon or whether it's the day after they got paid or it's 2 days before they got paid. They have to know that they can count on their relationship with your brand to be there for them in the way that they need.

And I think you can see where those various consumer need states fit with that overall approach to being there for them. So it is our strategy, but I think it will apply to the pressures of the day for the consumer as well.

Your next question comes from the line of Lauren Silberman with Deutsche Bank.

I think you mentioned the potential for targeted investments. Can you expand on this and whether this is more like franchisee support through royalty relief, investments in the assets or more about marketing? And then the second part, if I could follow up on Daniel's question. Wendy's already previously announced plans to close, I think, 5% to 6% of the store base. Do you see potential for additional closures above what's already been identified?

Yes, absolutely, Lauren. Thank you. Look, we're not going to make a lot of news on those targeted investments today. I think the main thing that we wanted you to hear is that we see in these strategic focus areas, opportunities to push this business further than it's ever been. And that's going to take investment. Some of those targeted investments will be in the form of initiatives, things that we will do with and on behalf of and alongside our franchisees to make our restaurants more profitable to grow the business at the restaurant level to maybe enhance or expand or add something to what we have as a restaurant brand and facing the consumer.

Those things will be those strategic investments. Those are the things we'll work on to prove the model and come to you when we're talking about scaling those things. There certainly will be some unique and specific situations with franchisees. I mentioned earlier, we may have to come alongside franchisees. And and do some things to help them with their business. The closures question that you followed up on is an example of that. We will look to fill that toolbox that we'll use to help franchisees when they need us, and that may include some investments.

You heard me talk about the restructuring and the reorganization. Traditionally, here at Wendy's, restructuring has meant job cuts and pulling resources. And that isn't always the case. When I think about -- the first thing that follows a solid strategic plan is the structure of the organization to be able to deliver on that strategic plan. And we are going to need additional capabilities. We're going to need beefed up capabilities in certain parts of the industry or business, I'm sorry. And we're going to need additional talent in places that we may not have talent today. So those will be investments in the business, all of which though will have to stay in the test of the returns that they provide for us and for our franchisees.

On the closures, again, I think what I said was, and I know that is really the state of affairs here is that it really was presented to you all as a program. We've decided we're going to close or need to close a certain number of locations that was a fairly large percentage Will there be additional closures? I'm sure there will be additional closures. I just put it on the table in that targeted approach that we would use when we're working with franchisees to help get their portfolios healthy.

But not as a matter of programmatic closing just to shrink the brand. It's all about creating brand health, and it's brand health at a level that makes the most sense for the owners, whether we're the owner or the franchisees, the owner and where we connect with the customer. The trade area has moved on and it is a financial drag on that portfolio, then we're going to support the closing of that location for the health of the system.

Your next question comes from the line of Chris Carril with KeyBanc Capital Markets .

Thanks and thank you for all the detail and looking forward to the evolution of the strategy here in the coming quarters. I did want to ask about breakfast and your assessment so far and the viability of the daypart for the broader system. I know you mentioned pressure on the comp in the 2Q from reducing or eliminating breakfast operating hours at certain locations. So curious how you're thinking about breakfast as part of the business going forward here? And then any detail on where breakfast sales mix is today would be helpful. .

Thanks for the question. This is a big one. Breakfast is important to us, and it's a complex topic that that frankly, we're still analyzing very deeply. It can't be disconnected from the broader strategy and the work that we're doing there. But let's sort of baseline everything. The large majority of the system continues to serve breakfast. We did have some opt-out activity. And frankly, it was very helpful for some of the franchisees that took advantage of that opt out because it was a drag on their business, just like I said, that about the tool of closing.

For some franchisees, the opt out was really helpful and provided a little bit of a relief valve, but it's still a key area that's under evaluation for us. And as I said, we need to get our footing on the remainder of the strategy before we start deciding exactly where breakfast fits into that. Steve can provide some color on the specifics of what it meant for the system sales.

Sure, sure. Look, overall, the pressure to same restaurant sales from the daypart itself was about 120 basis points. And you asked the contextual question of what's the sales mix for breakfast. For us, it's about 5 -- between 5% and 5.5% of overall sales. Now the specific actions around opt-outs impacted the same-restaurant sales for the quarter by about 70 basis points. So as Bob said, this is a component of our overall approach to thinking about the strategy. We want to make sure that we're looking at this as a brand, as a complete menu in the context of the consumer, the franchisees and where we think growth is going to come from in the years ahead.

Your next question comes from the line of Peter Saleh with BTIG. .

Peter. Are you there? We lost him [Operator Instructions]

Your next question comes from the line of Sarah Senator with Bank of America.

A follow-up on the point you made about intrinsic value. If you were to sort of diagnose the reason customers aren't walking away thinking something was a good deal? Is it because the quality, the service? Is it about production, I guess, how much of this is an operational issue that needs to be addressed as you think about that, is there an opportunity, whether it's for kind of process engineering or technology.

I guess I was surprised that the chicken sandwich relaunched didn't that platform didn't move the needle on traffic because it does seem to address kind of the quality issues that you mentioned at the beginning very directly. So any thoughts on how much of this can be fixed through just -- I don't know if it's listening to franchisees or operators and improving the process.

Yes. You sound like an operator, Sara, it is all of those things, honestly. But obviously, we can't throw everything into this and solve it. So we try to work on these things in their component parts, recognizing that they all come together for the value equation for the customer. And you are 100% right. That's what intrinsic value is how it is derived. Look, there have been some decisions that have been made on the menu that I think we can address on the core menu that we have today and then on the innovation of the core menu that we have, that can bring additional excitement and enthusiasm towards those products. Price is a significant component of that. People have this mental model based on all of the consumption they have in the restaurant space about where that price neutrality seems to be from a competitive perspective, we have to evaluate that, and we have to have a pricing architecture for the menu.

So not only do we fit well with our competitive set, but even reference pricing on our own menu always has to make sense, and that's an area of opportunity for us. So we will be addressing that as well. I did mention the operations inconsistency as a challenge. As soon as we lose consistency as a brand, you start to lose confidence and trust really in the minds of the customer that they can get the overall experience that they're looking for. The execution comments I made when David asked his question, I think these really come to life in this area because every one of these elements, some of it is brand, it's design, it's sort of the menu price architecture, the menu itself, the ingredients, we control quite a bit of that as a brand.

But at the end of the day, even for digital orders, and I say this all the time, even a digital order that's placed on your phone and picked up or delivered or whatever. At the end of the day, it's a human being making food for another human being that's made fresh when they order that's going to be consumed. Every single experience ends analog, not digital. And the digital business is promising that also. And so there are tools and systems and processes as you heard me talk about training.

Candidly, I think we have a lot of great work we can do in the area of training. It could be one of our elements of creating additional consistency and really tightening that consistency gap on execution. You may not be satisfied with my answer is kind of yes, all of the above. It is all of the above, but the real secret is to unpack those individually and attack each one of them individually to their very best. And then they come back together for the customer and they start to come to life. So that's kind of how we think about it.

Your next question comes from the line of Brian Harbor with Morgan Stanley.

This is Hilary Lee on for Brian Harbor. So I just want to kind of ask how would you compare your plans to like the prior Project Fresh? And do you kind of see it as a continuation or expansion or just kind of a complete overall of it?

Yes, good question. We're not talking about Project Fresh. It's really not a continuation of it. I think you'll recognize some elements of what was discussed in Project Fresh and in these areas that we're focused on. That makes sense. I mean there are certain sort of indisputable trues that you have to battle for in the restaurant space and here at Wendy's, too.

But there was some work that was done on the brand. I think previous leaders talked about a partnership with an outside resource that was helping us kind of diagnose what was going on at the branding level. And I've tried to pick up everything that we had during this early diagnosis phase and understanding the situation that we're in, including Project Fresh, including some of that early work that was done. But this is our strategy. This is a -- this is a sort of a declarative position on the things that are going to be the most important to strengthen this company and strengthen the brand and restrengthen our franchisees going forward. So I think you can draw a hard line between the 2.

Got it. And I guess just as a quick follow-up. Could you share any of the key talking points you've had with franchisees? .

That's the beauty of this conversation. We've been doing a lot of work with franchisees in market. We've had them in. In fact, we've got all of our franchise leadership together next week to actually terripart this strategy and start working on those initiatives that I told you about. They are fully engaged. I mentioned my personal relationships with many of the franchisees, so you can only imagine the number of individual phone calls I've had, text messages and communications. This goes up as well.

And our first Board meeting together was just a couple of weeks ago. And I think one of the things that is unique about our situation is we're finding very close strategic alignment with the Board, with the management team, with our employees, with our franchisees, these are the things we need to work on. This isn't just something that was developed and delivered. It was something that we developed in partnership with those, including the franchisees. And sure, they have a lot of feedback, but they're thrilled to know that we saw the business the way we saw it, and we spoke openly about it and that we've developed these 5 areas to focus on.

Your next question comes from the line of Peter Saleh with U.S. Bancorp BTIG.

Hey, guys, can you hear me okay? .

Yes. Thanks for jumping back in Peter.

Yes. No, some technical difficulties. Bob, I wanted to get your pulse on the image of the system as we sit today. How do you feel about the look and feel of the restaurants? Do you feel like there's more CapEx needed to get up to speed and up to -- up to par with the rest of the industry. Just curious if you have any thoughts on remodels and how you're thinking about that going forward? .

Look, I mentioned that as the 5th area of focus is our restaurants, our #1 asset have to be a source of high-return investments that we can make in the system. I don't want you to read into that, that we've got a remodel program we're going to unveil. I think in my visits in the field, I've been across the country already, we still have a strong base of assets in the hands of our franchisees and in the company hands. I'll be honest with you, some of them are not being maintained and supported and cleaned and sort of giving our best faith.

But the core asset base is still very strong. And I think we've got something we can work with there. We can lean on the execution elements of how we support, maintain and invest maintenance capital in our existing restaurants for the near term. Long term, what we call image activation here at Wendy's is more than a decade old. And so sure, I think we're going to want to look at what we can do to put an even better face on our restaurants going forward.

But again, always tested for, and we're going to be doing about this, dollars that would go into our restaurants should be dollars that provide returns on that invested capital for our franchisees and for our company business, too. So those will always be. And that may be in the areas of image, it could be -- you can imagine all kinds of investments. Digital capabilities could be and transaction-driving capabilities with how we operate. It could be equipment potentially is connected to the menu. I'm not giving you insights. These are all categories you would expect restaurants to think about investing in, but again, with those returns. We're in a good place to start.

Your next question and last question comes from the line of Jon Tower with Citi.

Maybe just 2 quick ones from me. Obviously, you mentioned that you're not happy with the state of the marketing these days. I'm just curious if we should expect -- aside from the store closures that have taken place already an actual retrenchment in the dollar spend from a marketing perspective in the near term as you're kind of adjusting the system and working your way back to the right messaging for the brand in the marketplace. .

And then 2, do you feel like you have the right level of field leadership in the system to get this turnaround going today?

Great questions. Thanks, John. Great last questions, in fact, I appreciate it. No, I think we all have to be honest about the performance of our marketing efforts are not delivering what we want. But that would not suggest that we would pull back from the marketing spend. It really is more about messaging. It's about creative, and we're exploring media as well. So where the marketing is being delivered. And pulling ourselves out of a cycle of promotion and collaboration type of events and getting back to a much more cohesive and long-term approach to the calendar, that's reflective of the things that we want to continue to communicate to the customer.

Pulling back on the spend does not make any sense. We need to adjust why we're going forward, not the other way around. And I love your question about the field staff, too. I know that the company has made some recent investments in additional support in the field. I've been with many of those field leaders here recently, and I'm impressed with some of what we've done. I will say, this is an area I have a lot of experience in. I think you guys know that. This is kind of a home base for me when it comes to ops.

And I'm eager to learn more and eager to make sure that we have the right structure that we have the right balance of support for franchisees and even down to the level of what our field teams are being asked to do. We want to set them up for success and make sure that they're -- certainly, there are activities that need to be performed. We need outcomes out there, too, and empowering them to be the most helpful and supportive and impactful leaders that they can be.

I continue to say that I think training is an area of significant opportunity for us in the field. Don't read that as we need to invest a bunch more in training individuals. I think the training systems actually are areas we can invest in first, and that gives our field staff unique and special and new things to work on as well. So we have something to build from here, but we really have to scale up in the field, too.

That was our last question of the call. Thank you, everyone, for joining us this morning. I hope everybody has a great day. You may now disconnect.

Good morning. Welcome to the Wendy's Company Earnings Results Conference Call. [Operator Instructions] You may begin your conference.

Good morning, and thank you for joining our fiscal 2026 first 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 Thuerk, Chief Accounting Officer and Global Head of FP&A, will review our 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, Aaron, and good morning, everyone. Let me start by thanking our franchisees, restaurant teams and company employees who together as One Wendy's, have stayed focused on improving restaurant operations elevating the customer experience and enhancing franchisee economics. Our focus in the U.S. continues to be on advancing our Project Fresh Turnaround strategy. We are confident our actions will drive to improvement as we move through the year. Internationally, our business continues to expand in key growth markets, and we are excited to have recently signed a franchise agreement to expand into China, further strengthening our development pipeline, I'll share more on this in a moment.

Starting with the first quarter, results were largely in line with our expectations, though still not where we need to be, and we continue to execute on the early phase of our turnaround plan. We're focused on the customer and seeing progress on our key priorities. Global systemwide sales declined 5.5% in the quarter, driven by same-restaurant sales in the U.S., reflecting a challenging competitive environment. Results were also impacted by severe weather and the actions we're taking to optimize our restaurant footprint and operating hours. These factors were partially offset by international system-wide sales growth of 6%, driven by net unit growth.

Adjusted EBITDA was $111 million and adjusted EPS was $0.12 for the quarter.

Before I discuss our progress in the U.S., I'll start with an update on our International business. We're excited to announce today that we recently signed a new franchise agreement to build up to 1,000 restaurants across China over the next 10 years. Our franchise partner is a large restaurant operator with decades of experience in China. They're known for strong hospitality and have a deep understanding of the Chinese consumer. We could not ask for a better partner. Together, we are well positioned to deliver an exceptional experience for Chinese consumers, and we can't wait for them to taste the best hamburgers in QSR, alongside locally inspired menu innovation.

Additionally, we're rolling out our future fresh restaurant design to help drive growth across international markets. This bold modern format enhances our visual identity through a blue color scheme and a digital-first layout that makes us stand out from the competition. A great example is in the Philippines where we use this new future fresh restaurant design to open our 100th restaurant in the country. These actions support our globally great, locally loved strategy, driving continued expansion around the world.

Now turning to the U.S. and the progress we are making on our Project Fresh turnaround strategy. The first pillar of Project Fresh is brand revitalization, which is about reestablishing as the highest quality choice in QSR and connecting with our customers in more culturally relevant and distinctive ways. Through the customer segmentation study we completed at the end of 2025, we now know our customers better than ever. And during the first quarter, we used those learnings to create a brand essence framework that will improve the consistency of our messaging to consumers.

We are beginning to incorporate that into our menu and messaging efforts, which will increasingly show up throughout the year as we focus on the consumer segments that represent our greatest opportunities for growth.

In January, we launched Biggie deals to provide everyday value that our customers can count on at $4, $6 and $8 price points. This platform provides a foundation for us to compete on value by emphasizing the quality of our products, and we plan to introduce exciting innovation here later this year.

We are also reestablishing our leadership in delivering the highest-quality hamburgers in the industry. In addition to using fresh never frozen beef, a key differentiator for Wendy's, we recently introduced new buns and upgraded catch up and mayo to make our hamburgers taste even better. These upgrades will be featured across our core hamburgers and upcoming LTOs supported by messaging throughout the year.

We're also leaning into quality differentiation with our new chicken sandwiches. Wendy's has served spicy chicken sandwiches since 1995, and they're an important part of our brand legacy. To reestablish their popularity, we've modernized this fan favorite with the most significant quality upgrade in its history, which we rolled out at the end of the first quarter. The upgrade includes a new marinade, crispy Penco style breading with 9 distinctive spices and bold heat to deliver intense flavor in every bite. Paired with a new bun and updated toppings, this new sandwich is resonating with customers.

Both our hamburger and chicken sandwich enhancement are important steps that build on our heritage and align with our brand essence to deliver the highest quality food for our customers and be squarely better than anyone else in QSR. And there's more to come.

We're strengthening our innovation pipeline with a rigorous screening of ideas, a more robust testing process and more in market trials. We'll prioritize the best ideas and move quickly on what's working to build promotions and programming that resonates with our target customers.

Our March Madness Dunks campaign is an example of how we're beginning to connect with our customers in a more culturally relevant way. Built around the iconic duo of crispy fries and Frosty along with the dunkable chicken tenders and nuggets paired with our new sauce lineup, this program targeted snacking occasions in a way that's distinctively Wendy's.

In addition, during the height of March Madness, we introduced the Bring-It-Back bracket, allowing fans to vote on which Wendy's item from the past, they wanted to see a return. This was a great opportunity to engage with our customers and give them more of what they want. Fans chose the Pretzel Bacon Pub Cheeseburger as the clear favorite, and we'll bring it back to the menu later this year.

Next month, we're partnering with Illumination and Universal Pictures on the upcoming Minions and Monster's movie with a collaboration designed to show up in the everyday moments family share. We're bringing together a widely beloved multi-generational entertainment franchise with a distinctly Wendy's meal complete with themed packaging and collectible items.

We are also focused on reaching our customers more efficiently. To help us achieve this, we recently completed a media agency RFP, and we are switching to a new partner to improve our marketing effectiveness and maximize the impact of every dollar of ad spend. We're off to a strong start and expect the transition to be completed in the third quarter.

On social media, we expanded our presence in the first quarter with the President of our U.S. business, Pete Sirkin, joining the wave of viral hamburger taste tests as well as our Chief Tasting Officer contest, both generating strong earned media and engagement. Our Chief Tasting Officer will serve as a brand ambassador delivering social content that showcases the quality of our food while increasing cultural relevance.

While we are still in the early stages of our brand revitalization work, the initial results are encouraging. We're seeing improvement in key leading indicators, including top-of-mind awareness and visitation intent and our brand Essence framework will increasingly be integrated into our menu and messaging approach as we move throughout the year.

Our next pillar is operational excellence, which is about delivering consistently great experiences for our customers. The restaurants with the highest customer satisfaction scores are outperforming the lowest tier locations in same-restaurant sales by approximately 400 to 500 basis points. In addition, company-operated restaurants, which have fully implemented our operational initiatives outperformed the system by 310 basis points in the first quarter. We are continuing to roll out our people activation, enhance training and performance management programs, and we'll continue to see adoption expand across the U.S. system throughout the year.

As we do that, we are particularly focused on the areas with the greatest near-term opportunity to improve customer satisfaction, order accuracy and clean restaurants. We are expanding the use of our menu item label printers, which helps customers in 2 ways. First, it helps ensure that customers receive their food exactly as they've ordered it. And second, it helps customers quickly identify each item without unwrapping their sandwiches. Over the past 6 months, we've expanded implementation from less than half of restaurants using menu item label printers to 85% of restaurants using them now.

We are also accelerating our efforts to ensure sparkling clean restaurants. In the first quarter, we launched our White Glove program with our field teams working closely with franchisees to reinforce consistency and provide support, ensuring every restaurant delivers on the clear standards that we have outlined day in and day out.

Moving to our technology and digital initiatives. U.S. digital sales grew 8.4% in the first quarter with U.S. digital mix reaching 22.7%. During the quarter, we integrated our AI recommendation engine into our mobile app, enabling order recommendations based on items in the cart, restaurant location and seasonality. We are continuing to invest in the end-to-end digital experience, leveraging consumer insights to drive frequency and engagement in the app while expanding payment options at checkout to create a more seamless experience and improve conversion. Together, these in-restaurant and digital initiatives will create a cycle of improvement, elevating the customer experience, which drives better sales performance and strengthens restaurant economics.

Our next pillar is system optimization, which is about enhancing franchisee economics and improving the customer experience. During the first quarter, we worked closely with franchisees and completed more than half of our planned footprint optimization and remain on track to be substantially complete by the end of the second quarter. This is unchanged from the expectation that we shared with you in February. In parallel, we're continuing to work with franchisees to optimize hours of operation, including reducing hours during the morning daypart and extending late-night hours where the opportunity is greater. While we're making targeted adjustments, the large majority of the U.S. system continues to serve breakfast.

Together, these actions will strengthen the system by enabling restaurants to consistently deliver the quality and service Wendy's was built on, while strengthening franchisee economics.

Turning to capital allocation. We remain focused on driving long-term value creation. In the U.S., we have prioritized investments that support profitable AUV growth ahead of new unit development. This includes investing in more field team resources, digital infrastructure and restaurant technology to increase product and promotion testing, accelerate deployment time lines and bring innovation to life more efficiently.

Internationally, we continue to invest in the expansion of our global footprint, including building in-market capabilities to support that expansion.

Now turning to our outlook. We are maintaining our full year 2026 outlook. Our outlook reflects the actions underway to strengthen the system and position the business for long-term success. We expect performance to continuously improve as these initiatives take hold while recognizing that the exact timing is difficult to predict. Our Project Fresh initiatives are designed to build on one another with the benefits compounding over time as additional actions are implemented.

I'll now turn it over to Suzie to provide more details on our first quarter results, 2025 franchisee economics and our outlook and expected cadence throughout the year. Suzie, over to you.

Thank you, Ken, and good morning, everyone. I'll begin with our first quarter results, followed by an update on franchisee economics and details on our 2026 outlook. I'll then touch on our capital allocation priorities before turning it back over to Ken.

In the first quarter, global systemwide sales were in line with the expectations we shared with you in February, declining 5.5% on a constant currency basis. This was driven by U.S. same-restaurant sales, which declined 7.8%. This was partially offset by continued strength in our International business with system-wide sales growth of 6%. The decline in U.S. same-restaurant sales was driven by a decrease in traffic, which included the impact of severe weather and optimizing restaurant hours, partially offset by a higher average check. We finished the quarter with improving sales trends and expect continued sequential quarterly improvement through the year, driven by our Project Fresh initiatives.

Operationally, company-operated restaurants have fully implemented the initiatives that Ken discussed, driving higher accuracy scores, improved customer satisfaction and stronger same-restaurant sales. In the first quarter, company-operated restaurants outperformed the U.S. system by 310 basis points. This continues to serve as a powerful proof point that when we execute with excellence, customers respond.

Turning to our International segment. We delivered 6% system-wide sales growth in the first quarter, reflecting continued strength of our globally great, locally loved strategy. Our growth was driven by new unit development in key growth markets such as the Philippines and Mexico, which supported solid results across Asia Pacific and Latin America. This growth is evidence that our targeted investment in regional infrastructure and talent continue to drive a growing pipeline of new unit development.

Our new franchise agreement to expand into China represents an important milestone as we look to further penetrate the Asia Pacific region.

Turning to the P&L for the first quarter. Total adjusted revenue was $432.3 million, an increase of $9.2 million compared to the prior year. This was primarily due to system optimization related franchise fees and higher company-operated restaurant sales driven by the acquisition of franchise-operated restaurants during the third quarter of 2025. These were partially offset by lower franchise royalty revenue. As a reminder, for the full year, we expect system optimization to be a net headwind of $15 million to $20 million to adjusted revenue, but we believe this is the right decision for the long-term health of the system.

Global company-operated restaurant margin was 10.8% for the first quarter, and U.S. company-operated restaurant margin was 11.4%. U.S. company-operated restaurant margin declined compared to the prior year due to a decline in traffic, commodity cost increases of approximately 8%, including both continued inflation in beef prices and investments made to improve the quality of our products and labor rate inflation of approximately 4%. These increases were partially offset by a higher average check and labor efficiencies.

Adjusted EBITDA was $111.3 million, which was down $13.2 million versus the prior year. This was driven by a decrease in U.S. company-operated restaurant margin, lower franchise royalty revenue and an increase in general and administrative expense, including investments in brand revitalization, our U.S. field support team and international resources to support continued expansion. These were partially offset by higher net franchise fees.

Adjusted earnings per share was $0.12 in the first quarter.

Moving on to cash flow and our balance sheet. During the first quarter, we invested $16.5 million across capital expenditures and restaurant development. Capital expenditures included $5.4 million in technology initiatives, including enhancements to the customer experience and enabling more targeted marketing within our app and digital capabilities. We also invested $9.1 million in restaurant development, including our Build-to-Suit program.

Turning to free cash flow. We generated $36.5 million of free cash flow through the first quarter. This was down $31.5 million versus the prior year. The decrease is primarily driven by a shift in timing of vendor incentive payments and lower adjusted EBITDA. We ended the quarter with $338 million of cash on the balance sheet and a net leverage ratio of 4.9x. Taken together, we believe we have the right balance of liquidity and leverage to support our priorities as we execute our Project Fresh initiatives.

Before turning to our outlook, I'll take a moment to provide an update on our franchisee financial performance. In 2025, our U.S. franchisees averaged a year-over-year net sales decline of approximately 6%, in line with our reported U.S. same restaurant sales in 2025. Average EBITDA margin declined by 270 basis points to 9.3%. Over half of the decline in average EBITDA margin was driven by commodity cost increases, primarily driven by the increases in beef prices. Within the U.S., there are a wide range of results across the system. The franchisees delivering the strongest customer experiences and satisfaction scores are producing materially better sales and profit performance, further validating the need to continue scaling our Project Fresh operational excellence work across our system.

In Canada, 2025 average franchisee net sales growth was approximately 1%, and average EBITDA margin declined by 160 basis points to 12.6%, which was entirely driven by commodity inflation.

Now turning to our expectations for 2026. We are maintaining our outlook for the full year. We continue to expect global system-wide sales to be approximately flat for the full year. Our outlook reflects the expectation for global system-wide sales to decline by a mid-single-digit percentage in the second quarter and return to growth for the back half of the year. This includes our expectation for sequential quarterly improvement throughout the year, driven by U.S. same-restaurant sales as our Project Fresh initiatives to revitalize the brand and improve operations build throughout the year.

Our adjusted EBITDA outlook of $460 million to $480 million remains unchanged, and we continue to expect U.S. company-operated restaurant margin of 13% plus or minus 50 basis points, including labor rate inflation of approximately 4% and a commodity cost increase of approximately 4%, reflecting continued inflation in beef prices and investments to improve the quality of our chicken sandwiches and hamburgers.

Additionally, we continue to expect general and administrative expense to be approximately $295 million. We are also reaffirming our outlook for adjusted EPS in the range of $0.56 to $0.60 per share. Capital expenditures, including Build-to-Suit investments between $120 million and $130 million, and free cash flow between $190 million and $205 million. As a reminder, our outlook reflects the 53rd week in the fiscal year.

Moving on to capital allocation. Our first priority continues to be investing in the business. This means prioritizing investments to support profitable AUV growth in the U.S. and net unit development internationally. Our second priority is paying an attractive dividend. And today, we announced our regular quarterly dividend payment of $0.14 per share. Third is maintaining a strong balance sheet. We continue to target a net leverage ratio of 3.5x to 5x adjusted EBITDA. We anticipate remaining around the top end of our range in 2026 as we implement our Project Fresh initiatives, but expect a natural reduction in our leverage ratio over time as we realize the benefits of our turnaround. Our fourth priority is returning excess cash to shareholders through opportunistic share repurchases.

While we currently have no plans to repurchase shares in 2026, we have approximately $35 million remaining on our existing share repurchase authorization that expires in February 2027.

In closing, in the first quarter, we made progress in strengthening our foundation for sustainable, long-term growth and value creation for our shareholders. We are taking a disciplined financial approach to support the company and franchisees as we advance our Project Fresh turnaround efforts. We look forward to keeping you updated on our progress throughout this year. Thank you for your time. And with that, I'll turn it back over to Ken.

Thank you, Suzie. I'm proud of the early progress we are making to turn around our U.S. business. We are improving marketing effectiveness, taking the right steps to reestablish Wendy's as the highest quality choice in QSR and elevating the customer experience in our restaurants. We are moving with urgency to stabilize our business and build capabilities for sustainable long-term growth. At the same time, we continue to build on the strength of our international business, including the recent franchise agreement to enter China, which is another proof point that our international growth strategy is working.

We are controlling what we can control and executing as One Wendy's to take care of our customers and create long-term value for franchisees, employees and shareholders.

I'll now hand it over to Aaron to share our upcoming Investor Relations calendar.

Thank you, Ken. On May 12, we will participate in the Wolf Research Virtual Investor Conference. On May 21, we will be in Chicago for an NDR hosted by BTIG. On May 27, we will participate in the Bernstein Strategic Decisions Conference in New York City, followed by the Evercore Consumer and Retail Conference on June 10 also in New York City. If you are interested in joining us at one of these events, please contact the respective sell-side analyst or equity sales contact at the host firm.

We will now transition to the Q&A part of the call. [Operator Instructions] Operator, please queue up the first question.

[Operator Instructions] Our first question for today comes from David Palmer of Evercore ISI.

System sales were down over 5% in the quarter, and you're reiterating flat for the year, and that obviously implies a significant ramp in trend. Obviously, easier comparisons are going to mean something. But what else gives you confidence that Project Fresh is working and that performance will be improving going forward? And I have a quick follow-up.

Thanks, David. I appreciate the question. I would say we are in the early innings of our turnaround. We're working on all the right things. We're proud of the progress that we're making, and we're seeing proof points in 3 reinforcing areas. First is our food. We are leaning into our quality heritage of making the best hamburgers in QSR even better. We launched new bun this time, new and improved bun and condiments. We also launched the most significant spicy chicken sandwich upgrade in our history distinctive new flavor in spices and rebuilt the innovation calendar, so there's consistent drumbeat of new news throughout the year. We had biggie deals in the first quarter, March Madness Duns campaign, and it will get even stronger as we move throughout the year and can better incorporate the brand essence into our product launches. Middle of the year, we have Minions collaboration followed by the PreselBaconPub Cheeseburger, which we're confident are going to perform really well. Second is our marketing. We're aligning our marketing with our food story through our brand essence framework and our increased knowledge of our customers.

Every programming window will be tied back to set Wendy's up as the everyday upgrade in QSR. If you look at the March Madness campaign, it wasn't just a generic promotion, it was built around is it's distinctly Wendy's product in the Frosty and Dunkin' fries in it, also in a culturally relevant moment. The spicy chicken launch was supported by messaging that directly positions us as an upgrade versus the competition, and we have seen top-of-mind awareness and visitation intent improve. We're also changing media agencies for the first time in 18 years. That will be fully operational in the back half of the year to improve how effectively we spend every single dollar of advertising. And then third is our operations. We are making sure the in-restaurant experience delivers for our guests.

Company-operated restaurants continue to outperform the system after fully implementing the playbook last year, outperformed the system by 310 basis points, and across the system, we have seen broad-based improvements in customer satisfaction scores between 100 and 200 basis points. So our highest satisfaction restaurants outperformed the lowest by 400 to 500 basis points in QSR. We have over 25% of the restaurants now that have fully adopted performance management cycle. We have another 25% that are in the process of adopting it, and we'll continue to grow that number as we move throughout the year.

So these 3 areas create a flywheel for us. The better food enhancements that we're making give marketing something to talk about, more effective marketing is going to help bring more customers in the door and better operations is going to help bring them back. So early innings, but we're excited about the progress that we're making, and we expect those things to compound as we move throughout the year.

I just wanted to ask one about the franchise system and the cash flow and leverage today. Obviously, not every franchisee is in line with average. And I just want to understand how you're thinking about the risk of additional unit closures beyond what you're anticipating in the first half.

Yes. Thanks, David. So I would say we are unchanged in terms of our outlook for system optimization, still expected to impact about 5% to 6% of the system. We are working very closely with our franchisees to build a healthy and more profitable system. Under the One Wendy's mindset, we know that our success is tied directly to the success of our franchisees and improving franchise economics is at the core of Project Fresh.

Obviously, the combination of sales pressure and inflation does put pressure on franchisee economics. We do have a wide range of outcomes across the system, some performing well while others are under more significant pressure. So we're handling those on a case-by-case basis, but it does emphasize the importance of executing the system optimization pillar. As we take action on the underperforming restaurants in our system, this helps improve franchisee profitability. As we provide flexibility in terms of hours of operation, this allows our franchisees to focus their resources on the dayparts with the highest opportunity and also further increases franchisee profitability, cash flow and margins.

So working on the right things, working hand-in-hand with our franchisees to improve economics. And we all know that the most important lever to that is increasing the top line profitably. And so that's why we're excited about the food innovation, the marketing effectiveness and that will continue to build throughout the year.

Our next question comes from Margaret-May Binshtok of Wolfe Research.

I just wanted to ask if you could give some additional color on how you guys saw comps progress through the quarter given all the weather in January? And then a little bit of a sense of where April and May trended? And then given the weather that we also saw in January, if you could give us a cleaner read on the underlying trend with deals that you guys have launched in January?

Yes. Thanks for the question, Margaret-May. In terms of the cadence of comps in the first quarter, January was down about 8%. February actually got a little bit worse for us. So it was down in the high 8% range, we did see March improve. So March SRS in the U.S. was down 6.2%, and April came in about the same. We're down about 6.4% in April. So continue to see that improvement. And happy with the way Biggie deal is performing. So Biggie deals is a strategic shift in how we approach value. We thought it was really important to have an everyday value platform that customers can count on as opposed to jumping from one price promoted offer to another. We're really excited about the structure of the Biggie deals platform. The $4 price point is really attractive and also allows us to appeal to an important part of our customer base, the snacking behavior. So we'll lean into that. In terms of how it's progressed throughout the quarter, most of the biggie traffic comes at that $6 kind of full meal price point, we have opportunities to grow both the $4 price point and the $8 price point.

We're really happy about how this value platform stacks up against the competition. Again, we have a lot of range, $4 price point, 2 items, appeals to these incremental eating occasions, including late night. And then at the high end, the $8 Biggie bundle is really about quality and abundance. And you can get 2 sandwiches in that, including 2 junior bacon cheeseburgers, or 2 double stacks. With the double-stack option, you get 4 100% fresh, never frozen beef patties, 46 grams of protein with fries and a drink. So that's quality and abundance.

The other thing I would say is, when we launch a new platform, the first phase of that is about education. So first quarter was dedicated towards educating and increasing awareness to the platform. The second phase, we're going to be talking more directly to our target segments who over-index the Biggie platform like families and snackers. We also have the opportunity to drive some innovation into the Biggie platform later in the year to continue to accelerate adoption. So really happy that we made that change, confident that it will lead to good results long term.

Yes. And Margaret, just in terms of weather impact for the quarter, it was about a full point to the quarter, both between -- more significantly in January, but between January and February.

Our next question comes from Brian Mullan of Piper Sandler.

Ken, in a prior answer you laid out some of the plans for the year that are giving you some confidence, all of which is helpful to hear. My question is, if you take a step back, do you think the system ultimately needs some sort of larger scale investment or capital infusion from corporate in order to support Project Fresh and make sure that the plan succeeds in the way that you'd like? Some of this stuff has happened before you got there, you're here, you have a smart strategic thoughtful plan. Just would love to get your perspective of if it might need a bit of more investment.

Yes, it's a great question. It is something that we're talking about, something that we're looking at, evaluating all the various options. What we saw for 2026 under Project Fresh is the most important investment that we could make in the system right now is the system optimization pillar. So as Suzie laid out, that's going to be about a $15 million to $20 million headwind for us this year. So that -- I consider that an investment in the system to help improve franchisee economics. So that's number one.

We are also increasing investment in our U.S. field resources teams, evaluating doing even more of that to help support our franchisees roll out and implement these operational excellence programs. Again, we saw really good progress in the first quarter. When we focus on things, we do see results. We wanted to focus on accuracy and cleanliness. Why? Because those were the 2 areas that customers told us we had the biggest opportunity to improve it. So we rolled out menu item label printers from less than half of the system to over 85% of the system, we saw accuracy scores increased quarter-over-quarter by 170 basis points. We launched a White Glove cleaning program across the system and saw cleanliness scores increased by 160 basis points. And in fact, we saw all customer satisfaction elements increase quarter-over-quarter.

The other thing I would say is it was broad-based. So when we look at the bottom-performing restaurants, where we are applying the most focus, we saw 70% of those restaurants improved their scores quarter-over-quarter. And I do want to call out and say thank you to the franchisee community just for the energy and engagement that they have shown towards this to help us make progress most quickly.

So we'll continue to evaluate what investments make the most sense. I think there is a sequencing process that goes on as well. Right now, we're focused on the pillars of Project Fresh operational excellence, and we'll move on from there.

Our next question comes from Jeffrey Bernstein of Barclays.

Great. Just a question on the broader consumer. Wondering whether you've seen a change in consumer behavior beneath the surface? There's a lot of talk about the lower income consumer, increasingly cautious more recently accentuated by the higher gas prices, assuming it's somewhat difficult for you to assess because it might be masked by early improvements to your Project Fresh, but anything you're seeing to demonstrate a change in behavior, whether it's a change in the value mix or a movement within the -- well, the biggie deals are relatively new, but maybe you could offer some color on the mix across the different price tiers?

And then my follow-up is just a clarification. I know in March of '25, which feels like a decade ago, but you offered 2028 guidance for unit sales, EBITDA. Obviously, the business has slowed a little since then. Should we be thinking that any of those components might be more or less at risk as we think about kind of the early turnaround strategy?

Yes. Thanks for the question, Jeff. In terms of 2028, we still plan on getting there, it's a question of when. Obviously, 2025 did not play out as we expected. I think we find ourselves in a different place than we were back in March. So probably too soon to talk about specifics around 2028. Still confident we have fantastic opportunities to grow outside the United States. We're working on all the right things inside the United States. Obviously, the EBITDA now is much different than we talked about then. So too early to get into 2028.

From a Biggie platform, again, it's early days in the Biggie platform. We just launched this in the first quarter. We're really excited about this new approach to value. We think it's going to pay dividends over the long term. From a mix perspective and a customer perspective, I'd say a little incremental weakness as we moved into March and April. Obviously, a lot of uncertainty, gas prices are top of mind, but Suzie, do you want to add any more color?

Yes. I mean, in Q1, we saw much of what we saw throughout the end of last year. So we're performing better with the higher income consumer than the lower-income consumer. We do see continued pressure on the lower income consumer, which is contemplated in our outlook.

Our next question comes from Dennis Geiger of UBS.

I wanted to ask a little bit more about dayparts and specifically the reduction in some of the morning hours and extending the late night hours, if anything more that you could share on what you're seeing there, particularly at late night?

And then if you could just remind us ballpark, what percent of the system now has breakfast? And is that a good long-term figure to think about? Or could that number change going forward?

Yes. Thanks for the question, Dennis. Breakfast remains an important daypart and growth opportunity for many restaurants in the system. Under Project Fresh, we are optimizing the system, working hand-in-hand with franchisees by providing flexibility on hours of operation where it makes sense based on everything we've learned and based on the current environment. Obviously, breakfast has been the most challenged daypart across the industry. That's true both last year and this year. And we're seeing the same thing.

When we provide flexibility to the franchisees on the early morning hours, it does allow them to redeploy resources to other dayparts where the opportunity is larger. Late night is a great example of that. When we look at the growth by daypart, breakfast was our worst-performing daypart in the quarter and late night was actually the best-performing daypart in the quarter. I think we can continue to leverage our Biggie deal platform to grow late night and excited about the opportunities there.

We're still working with franchisees to get to the best ultimate solution on breakfast. So we'll come back and give you an update when all that work is complete. For the quarter, breakfast did negatively impact U.S. SRS by more than 100 basis points. A large part of that was the hours of optimization or hours of operation optimization that we implemented under Project Fresh.

Our next question comes from Chris Carril of KeyBanc Capital Markets.

Could you maybe expand a little bit on your outlook around company-operated restaurant margins, I think, around 13%. Just I guess taking into account your inflation guide, I think you said around 4% for both labor and food costs, if I have that correct. And then just kind of how that company-operated restaurant margin compares to what you're seeing more broadly throughout the system, and your expectations here just going forward around that margin?

Yes, I'd say in terms of the sequencing and pacing of the margin, Q1 historically has the lowest margin, just with the weather pressure. So you can expect to see a more consistent margin Q2 to Q4 to get back into our outlook of 13% plus or minus 50 basis points. You had your points right of 4% in both commodity and then labor inflation. Commodity inflation will be first half heavy with the continued inflation in beef prices. So if you think about first half versus second half, first half will be in the high single digits in overall commodities on the backdrop of double-digit beef inflation. But then as you trail off into the second half as we start to lap those higher beef costs in last year and then overall commodities for the second half, you can expect in the low single digits along with beef inflation.

Our next question comes from Danilo Gargiulo of Bernstein.

Great. And it's very encouraging to see that your own stores are performing better than the rest of the franchise system. And I'm wondering, why aren't franchisees following your lead on ops excellence? And one would think that they have greater incentive to strengthen the P&L., but they seem to be lagging despite your field ops effort. So have they given up and maybe directing their investment elsewhere in the portfolio? And if that is the case, how could you accelerate the transition from less committed franchisees to more committed ones?

Danilo, great question. I would characterize the franchisee partners that we have as very committed to this. So we've already had franchisees representing 25% of the restaurants in our system fully adopted the program, fully adopted. We have another 25% that are currently adopting the program. So that gets us to half the system. And when we think about this, we just launched these improvements, right? Project Fresh we launched in the middle of the fourth quarter. So we're still very early innings. I'm actually very pleased with the adoption that we've seen so far and expect it to continue to grow as we move throughout the year.

The other thing that we've done intentionally under the One Wendy's mindset increased engagement with the field. So every other week, we have a system-wide call with all franchisees where the President of our U.S. business, our Chief Marketing Officer for the U.S. meets with franchisees, gives them updates on what we're seeing, where they can do better and where we can learn that from them. So we ask the franchisees, hey, send in your best ideas about how to accelerate cleanliness, how to accelerate accuracy, and that partnership is really working well. That also helps create a lot of energy in the system.

I think that's one of the things that excites me most, as I attend these calls is just the energy that you hear from franchisees. We launched the White Glove cleaning program. A lot of franchisees will attend us videos, before and after looks of the restaurants, really proud about how great they look afterwards. So again, overall, really pleased with the adoption and expect that to compound with other initiatives to accelerate growth as we move into the back half of the year.

Our next question comes from Sara Senatore of Bank of America.

You mentioned that positioning Wendy's as kind of the everyday upgrade in QSR. But I think one of the things you've heard over this earnings season is that some of the fast casual burger restaurants are getting more promotional and the price points are slipping perhaps down to something that's competitive with QSR. So as you think about the broader competitive set, how are you -- I guess, first of all, who do you consider your competitors? And also, how are you distinguishing yourself against perhaps like fast casual or even casual dining, where again, the price points are starting to creep into or have been creeping into the QSRs?

I think it's largely different markets. Our core competitors is QSR burger. That's who we're focused against. And we are going to reestablish our position as the highest quality choice in QSR starting with the highest-quality hamburgers in QSR. We started that journey in the first quarter of this year. We've seen the food improve, making the best hamburger in QSR even better. We've seen us upgrade our Spicy Chicken Sandwich and excited about those. And we're also enhancing the customer experience. All those things will work together, and they'll get even stronger as we move throughout the year. So when I think about the calendar, the first half, I was excited about the innovation that we had there. Cheesy Bacon Cheeseburger and [indiscernible] Ranch Cheeseburger were a good start, but it's going to get even stronger as we continue to incorporate the learnings from the customer segmentation work that we've done and our brand essence as we move throughout the year.

Middle of the year, we have Minions and Monster's collaboration. So broadly appealing collaboration that's going to allow us to get a lot of new people into our restaurants, and they're going to have a much better experience because of all the operational excellence things that we did.

We're also -- the Minions collaboration, we're going to feature our Big baking Classic and Spicy Chicken Sandwich, our big, high-quality premium sandwiches. We're going to pair that with a banana Frosty. And we're also going to be leveraging our Freestone machine to have 2 character theme drinks, and we also have adult and kids collectibles. So excited about all that work positioning Wendy's as the highest quality choice in QSR.

Our next question comes from Brian Bittner of Oppenheimer & Co.

I'm just trying to figure out the math around your guidance for flat system-wide sales for this year. Can you perhaps maybe remind us what is embedded and that from a U.S. comp perspective for the full year? It seems like based on your 2Q guidance and where April trends are the comps going to remain pressured. So just as we look towards the back half, I'm really trying to get an understanding of how big of an inflection you are embedding and getting to this flat systemwide sales outlook?

Yes, it's a great question, Brian. I'll start, and then I'll let Suzie weigh in. But let me start just from a strategic perspective. The step-up in the second half is going to be driven by the compounding of several initiatives that are going to scale and be self-reinforcing throughout the year. I'll walk you through a couple of those, starting with marketing. We have seen improving top of mind awareness based on what we were able to do on social media. We see -- we completed the brand essence at the beginning of kind of in the middle of Q1, and we're beginning to incorporate that in our programming. Media effectiveness. We have a new media agency coming on board that's going to help us with a more sophisticated audience-based approach that's going to leverage everything we've learned about our customers, which is going to help us be much more effective from a media perspective.

And then when you look at the cadence of media spend on a national basis year-over-year, that gets a lot stronger in the second half of the year. If you remember, in 2025, our media spend was very front-end loaded. So that means this year, we've changed that approach and we have consistent spend throughout the year. But that means when you look at it from a year-over-year basis, media spend is still going to be down year-over-year in the first half and then significantly improve in the second half.

So that is going to help. And then when you look at operations, we saw great improvement in voice of customer scores in the first quarter. That's going to continue to scale as we move throughout the year. And when we do that, that helps improve frequency and helps increase the effectiveness of ad campaigns, especially things like Minions, when you get new people into the store, they have a great experience, they are going to come back. And we talked a little bit about the calendar in Minions, but we're going to follow that up with the Pretzel Bacon Pub Cheeseburger, which we're really excited about. And if you look at the way we launched that, we had a bring-it-back bracket during our March Madness campaign, and we let our fans vote on which item from Wendy's past they wanted to see us bring back. The Pretzel Bacon Pub Cheeseburger one, and we are going to bring that back in the second half of the year.

So there is step up. I think all those things support it, some of the more tactical things from a media spend perspective, it helps, and then don't forget we have the 53rd week in the back half as well, which provides a bost. Suzie, anything to add?

Yes. No. I mean if you think about the 53rd week, obviously, an outsized impact in the second half and especially in the fourth quarter. But other than that, you had all points.

Our next question comes from Andrew Strelzik of BMO.

Question. I wanted to ask about the international business, which has been a relative bright spot, but would love to hear some color on potential impacts from the geopolitical dynamics? And gas price is that environment that's going on, particularly in terms of the U.K. given the energy situation there?

Yes, Jim, thanks for the question. Let me start by saying that we're thrilled about the agreement to open 1,000 restaurants in China over the next 10 years. Just to put that in perspective for everyone, that is the largest development agreement in the company's history. So it's the largest development deal that Wendy's has ever signed, and it's in one of the most important markets in the entire world. So we're thrilled. I think that's a very strong proof point that the international strategy is working. So thanks to E.J. and his team, E.J. Winch, our President of International, for making that happen. The decisions to invest in on-the-ground talents in the regions helped us reach that deal. And when you're entering a market like China, it's very important that you pick the right partner and we have a great one. We have a partner with decades of operating experience in China, who has a great understanding of the Chinese consumer, and we're working closely with them to develop launch plans that ensure success.

We cannot wait until consumers in China get to taste the highest-quality hamburger in QSR. And we'll share the name when we get closer to opening our first restaurant there.

Overall, for International, I think there is some geopolitical noise, obviously, the situation in the Middle East. Fortunately, that's a very small piece of our total business. We are watching to see how that plays out from a construction supply material, from a cost perspective internationally. But if I look at percentage of international system sales, you're low single digits for that part of the world. So don't expect that to have a direct impact on international business. Suzie, do you want to touch on...

Yes, we're definitely monitoring you mentioned U.K., highly inflationary both on the energy and the commodities front. But we're focused on controlling what we can control there. We have a new marketing agency that we're really excited about focusing on the delivery business over in the U.K. So the team has been doing a great job of really focusing on what they can control.

Our next question comes from Jim Salera of Stephens.

Two-part question for me. Ken, you had mentioned that the company-operated restaurants that have all the operational initiatives in place are seeing significant outperformance, can you just give us a sense for what percentage of the franchisees in the U.S. have the same kind of optimized operational capabilities in place and maybe give us some sense of the timing of that rollout is part of that expansion embedded in kind of the back half acceleration implied in the guidance?

Yes, happy to, Jim. So we have franchisees in the system who operate restaurants exceptionally well. exceptionally well. Specific to the performance management cycle, the people activation, the enhanced training programs that we are rolling out, so far, we have 25 -- franchisees that represent 25% of the restaurants in the system have adopted those fully, have completed a full cycle of that performance management cadence and they are seeing good results. We have several proof points of franchisees who have adopted this and seen significant improvements in customer satisfaction scores, frequency and SRS. So happy that that we are seeing that progress.

We have 25% -- an additional 25% that are in the process of adopting the same operating playbooks and initiatives, and we'll continue to grow that throughout the year. I think [indiscernible] the U.S. field teams have done a great job creating easy structures to help our franchisees adopt these. We are having regular business reviews with franchisees to help them improve in areas, and it comes to things like the menu item label printers. When we saw that, that would significantly increase accuracy, we accelerated the rollout of that. We got it to 85% of the system so far and seeing great results.

So we'll continue to grow the number of restaurants that are fully -- have fully adopted that throughout the year, but really happy with the progress we've seen so far.

Our next question comes from Brian Harbor of Morgan Stanley.

In some of the consumer work you did recently, I guess anything else you've seen, do you feel like the kind of the burger quality you have, like the fresh these things, do you feel like that's appreciated, do you feel like awareness is high? Or do you feel like that's shifted at all?

And I guess more recently, as you've made some of these investments in both burgers and chicken, do you feel like that's something that's standing out that you're able to get credit for?

Yes. Thanks for the question, Brian. I believe we have the best hamburger in QSR. We do a competitive taste test here and things like that. When I taste a Dave's single versus or my favorite actually that Dave's doubled, but when I compare that to our competition, there's clearly -- our product tastes clearly better than the competition. We are making it even better. We're excited about the new improved bun that we rolled out, a potato bun that's subtly sweet softer. That's great, the improved condiments. But I think you're right. We have an opportunity to tell that story more. That's also part of the transition to the Biggie deal platform that we have. I think if you look over the last couple of years, we've spent a lot of marketing firepower doing price-promoted offers on individual products kind of focusing on the sales overnight as opposed to the brand over time, we're going to be more balanced going forward. We're going to have the reinforcing message of 100% fresh never frozen beef from farm to restaurant in days, not months, like our competition. And we think that is a winning proposition here in the U.S. So expect us to lean more into quality as we reestablish ourselves as the highest quality choice in QSR.

Our final question for today comes from Rahul Krotthapalli of JPMorgan.

Can you remind us on the CapEx breakout across the buckets for new development remodels and maintenance and technology on corporate CapEx? And the follow-up is on the 23 U.S. gross store [indiscernible].

Yes. Rahul, in terms of the CapEx breakout about if that is really development and that includes our build-to-suit program. In terms of IT spend, we have about $5.4 million. And then operations and others make up the rest of the $16.5 million here in Q1.

For restaurant openings, just to touch on that. We highlighted that we expect international net restaurant openings to be about similar to last year. As we execute on Project Fresh within the U.S., that's really our focus as we shift our priority in investing in profitable AUV growth versus net unit development in the U.S. So more to come on that in the future.

And then with our last question on the call this morning, I'll turn it over to Ken for final closing comments.

Thanks, Aaron, and thank you all for joining us today. As we close today's call, I do want to reiterate that while we are still in the early innings of our turnaround, we are encouraged by the progress that we're making, including our brand revitalization work, the improvements in operational performance and customer experience and the progress we've made on our system optimization initiative. I also want to thank our franchisees, our restaurant teams and our company employees across the system for their continued commitment for delivering great experiences for our customers every day and for executing our Project Fresh turnaround plans with urgency and focus. So thanks again for joining us today. We appreciate your continued support and look forward to talking again soon.

This concludes today's conference call. Thank you all for joining. You may now disconnect your lines.

Good morning. Welcome to The Wendy's Company Earnings Results Conference Call. [Operator Instructions] 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 Suzie Thuerk, 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, Aaron, 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 Suzie 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 U.S. 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 U.S. 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 remained strong with systemwide sales up 6.2% in the fourth quarter, its 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 $0.16.

Turning to our full year performance. 2020 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 U.S. same-restaurant sales, highlighting the need for change across many areas of our business, including heightened focus on both operations and marketing effectiveness. We are encouraged by the operational improvements throughout our U.S. 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 U.S. digital sales growing 12.4% versus the prior year and bringing our full year U.S. digital mix to an all-time high of 20%. We have 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 need 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 $4, $6 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 improved 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 outperformed 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 U.S. 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 people 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 technology architecture, enabling a substantial increase in product and promotion testing, reducing deployment time lines 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 U.S. system as One Wendy's. Under this program, we expect approximately 5% to 6% of U.S. 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 are also working with franchisees to better align operating hours to demand, particularly for the morning daypart. 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 daypart, which allows them to reallocate resources towards the greatest potential for growth across daytime, evening and late night occasions. This positions the morning daypart 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 daypart for the U.S. 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 U.S. 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 are 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 million to $205 million.

Before I close, I'll turn it over to Suzie to provide more details on our fourth quarter results and outlook. Suzie, over to you.

Thank you, Ken, and good morning, everyone. I'll begin with our fourth quarter results, then provide more details on our outlook for 2026 before closing with our capital allocation priorities. In the fourth quarter, global system-wide sales declined 8.3% on a constant currency basis and U.S. same-restaurant sales declined 11.3%, driven by marketing spend, which was down significantly in addition to a tough comp with our Spongebob collaboration in the prior year. This was partially offset by continued strength in our International business with system-wide sales growth of 6.2%. The decline in U.S. same-restaurant sales was driven by a decrease in traffic, partially offset by a higher average check. Same-restaurant sales at our U.S. company-operated restaurants outperformed the U.S. system by 410 basis points, driven by improvements in customer experience. Many of our franchisees have already begun implementing operational improvements, and we're making progress scaling these initiatives across the broader system as we execute on our Project Fresh turnaround plan. The outperformance at company-operated restaurants was also supported by strong delivery growth and benefits from the continued rollout of digital menu boards and fresh AI automated ordering technology. Our U.S. digital sales grew 2% compared to the prior year, driven by continued growth in our loyalty program, bringing U.S. digital mix to an all-time high of 20.6% in the fourth quarter.

Shifting to our International segment. The Wendy's brand continued to demonstrate strong momentum globally, delivering system-wide sales growth of 6.2% in the fourth quarter, driven by new restaurant openings across key growth markets. Growth was led by Asia Pacific and Latin America with strong performance in key markets such as the Philippines and Puerto Rico. We continue to see healthy underlying brand strength in Canada, gaining share in the QSR burger category throughout the year despite broader QSR traffic softness and a challenging competitive environment during the fourth quarter. Overall, our International results underscore the strength of our global growth model, enabled by the investments we are making in regional capabilities, which continue to drive a robust development pipeline.

Now moving to the P&L for the fourth quarter. Total adjusted revenue was $439.6 million, a decrease of $19.7 million compared to the prior year. This was driven by lower franchise royalty revenue due to the decline in U.S. same-restaurant sales as well as lower franchise fees. Global company-operated restaurant margin was 12.1% for the fourth quarter, and U.S. company-operated restaurant margin was 12.7%. U.S. company-operated restaurant margin declined compared to the prior year, primarily due to a decline in traffic, commodity inflation and labor rate inflation. These were partially offset by an increase in average check and labor efficiencies. Adjusted EBITDA was $113.3 million, which was down $24.2 million versus the prior year, primarily driven by lower net franchise fees, lower franchise royalty revenue and the decrease in company-operated restaurant margin. Adjusted earnings per share was $0.16 in the fourth quarter.

Moving on to cash flow and our balance sheet. On a full year basis in 2025, we invested $140.3 million across capital expenditures and our build-to-suit development program. Capital expenditures included $52.4 million in technology initiatives such as digital menu boards and continued investments in our app and digital capabilities to enhance the customer experience and enable more targeted effective marketing. We also invested $69.6 million in restaurant development across company-operated new builds and investments in our build-to-suit program.

Turning to free cash flow. We generated $205.4 million of free cash flow for the full year. Our free cash flow enables us to fund strategic investments, while continuing to return capital to shareholders. Through the end of fiscal year 2025, we repurchased 14.4 million shares for approximately $200 million. In total, we returned $330 million to shareholders through dividends and share repurchases, an increase of over $48 million compared to the prior year. In the fourth quarter, we issued $450 million of whole business securitization notes using the proceeds to repay $50 million of debt, which matured in December of 2025 and refinanced $350 million of securitization notes maturing in September of 2026. The weighted average interest rate for the newly issued notes is 5.4%. We ended the year with $340 million of cash on the balance sheet and a net leverage ratio of 4.8x.

Now turning to our financial outlook for 2026, which reflects the 53rd week in the fiscal year as well as the impact of the actions we are taking today to execute against our strategic plan that will drive long-term profitable growth. We expect global system-wide sales to be approximately flat for the full year. This reflects roughly 2% growth from base business improvements and international expansion and a 2% benefit from the 53rd week, offset by a 4% impact from our system optimization initiatives.

Turning to the shape of the year. We anticipate U.S. same-restaurant sales for the first quarter to be down year-over-year with sequential improvement throughout the year as initiatives to revitalize the brand and improve operations begin to take hold. We expect U.S. company-operated restaurant margin of 13%, plus or minus 50 basis points. This includes our outlook for labor inflation of approximately 4% and a commodity cost increase of approximately 4%, reflecting the continued inflation in beef prices as well as investments to improve the quality of our products, including upgraded chicken [indiscernible] and new buns. We expect G&A to be approximately $295 million. The increase versus the prior year is primarily driven by resetting our incentive compensation plan and higher stock compensation as we lap the favorable impact from the departure of the company's previous CEO in 2025. We expect adjusted EBITDA of $460 million to $480 million, reflecting the resetting of incentive and stock compensation and the impact of lower adjusted revenues related to our system optimization initiatives. Below the operating line, we expect approximately $140 million of interest expense, reflecting the impact of debt refinancing in the fourth quarter of 2025 as well as a tax rate of approximately 30%. Taking all of these items into account, we expect adjusted PS in the range of $0.56 to $0.60 per share. Free cash flow is expected to be between $190 million and $205 million, reflecting disciplined capital allocation, including capital expenditures and build-to-suit investments between $120 million and $130 million.

Moving on to capital allocation. Our first priority continues to be investing in the business. As we've outlined in our Project Fresh initiatives, this means prioritizing AUV growth in the U.S. and net unit development internationally. As a result, we're reducing capital allocated to our build-to-suit development program by approximately $20 million compared to the prior year. Our second capital allocation priority is paying an attractive dividend. And today, we announced our regular quarterly dividend payment of $0.14 per share, reinforcing the importance of the dividend within our capital allocation approach. Our third priority is maintaining a strong balance sheet. We continue to target a net leverage ratio of 3.5x to 5x adjusted EBITDA. We do anticipate remaining near the top end of our range in 2026. As we implement our Project Fresh initiatives, but expect a natural reduction in our leverage ratio over time as we realize the benefits of our turnaround. Our fourth priority is returning excess cash to shareholders through opportunistic share repurchases. We currently have approximately $35 million remaining on our existing share repurchase authorization that expires in February 2027.

In closing, our fourth quarter results aligned with our expectations for a challenging quarter. We will maintain financial discipline to support the company and franchisees as we advance our turnaround efforts. We are taking deliberate actions to strengthen our financial foundation and position the system for improved performance and long-term value creation for our shareholders.

With that, I'll now turn it back to Ken.

Thank you, Suzie. 2026 will be a rebuilding year, and I am confident that we will execute on our Project Fresh initiatives to strengthen our foundation and position Wendy's for long-term success while delivering strong growth in our International business. We are focused on controlling what we can control and leaning into what Wendy's can do better than anybody else, delivering the highest quality food in QSR. We have all the ingredients needed to be successful: an iconic brand, a great team, passionate franchisees, improved capabilities and a strategic action plan to deliver results.

I'll now hand it over to Aaron to share our upcoming Investor Relations calendar.

Thank you, Ken. On March 10, we will participate in the Citibank Global Consumer and Retail Conference in Miami. And on March 11th, we we will be in New York City for the UBS Global Consumer and Retail Conference. If you are interested in joining us at one of these events, please contact the respective sell-side analyst or equity sales contact at the host firm. We will now transition to the Q&A part of the call. [Operator Instructions]

Operator, please queue up the first question.

[Operator Instructions] The first questions comes from David Palmer of Evercore ISI.

That's a great detail on this call. I guess when it comes to operations at digital, you have a lot of initiatives there. But I feel like when it comes to turnarounds in this space, it really comes down to that initial jolt around marketing and menu and you had pretty good idea towards the end of this last year with the tenders. And it felt like a pretty good product. And so I'm just wondering how you're thinking about this year, the approach, the ideas, the execution on the marketing side, help us imagine how things are going to evolve there in ways that you think might be more effective.

Yes. Great question, David. So I'll start by talking a little bit about what gives us confidence that the turnaround plan will work. The results that we delivered are well below our potential, for sure. But we have all the ingredients need to be successful. We have an iconic brand, the term employees, passionate franchisees, better data visibility and capabilities than we've ever had. We have great food, and we're approaching that all with a One Wendy's mindset. Secondly, we understand the problem. We got away from what made us great. We allowed ops to drift, and we focus too much on sales overnight and discounting versus brand over time. We made some decisions that optimize the short term, but we're changing all that. We now have a clear North Star, which is our brand essence, and that will help us reestablish Wendy's as the highest quality hamburger in QSR. Also, we're executing the right plan, Project Fresh. In terms of revitalizing the brand, we know who drives our business, and we know how to bring them in. We do have a new approach to both menu and messaging that you've already seen take hold in 2026. And we're focused on ops deploying the playbook that we use to improve operational excellence in our company restaurants to the system. Additionally, we're making the right long-term decisions in terms of system optimization, optimizing our restaurant footprint, which will help improve franchisee economics. So turnarounds take time. We'll see the ops metrics change first, followed by brand metrics and then traffic and sales. In terms of the calendar approach, which you mentioned, what's going to be different. There are going to be lot of things that are going to be different. We have a new menu calendar framework. We've divided the year into eight periods to make sure we provide sufficient new news throughout the calendar. We're marrying that up with top-of-mind culture events to make sure we stay socially and culturally relevant to our customers, and we're focused on the target segments. We did a lot of customer segmentation work. We now know who drives our business, and we know who to focus on, and we know who not to focus on. So both those pieces are important. One learning from 2025 around value. We swung the pendulum too far towards limited time price promotions instead of everyday value. We had this fantastic biggy platform that we've now made even better with our Biggie deals platform around $4, $6 and $8, multiple price points, giving consumers more choice. And we will continue to upgrade the quality on our menu across the board. We have new chicken sandwiches rolling out. We're going to do some things on the hamburger side and a lot more hamburger innovation. If you look back at 2025, we had zero hamburger innovation in 2025. That is changing in 2026, starting actually next week with the launch of our new Cheesy Bacon Cheeseburger. So a lot of things are different. We're learning a lot and applying those learnings as quickly as possible.

The next question comes from Jake Bartlett of Truist.

I'm hoping you can expand on that a little bit. And in some of the learnings, you work with Creed Onco, the segmentation study that you did. What did you learn maybe a little more specifically that you didn't know before in terms of who your target customer is, and who you thought it was before, and who it actually is, and how that's informing the approach going forward. Ken, you mentioned that we've already seen some of the changes to the approach. I just -- maybe just remind us what we've seen so far on that front? Or are you kind of referring to what's going to -- what we're going to see next week with the launch of the new burgers and the [ raft. ]

Yes. Thanks for the question, Jake. In terms of the customer segmentation study, that was the first phase of the Creed Onco engagement. So first phase and foundational in terms of a proven playbook. We completed that study in December. And the good news is Wendy's does have a very strong brand perception, very strong. But from a customer perspective, this -- the needs-based approach helps us move beyond the what to the why. So segmenting customers based on need, why they are coming to Wendy's. Is it the quality of our food? Is it the price? Is it the abundance, convenience, snacking, what occasion are they coming in for? Is it for a dinner with family for a frosty to celebrate a kid's game, all of those things, better understanding the why. Then that allows us to value the segments and divide them up into who is our primary target, who is our secondary and who should we not focus on at all because they represent very small pieces of our overall customer base. This validated some things we already knew and did provide some new insights. But it helped us put the spotlight on so what? What are we going to do about these things, a couple of learnings and validations from the study where a big segment of our customers come to Wendy's for an everyday quality upgrade, especially hamburgers and our fresh never frozen beef. When we look back at 2025, we had zero hamburger innovation. We didn't talk about our hamburgers, and we didn't innovate on those. So that's changing this year. We're going to have several hamburger premium hamburger LTOs starting next week with the launch of our Cheesy Bacon Cheeseburger. So that's a learning. That's a big difference. We also will be making quality upgrades across the menu. In a couple of months, we'll launch our new and improved chicken sandwich lineup, so both classic and specie. Really excited about that, giving customers this everyday upgrade compared to what they can get from the competition. Another learning was a big segment of our population comes to Wendy's for our fries. The sweet and savory aspect, our fries, our frosties, and this snacking occasion. So again, reflecting backwards, that helps explain why Girl Scout Thin Mint, was such a success in 2025. We also have a new and improved collaboration with Girl Scout Think Mint Frosty, launching next week. So really excited about that. And we will incorporate some of this sweet and savory dynamics in our March Madness campaign here next month. And then $4, $6, $8 that snacking behavior did help inform the construct of our new Biggie deal platform. putting that $4 price point in there. So if you're coming to Wendy's, and you don't want a full meal, you want to get a quick snack, you can do that through that price point, but also having a for people who want more abundance, more value was really important. Another confirmation was really a large percentage of visits to Wendy's are unplanned. When somebody leaves the parking lot or their driveway, they don't know where they're going to eat, and so that highlighted the importance to us to keep Wendy's top of mind and make sure we're in their consideration set. So you've seen us significantly increase our social activity to help drive awareness. So we stay in the consideration set when people are coming to Wendy's. As importantly as who we are going to focus on, then we look at where we're not going to focus. So there's a very small portion of our customers are considered what I would call adventurous heaters. So these people want very unique flavor profiles, kind of extreme innovation. And again, they represent a very, very small percentage of our total, we shouldn't focus on them. When we look backward at 2025, some of the collaborations we did were focused on this segment of the population and weren't broadly healing enough to significantly move the needle for us. So we're going to move away from that. So I guess, in summary, what we've learned helps us target the customer segments we want to win with, and it helps us be more relevant to them in terms of the menu choices we make, the messaging and the operations, and it's foundational to the brand essence that we've developed.

The next question comes from Margaret-May Binshtok of Wolfe Research.

I just wanted to ask, I remember you guys talked about expecting October to be the trough for the year. Could you give some color on the cadence of comps through November and December? And what do you see exiting the quarter into January?

Yes. Great question, Margaret. So yes, October was the trough for us. November and December were better than October, which is great. In terms of as we exited 2025 and entered 2026, we did see some improvements in early January. And then in the middle of January, we launched our new Biggie Deal platform, which we are really excited about and pleased with so far. Then we met with some significant weather disruption. We ended January down about 8% in terms of U.S. SRS. We do expect the full first quarter to be a little bit better than that. So we're excited about the established value platform and the fact that we're talking about it in terms of Biggie, the distinctively Wendy's asset. Next week, we have the Girl Scout, Thin Mints Frosty, which now has both a swirl and a fusion option, which we think is really going to resonate with our customers. We have leveraging the chicken tenders launch in the fourth quarter. We're innovating off that. We have a new chicken tenders ranch wrap that launches next week. And then back to hamburger and premium high-quality hamburgers, we have a Cheesy Bacon Cheeseburger that launches. So all of these things, all of these things are what makes us excited about 2026. We will build throughout the year. We've talked about 2026 being a rebuilding year. 4Q of 2025 is the trough, and we expect to improve throughout the year as we execute on our Project Fresh initiatives.

The next question comes from Brian Mullan of Piper Sandler.

Just a question on the system optimization efforts. With 5% to 6% of the U.S. system closing in the first half of the year, I guess, could you just talk about how exhaustive this process is how flexible of an approach you're taking with franchisees, meaning will this really be all the units that the franchisees have any desire to close, and you'll be done after this? And then kind of just related to that, could you just comment on how this would impact the rental income line in '26, if you could put some parameters around that in the context of the guidance.

Yes, happy to. So system optimization is really about improving franchisee economics and improving the customer experience. We established a disciplined process with our franchisees to approach this restaurant by restaurant working with them to make the best decisions that strengthened the system in the long term. Under this program, we closed 28 stores in the fourth quarter. The AUVs were -- had significantly lower than our overall average, which is to be expected. And we do expect to close around 5% to 6% of our U.S. restaurants under this program, with the majority happening in the first half of 2026. We started with our list of restaurants. We also went out and had a process where franchisees could submit the restaurants they want. We've done a very robust process, evaluating trade area, operational metrics, the profitability, leveraging the new data we have on restaurant-level economics, and we expect 5% to 6% of the U.S. system to be impacted by this. In terms of the impact on total sales, in total, system optimization, we expect to have about a 4% impact on global system-wide sales, and we expect this to have about a $15 million to $20 million drag on adjusted EBITDA for the full year, which is inclusive of everything under that program, including the rental income.

Yes. The rental income for 2026 will be relatively flat. Obviously, it takes time to work with landlords and achieve what will be a win-win for both the franchisees and the Wendy's Company for those sites that we're in. So that will take a little bit longer to see the rental income impact versus the closures.

The next question comes from Jeffrey Bernstein of Barclays.

Ken, for a turnaround to work in a franchise model. It's obviously very delicate. It seems like it's a kind of a house of cards here, and it's all about the franchisee buy-in. So my guess is over the past 90 days, you've had a fair amount of discussions with those franchisees. I know it's a question that's come up before, but with the challenging fourth quarter and a rebuilding year in '26. I'm just wondering if you can share kind of current sentiment. I'm sure there are positives and negatives, but whether franchisees are aligned in terms of your approach to improving the comp whether they're keen to push more value, if there's any change in sentiment on unit growth, just an overarching discussion or perhaps color on just how franchisees are embracing the turnaround strategy.

Yes. Thanks for the question, Jeff. Under the One Wendy's approach, franchisees are appreciative of the flexibility that we've been providing and our willingness to make these decisions to help improve overall franchisee economics. Under the One Wendy's mindset, we know that the success of our company depends on the the success of franchisees and vice versa, which is why we elevated franchisee economics is a key priority for us. Sales deleverage puts pressure on franchisee economics, and that is what we're seeing now. There's a wide range of situations in the U.S. We're working with franchisees on a case-by-case basis, partnering and leaning in where we can and then executing on the Project Fresh pillar around system optimization, optimizing the footprint. In terms of one thing I've learned over the last couple of months as we've executed these and begun down that path is the importance of communication. So we have -- obviously, we're making a lot of changes to the system around around marketing, around operations, around system optimization. Communication is critically important in that. So we have significantly increased how frequently we're communicating with the franchisees. I was actually on a call with franchisees yesterday as part of the One Wendy's approach, giving them a preview of the things that they were going to hear on the earnings call today. Pete and I were with franchisees two weeks ago, walking through all the details of system optimization, allowing them to ask questions in a very open environment. Lindsay was on a go with franchisees a couple of weeks ago, walking them through the new approach to menu, messaging and how that was going to impact operations at the restaurant level. So that's critically important. Franchisees are appreciating the flexibility that we're giving and us working hand in hand with them to help improve overall franchisee economics.

The next question comes from Danilo Gargiulo from Bernstein.

Ken, I want to go back on to the segmentation study. And frankly, I'm a little bit surprised to hear that the learnings of the customer segmentations where the relevance of the beef platform, the fresh never frozen. I think you mentioned also snacking, which I think are a core part of the DNA of the brand for a long time. So I'm wondering if you can maybe talk about the -- if there was some institutional knowledge that has been lost in -- within the organization over time. And if you can maybe expand on the internal turnover employee engagement scores. Conversely, if you think that the real opportunity here is translating the inside or already inside organization into actionable initiatives. Is your current organizational structure and G&A investment sufficient to support that?

Yes. Great question, Danilo. So I think you're right. We had a combination of things that we knew that were validated through the CRE NCO study and the customer segmentation study, and we did have some new insights, a combination of those things. But the focus is really on what are we doing about it. And I think it highlighted over the past, we had lost our focus a little bit on who the target segments were and how we're approaching menu and messaging. So now with this refocused emphasis on everyday -- all the upgrades and making the menu better and highlighting the quality of our food relative to the competition, that will inform the new strategy. It will inform the marketing strategy and how we tell our story to consumers. We have set up a new -- as a result of this, we have instituted a new marketing framework. -- process provides disciplined consistency. We've divided the year into 8 periods to provide sufficient new news from a product perspective and new news that's relevant to our target segments. -- regular cadence for the restaurant teams that enable them to train appropriately and operate and execute these with excellence. And it helps us maintain balance in terms of core innovation and value. Window One, we launched Biggie deals. So very -- taking a very distinctive Wendy's asset, expanding that for the customer into this permanent value architecture. So we have everyday value that the customers can depend on and then talking about that. It doesn't form our decisions in terms of product quality enhancements Pick and sandwiches, significant improvement in quality on a core menu item that we've had for 30 years, will provide our customers an everyday upgrade versus what's on the market today. We're also having a bun upgrade coming soon, which we use on all our premium sandwiches. And another learning was making sure that we have this common thread of quality throughout everything that we do. And so you'll see that come to life in the product innovations that we have on the menu as well as how we talk about those throughout. It does take some time to build the foundation properly. The team is making a lot of progress, and we expect the benefit of these to increase throughout the year.

And Danilo, I might add from an investment standpoint in G&A, we have strong free cash flow and our number one capital allocation priority is investing in the business and our outlook for 2026 reflects those investments. Ken mentioned on the call, investments and build teams to better support our operational excellence in our restaurants. We saw that work with investments we made in 2025. And we're offering more investments in field resources in 2026 as well as international investments to support net unit development internationally.

The next question comes from Dennis Geiger of UBS.

Wondering if you could talk a little bit more about the Project Fresh rollout. And maybe thinking about the timing for the franchisees to have a lot of the capabilities that the company stores have currently. I want to be sure maybe that that's the right way to think about it, Ken. And just curious how we think about that, how we think about that timing and ultimately, thinking about that gap in comp performance and kind of narrowing that gap as the franchisees improve their performance as this rolls out.

Yes, Dan, it's a great question. Let me start by saying I'm very proud of the U.S. operations team. When you look at company restaurant performance versus the system, outperforming by 310 basis points in SRS for full year 2025 is really impressive, when you dive a level below that and see overall satisfaction was up 70 basis points year-over-year for company restaurants in the fourth quarter. When you look at accuracy, friendliness and taste, all of those elements, we're up over 300 basis points. So a great, great results from them. And how we did that great operations start with having great teams. People activation is about having the right capabilities and experience in our restaurants. And so it starts there and then enhancing the training, making sure that we're training all our employees on hospitality, and how to how to serve the guests with excellence. We mandated that for restaurant teams to make sure we were delivering quality and brand standards across the system. And then we implemented a very methodical approach to performance management and continuous improvement, making sure that each restaurant is focused on the 1 or 3 things that they had the opportunity to make the biggest improvement in, making sure we had disciplined action plans in place, making sure we had an accountability process behind that, where the district manager would come visit and review the progress that they were making. And then that, combined with daily operating plans to make sure the entire restaurant team was focused on executing the action plan. So we activated that in company restaurants in early 2025, and then started seeing big results in second half of 2020. If you look at the first quarter, there was about a 20 basis point difference between company restaurant SRS in the system. That grew to a little under 2% next quarter and then 400 basis points plus in the back half of the year. In terms of deploying that to the system, franchisees have been receptive to this. We have 20% of franchisees who have fully adopted the program that we rolled out, and we're working on deploying it with the rest of them right now. So I would expect to see the improvement to really start to take hold in the second half of 2026. But also remember, we keep pushing on the -- our company-operated restaurants to continue to get better, right? There's no finish line here. We want to get a little bit better every single day. So we want to have some healthy competition in the system and then see where we end up.

The next question comes from Gregory Francfort Frankfurt of Guggenheim Securities.

I just wanted to ask about breakfast. Can you remind us how many stores have it today and the flexible changes. How would you expect that, I guess, to impact that number over time? And then you talked about redeploying those hours into late night. Just any framing for the expectations for franchisees. Is this -- they're open up to midnight now and they still open them until 2 a.m. going forward? Just any thoughts on strategy-wise, how that helps.

Yes. So breakfast remains an important daypart for the system. The large majority of the system is going to stay in breakfast. We're not pulling out. We're working with franchisees right now to finalize those exact numbers, and we'll share updates as we go along. This is really a common sense decision, taking learnings from the past 6 years that we've been in breakfast, plus taking into consideration the current environment. And ultimately it was the right thing to do is have to improve franchisee economics. And when they do make changes in the breakfast side, it enables them to start serving length earlier. And focus their labor on dayparts with the highest potential, lunch, dinner and late night. Late night was actually our best performing daypart in 2025, and we think we have an opportunity to build on that. Even if you think about it just from a general manager perspective, that general manager is getting spread throughout the day, if you take some hours off of that morning daypart, it allows them to focus more on dinner and late night. So that's how that will work. We have a right to win in breakfast. If you look at the food that we serve, the Breakfast Baconator, the Brita, which is my personal favorite, we upgraded our beverage lineup in 2025, hot brew, cold brew and sparkling entity and continued focus on executing the local playbooks to help those restaurants succeed. In terms of the system-wide sales impact, the -- our estimated impact for breakfast is included in that 4% system optimization number that we provided. And again, we'll provide updates as we continue to work with franchisees and finalize the plans.

The next question comes from Jim Salera of Stephens Inc.

And I was hoping you could offer some thoughts maybe a higher level on how your expectations for QSR as a whole is going to progress this year. We've seen industry pressure obviously around traffic and consumer being still very kind of value conscious kind of continuing the trend from last year. Is the LCO framework that you set up this year more of kind of sharpening your elbows to take more of a piece of a smaller pie, or is it aimed at really driving consumers that may have lapsed from traditional QSR occasions and pulling them back into the category?

Thanks for the question, Jim. We expect the consumer to remain challenged throughout 2026. So we don't expect any big changes there, which means it does end up being a share game primarily. So we're really pleased with the way that we've set up the year. So launching this new Biggie deals platform was important for us. It provides customers value that they can rely on every single day. The way we're talking about it, giving customers more choice, this $4, $6 and $8 price point, $4 Biggie bites attracts customers who are looking for that lower price point and the customers that we've identified who come to Wendy's for more snacking occasions. And then we've intentionally designed the tiers of this to provide more value as you move up that chain. So $4, $6 and then $8. The $8, you get two sandwiches, fries and a drink. So full meal two sandwiches, highest quality beef, highest quality food, fresh, never frozen beef, so excited about that and a lot of abundance. And we're talking about it. So this is the first time we've advertised our Biggie platform since 2024. We do expect this to improve our worthwhile pay metrics and don't think we need to go deeper to kind of chase the price point below where we've set it now. The other thing that I would say is really refocusing our efforts on the Wendy's quality difference. We'll see that from the operations perspective, if you look at what we're doing, rolling out the action plans from company restaurants to the system, when you look at system optimization, and potentially closing 5% to 6% of the worst-performing restaurants in the U.S. That -- all those things are going to improve the customer experience, combined with the new marketing approach that highlights the value or the quality that Wendy's brings to the table, we think that will help us continue to improve comps as we move throughout 2026.

The next question comes from Andrew Charles of TD Cowen.

The dividend payout ratio has approached 100% in 2026, were at the high end of your target leverage ratio. So I'm curious what levers do you have in plan to sustain the dividend should the sequential U.S. sales improvement, not going to materialize the slope you expect or more investments required in the turnaround?

Yes, it's a great question. We're committed to the dividend. We have a very balanced capital allocation policy. Priority #1 is investing in the business. We invested $140 million in CapEx in 2025. We'll invest another $120 million to $130 million of CapEx in 2026. We still have a lot of cash on the balance sheet, $340 million, which provides us the flexibility to potentially acquire restaurants under the system optimization pillar, if we decide to. And then we have the $100 million -- approximately $100 million of dividend funds to pay out. Still deliver very strong cash flow, $200 million in 2025, $200 million in 2026, and we still have a $300 million revolving credit facility. So feel good about overall liquidity, feel good about the flexibility that we have, and we are focused on executing the Project Fresh turnaround.

The final question today comes from Lauren Silberman of Deutsche Bank.

I wanted to go back to the comp side. I know that January challenging was weather. I'm just trying to understand like underlying trends, and what you're assuming as we move through Q1. And then it seems like the guide implies comps of 1% to 2%. Can you just help us understand like the magnitude of the sequential improvement that you expect as we move through the year?

Yes. Thanks, Laura. So yes, it's -- January was a bumpy month. We did see improvements to start the year. So we saw some incremental improvement from where we exited 2025 into 2026. And then we were faced with significant weather disruption. January was down 8%. We do expect Q1 to come in a little bit better than that as we continue to see the benefits from the new Biggie platform as we continue to see the benefits from the new products that we're launching next week. And as we continue to sharpen our messaging, that really appeals to our core consumer. In a couple of months, we'll launch a new chicken sandwich lineup that's significant upgrade from where we are today and gives an everyday upgrade relative to what's available on the market. And we think that will be another boost. And then as all these things work together, all the levers of Project Fresh, system optimization, operational excellence initiatives take hold and our new and improved approach to menu and messaging, we expect sales to continue to improve as we move throughout 2026.

That was our last question of the call. Thank you, Ken and Suzie, and thank you, everyone, for joining us this morning. Have a great day.

Good morning. Welcome to The Wendy's Company Earnings Results Conference Call. [Operator Instructions] 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 Thuerk, 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 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.

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 systemwide 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 pay off in our U.S. company-operated restaurants, which significantly outperformed the overall system in the third quarter.

On our last earnings call, I outlined 3 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 a growth in our U.S. 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 U.S. system. Project Fresh is structured around 4 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 touch point. 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 help 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 scales 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, 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 U.S. franchisees to evaluate each and every underperforming restaurants stem from both the financial and the 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 dayparts. 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 Wendy's collaboration with Netflix, launching new beverages and providing relevant value to customers with our two junior bacon cheese butter meals for $8. This offer includes two of our iconic and customer favorite JVCs with fresh, never frozen beef, four pieces Applewood smoke 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 tendered along with six new sauces. Wendy's Tendies debuted at the beginning of the fourth quarter and as expected, customers love them. Demand was so strong that some restaurants sold out even before the National Media support, which fully launches this 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 are increasing our outlook for free cash flow by $35 million to $195 million 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%. International development in 2025 is tracking in line with our prior expectation for net unit growth of over 9%. 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 Suzie to provide more details on our third quarter results.

Thank you, Ken, and good morning, everyone. I'll start with our third quarter results, including an update on capital allocation before closing with more detail around our outlook for the remainder of 2025.

In the third quarter, global system-wide sales decreased 2.6% on a constant currency basis primarily driven by a decline in U.S. same-restaurant sales of 4.7%. This was partially offset by continued strength in our international business with 8.6% system-wide sales growth. The decline in U.S. same-restaurant sales was driven by a decrease in traffic, partially offset by a higher average check. Same-restaurant sales at our U.S. company-operated restaurants outperformed the U.S. system by 400 basis points declining 0.7%. The stronger performance in company-operated restaurants was driven by our actions focused on operational excellence as well as stronger delivery growth and the implementation of our digital menu boards and fresh AI automated ordering technology. As we execute on our U.S. turnaround initiatives under Project Fresh we're planning to scale these actions across the broader system to elevate the customer experience and drive profitable AUV growth. We're also making progress scaling our U.S. digital business with sales up 14.9% compared to the prior year, bringing U.S. digital mix to an all-time high of 20.3%.

Shifting to our international segment. In the third quarter, the Wendy's brand continued its strong momentum around the world, delivering system-wide sales growth of 8.6% and 3% same-restaurant sales. System-wide sales grew across all regions with some of the fastest-growing markets, including Mexico, with over 18% growth; and Puerto Rico with over 10% growth. Our Canadian business also continued to deliver solid results with over 7% system-wide sales growth in the third quarter and has gained traffic share in the QSR burger category for 17 consecutive quarters. These results demonstrate the strength of our global brand enabled by the investments we are making in regional capabilities.

Moving to the P&L. Total adjusted revenue was $442.5 million, a decrease of $1.1 million compared to the prior year, driven by both lower franchise royalty revenue and franchise rental income, partially offset by an increase in franchise fees. Global company-operated restaurant margin was 12.4% for the third quarter, and U.S. company-operated restaurant margin was 13.1%, a contraction of 250 basis points year-over-year. The decline in U.S. company-operated restaurant margin was primarily due to cost inflation with continued pressure on both beef and labor costs as well as a decline in traffic. These were partially offset by an increase in average check size and labor productivity, which was driven by lower turnover and improved train, reflecting the benefits of our operational improvement initiatives. Adjusted EBITDA was $138 million, which was up 2.1% versus the prior year, primarily driven by decreases in the company's funding of incremental advertising spend and G&A expenses of $6.4 million respectively. These items were partially offset by the decline in U.S. same restaurant sales. Adjusted earnings per share was $0.24, a $0.01 below prior year.

And turning to free cash flow, which continues to be a hallmark of The Wendy's brand. We've converted more than 100% of net income, generating $195.6 million of free cash flow through the first 3 quarters. This strength enables us to fund strategic investments while continuing to return capital to shareholders through share buybacks and dividends.

Moving on to capital allocation. Our first priority continues to be investing in the business, and as we've said, with Project Fresh, that means prioritizing AUV growth in the U.S. and net unit development internationally. In the third quarter, we invested $31.6 million across capital expenditures and our build-to-suit development program. Capital expenditures included $15.1 million in technology initiatives like our digital menu boards. We also invested $12.7 million in restaurant development across company-operated newbuilds and investments in our build-to-suit program.

Our second capital allocation priority is paying an attractive dividend, and today, we announced our fourth quarter dividend payment of $0.14 per share.

Our third priority is maintaining a strong balance sheet. We ended the third quarter with $326 million of cash on the balance sheet and a net leverage ratio of 4.5x, which is in line with prior quarter. Year-to-date, we have paid down $21.9 million of our whole business securitization debt principles. Our capital allocation policy gives us the flexibility to be opportunistic with our share repurchases, and during the third quarter, we repurchased 1.4 million shares for approximately $14 million. And year-to-date, we have repurchased 14.4 million shares for approximately $200 million completing our planned share repurchases for this year. Through the first 3 quarters of the year, we have returned over $300 million of cash to our shareholders through dividends and get repurchases. We remain on track to return over $325 million in 2025, an increase of more than $40 million compared to the prior year.

Now let's turn to our financial outlook. We are reaffirming our full year outlook for system-wide sales, adjusted EBITDA, adjusted EPS and net unit growth, and we are increasing our outlook for free cash flow. Our outlook assumes the dynamic consumer behavior and challenging competitive environment persists throughout the remainder of the year. For the full year 2025, we continue to expect global system-wide sales to range from down 3% to 5%. Our outlook assumes that system-wide and same-restaurant sales in the fourth quarter will be lower year-over-year in the third quarter, primarily driven by a decline in U.S. SRS given the tough prior year comparison. We continue to expect U.S. company-operated restaurant margin of 14%, plus or minus 50 basis points. This includes an updated commodity inflation outlook for the year of approximately 5%, primarily reflecting continued inflation in beef prices. We continue to expect labor inflation for the full year of approximately 4%. We now expect G&A to be between $250 million to $260 million and represent approximately 1.8% of system-wide sales for the full year. We are reaffirming our adjusted EBITDA outlook of $505 million to $525 million. We continue to expect approximately $130 million of interest expense. As a reminder, we plan to issue $400 million of whole business securitization notes in the fourth quarter. The proceeds will be used to pay $50 million of debt, which matured in December of 2025, and refinanced $350 million of whole business securitization notes, which mature in September of 2026.

Taking all of these items into account, we are maintaining our outlook for adjusted EPS of $0.82 to $0.89 per share. We now expect capital expenditures and build-to-suit investments to total between $135 million to $145 million, reflecting a decline of $30 million at the midpoint of the range from our previous outlook. This is primarily driven by a reduction in U.S. investments in the build-to-suit program as we prioritize AUV growth. We are increasing our expectation for free cash flow to be between $195 million to $210 million, an increase of $35 million at the midpoint of the range compared to our prior outlook. This increase is driven by the reduction in capital expenditures and build-to-suit investments, along with cash tax benefits related to the 2025 Tax and Reconciliation Act. Finally, we continue to expect net unit growth between 2% to 3%, primarily driven by the momentum we're building internationally. Our system optimization initiative in the U.S. could result in net unit growth coming in around the low end of this range.

In closing, we are focused on a disciplined financial approach to advance the strategic initiatives of Project Fresh. As One Wendy's, we are taking decisive actions to strengthen our financial foundation, and I'm confident this will better position our business for long-term growth.

And with that, I'll now turn it back to Ken.

I am pleased with the continued strong performance internationally and the progress we are making in the U.S. Our actions are focused on long-term success, and we are confident that our strategic shift toward AUV growth will strengthen the overall system. Project Fresh is underway and together as One Wendy's, we are executing initiatives with urgency to revitalize the Wendy's brand and enhance the customer experience. While these changes will take time to deliver their full impact, we believe that the actions we are taking today will build momentum and deliver sustainable long-term growth, creating value for all key stakeholders.

I'll now hand it over to Aaron to share our upcoming Investor Relations calendar.

Thank you, Ken. On November 20th, we will participate in the Stephens Investment Conference in Nashville. On December 4th, we will be in New York City for the Barclays Eat, Sleep and Play Conference. And then on December 11th, we will participate in the Virtual KeyBanc Capital Markets Consumer Conference. If you are interested in joining us at any of these events, please contact the respective sell-side analyst or equity sales contact at the host firm.

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. Operator, please queue up the first question.

[Operator Instructions] Our first question for today comes from David Palmer of Evercore ISI.

I wanted to ask you about franchisee cash flow and balance sheet levels today, and what you're hearing from the franchisees. And importantly, what quick wins do you think you have within Project Fresh, what elements might be there to help franchisee cash flow, either from sales drivers or other operational changes that you're contemplating.

Thanks, David. Great question. In terms of franchisee financial health, overall, the U.S. franchisee system remains healthy, although there are pockets of more acute financial pressure. We're working with those franchisees on a case-by-case basis to figure out the best path forward. System Optimization, which is one pillar of Project Fresh is an important tool in the toolkit that we have, and we're focused on improving restaurant-level economics, taking a hard look at underperforming restaurants in our system from both the financial and customer experience perspective and working with franchisees to improve those, transfer those to another operator or potentially closing them, which will help unlock capital for franchisees to further reinvest in the system. In terms of quick wins, we're really focused on the long term. So over the past couple of months, we've taken a hard look at our U.S. business and identified the big moves that will create the most long-term value for shareholders and the result of that work is Project Fresh. At the core, it's about making our restaurant level economics more compelling by increasing AUVs in the U.S. So how do we do that? It starts with revitalizing the brand. Wendy's was built on having the highest quality food in QSR and using the freshest ingredients, and that hasn't changed. Revitalizing the brand is about retelling our quality story to today's consumer. It's about leveraging the things that are distinctly Wendy's to stand out from the competition, and it's about better understanding our customers and how to reach them more effectively. To help with this, we've engaged an industry-leading consultant, and we are pleased with the early progress. The next two pillars are really about enhancing the customer experience. Operational excellence is about bringing the quality perception to life in our restaurants by ensuring that we serve our guests great food with a great experience every time they visit Wendy's. We're seeing the results of this payoff in company-operated restaurants, where we're outperforming the system by 400 basis points in terms of SRS in the quarter, and most of that outperformance is coming from traffic where we've seen satisfaction scores increase, friendliness and accuracy scores increased. So we'll be working on rolling that out throughout the system to help increase frequency there. And then system optimization really is about strengthening the brand, enhancing the customer experience and unlocking capital for our franchisees to reinvest in the system. The other thing I'd say is in terms of quick wins, we are very pleased with the launch of chicken tenders. So as we talked to you about last quarter, we simplified the programming calendar for the back half of this year to focus on doing fewer things better, and, so far, that's been a success. We're very pleased with the lunch of chicken tenders. We think that, that is going to generate momentum as we move throughout the fourth quarter and provide an important pillar for us to build on in 2026.

Our next question comes from Jeffrey Bernstein of Barclays.

Ken, just curious, as I think about the quick service landscape, it seems like Wendy's recent underperformance came about fast. Wondering what do you think were the primary factors leading to the widening underperformance relative to your largest QSR burger peers? And if value is one of them, it really didn't get much attention on the call this morning relative to dominating most everyone else's calls. So I'm just wondering whether you think peers are taking share on the value side of things, do you think your $5 and $8 meals are enough to protect your value share in this aggressive environment.

Yes. Thanks for the question, Jeffrey. I would say the back half of the year is playing out as we expected on the last call. So part of this is focusing on building long-term sustainable growth instead of launching essentially buying traffic in the short term. We're pleased with the performance from a customer experience in the U.S. Specific to your question about value, we do see more pressure on the lower-income consumer. We continue to see that in the third quarter, and we expect that to continue into the fourth. We believe we have a compelling value proposition on the menu. So our biggie bag, you get a junior bacon cheeseburger, 100% fresh, never frozen North American beef, a 4-piece nugget fries and a drink, all for $5. That is really compelling. We know that price is becoming an increasingly important component of the value equation, which is why we launched our $8 meal deal, which included 2 junior bacon cheeseburgers, fries and a drink. We saw both of those perform well in the quarter. But using the new data analytics capability, we did take a look at the $8 JBC mail specifically, and we were able to determine that it's doing a great job bringing back some of our customers more frequently. I didn't do as good of a job as we wanted attracting new customers. So that tells me we have an opportunity to tell our value story in a different way by focusing on both price and the quality of the ingredients we get. And well, look, we have strong equity in the biggie bag from a value perspective. We'll look at using that construct in new and interesting ways to help better resonate with consumers as we move forward in 2026.

Our next question comes from Brian Mullan of Piper Sandler.

Just a question on the system optimization initiative. Wondering if you could just put some numbers or some guardrails around how many closures you might expect next year in the U.S. even if it's just a range? And then related to that, is there anything worth considering as we think about potential impacts for your franchise rental income stream, not sure if that's relevant here or not. So if you could just address that?

Yes. Thank you for the question, Brian. In terms of system optimization, based on the information we have today, I'd estimate around a mid-single-digit percentage of U.S. restaurants would end up closing. I think we'll work through a detailed and programmatic process with our franchisees to determine the best case of that, and make sure that we are making the best decisions for the long-term health of the overall system. When we look at the system today, we have some restaurants that do not elevate the brand and are a drag from a financial -- from a franchisee financial performance perspective. The goal is to address and fix those restaurants. So in some cases, that's going to mean deploying operational improvements, deploying additional technology or equipment. In other cases, it will mean transferring those restaurants to a different operator who is better suited to be successful in that restaurant. And in other cases, we ultimately will close that restaurant, which will put money back in franchisees pockets and enable them to reinvest both capital and resources in their remaining restaurants. So we'll update you more on the next quarter call as we work through this process. We would expect those closures to start in the fourth quarter of this year, which could result in us coming in around the low end of our net unit guide for the year.

Our next question comes from Rahul Kro of JPMorgan.

Guys, thanks for the update. I'm just curious on how we should calibrate around your comment on growing U.S. AUVs over development. Is this -- does this target translate to just positive AUV growth or like more than 1%. And just I wanted a clarification around gross or net U.S. development you are talking about. And the follow-up is, can we get a time frame of how you think about the compression between the company and franchise store headline performance and maybe address a couple of areas in more detail where typically you might have less control over on menu pricing architecture and then to in-store operations?

Yes. Thank you for the question, Rahul. We're really talking about net unit development coming around the low end of our net unit development. Gross unit development is still on track. We will continue to build restaurants in the U.S. from a growth perspective. This is really about taking a long-term view, looking forward and asking ourselves, hey, 3 years from today, what decisions do we wish we would have made and then having the courage to make them today, which is what we're doing. We've worked closely with franchisees to make sure that they are aligned with this, and they are. Response has been overwhelmingly positive there. It's about addressing the fundamentals and improving the fundamental restaurant level economics in the U.S. At the same time, by doing this, we will enhance the customer experience across the system, increasing the consistency of the customer experience, which is ultimately going to result in more demand, not less for both Wendy's hamburgers in our system and ultimately more Wendy's restaurants as we do that. The second part of your question in terms of operational excellence, we started investing this in this in a big way earlier this year. So we focused on training. We focused on making sure we have the right people in the right seats and putting in place processes to make sure we're holding ourselves accountable for delivering for our customers day in and day out. We've outperformed the franchise system for the last couple of quarters. Obviously, that differential has been growing, which has significantly increased interest from franchisees. So now this becomes a pull, not a push, they're interested. We're going to be rolling that out, and we think that will help in a big way in 2026.

Our next question comes from Dennis Geiger of UBS.

Just wanted to touch on, can you -- you kind of just touched on it a bit there, but that outperformance of the U.S. company-owned in the quarter again, just kind of the franchisee feedback and sentiment on that. And in particular, I think you talked about scaling that. It sounds like it's a '26 type of benefit. Any more sense on the timing of the scaling of the actions and the activities to kind of get the franchise system more aligned with where the company stores are?

Yes. Thank you for the question, Dennis. We are very pleased with the outperformance and we think this is a very strong indication of the importance of enhancing the customer experience across the system, which is why that's one of the key pillars under Project Fresh. In terms of the timing, so we are in the process. We are working with franchisees today to scale that. We do believe that we'll see benefits from that as we look into 2026 [Audio Gap] more specific in terms of the cadence and shape of 2026 on our next call. But I think this is a real area of opportunity for us. And we combine that with our initiatives around revitalizing the brand, which ultimately helps bring more new customers into Wendy's restaurants. We think that creates a powerful long-term cycle that continues to elevate AUVs. I think we have room for significant AUV growth over the next few years, which will enhance franchisee level economics and then fuel the virtuous cycle.

Our next question comes from Chris O'Cull from Stifel.

Can you elaborate on the work you're doing with Creed & Company, specifically what new insights or analytic capabilities the company seeking to implement from the work?

Yes. So thank you for the question, Chris. It starts with listening to the customer. So in order to do that, we've launched a comprehensive customer segmentation study in conjunction with the [indiscernible]. Thousands of surveys are being completed by our consumers to help us understand the attributes of Wendy's that resonate most with our consumers. We're segmenting the consumers in several different ways to make sure we have the most relevant segmentations to drive growth, and how to communicate those attributes over the long term. So that -- the first step is the customer segmentation study then we go into relevance, ease and distinctiveness and understanding how it fits into that framework, and the culmination is a brand essence. So basically how we want who we are and how we are going to tell that story to our consumers, which then serves as a filter for everything else we do, from menu to marketing to social. And we think we have significant opportunity to improve effectiveness across all of those levels. One of the early learnings from this is just the importance of balancing sales overnight and brand over time. I think when we take a look back at what we've been focused on in the U.S. over the past few years, we focused on sales overnight and not enough on brand over time. So we have some work to do to reestablish Wendy's as the leader in quality and freshness in the industry. And by doing that, we're confident that we're going to drive AUVs higher.

Our next question comes from Margaret-May Binshtok of Wolfe Research.

You guys have talked a little bit about beverage as another pillar of the focus of the innovation pipeline. Can you give some color on the recent work you guys have done to the beverage platform, what the reception has been? And if you've seen any improvement in performance sequentially in conjunction with some of these rollouts.

Yes, Margaret, thank you. So we did launch some pretty exciting beverage products in the third quarter. We launched our cold brew and old foam offerings, and we also launched a sparkling energy lineup. Those launches performed in line with our overall expectations. We did not put media behind them to prioritize the Wednesday promotion and the value promotion around the $8 JBC meal deal, but they do add some compelling reasons for folks to join us at breakfast. Overall, breakfast in the quarter continued to underperform rest of day, as it has across the industry, given the consumer, there's pressure that consumers are under, but we feel good about the beverage lineup that we offer our customers today and how it has enhanced the overall breakfast offering.

Our next question comes from Danilo Gargiulo of Bernstein.

Ken, it's very encouraging to hear that franchisee profitability is even more on top of your agenda. I'm wondering how you're thinking about breakfast because on the one hand, it expands AUV in absolute dollars, so it's part of your plan. But on the other hand, you're talking about doing fewer things better, and breakfast is the day part of that. How to play most under pressure, and [ he's totally ] the one that might be delivering the lowest profit margin. So will you make it optional for franchisees? Are you working with them to assess it on a case-by-case basis, or are you going to maintain the national mandate?

Great question, Danilo. So breakfast remains an important part of our overall strategy, and we're committed to providing nationwide breakfast in The Wendy system. We have worked on a case-by-case basis with franchisees who have very low sales at the breakfast day part. And this is for several reasons. One example, as I first got out and started speaking with franchisees was, "Hey, Ken, I have a restaurant that's situated on the outperimeter of a mall. That mall doesn't open until 10:30. I do almost no breakfast business, but I have to staff it, and I have to be open at 6 a.m. This doesn't make sense. If you let me have flexibility and open that restaurant later, I'd be able to redeploy this labor to other dayparts, enhance customer experience and ultimately make more money for the franchisee." So we took a look at that across the system, and we did allow certain restaurants to opt out of breakfast and adjust their operating hours. In many cases, they started serving lunch earlier. Have seen some positive results there. Another thing that they did is when we look at hours optimization is, okay, if we're going to open a little bit later in the morning, then maybe we stay open a little bit later at night and have seen positive gains from that. But breakfast remains an important part of the overall strategy for us in the U.S., and we remain committed to nationwide breakfast. But we will work with franchisees. And that's the other thing I'll say about franchisee profitability. As we focus on significantly enhancing franchisee profitability and putting more money in the franchisees pockets, we believe that ultimately leads to a much stronger system, much stronger customer experience and ultimately drives demand for both hamburgers and restaurants.

Our next question comes from Jake Bartlett of Truist Securities.

Mine was hearing in on the fourth quarter here, and I know there's a lot of moving pieces in October as you lap the [ Cotty Patty success ]. I think as some macro headwinds build. We've heard from others -- if you can try to give us a sense of what you think your underlying momentum is at this point? Help us out in terms of -- you mentioned that the fourth quarter would be lower than the third. I think probably considerably lower if there's a way you can help us just maybe some guardrails around what the fourth quarter use comp should be. And then lastly, within all that, the Tendies launch, I think you mentioned that you're going to start the national advertising next week. Is that the kind of the big push for the remainder of the quarter, or are there any other marketing initiatives or innovation that they expect to come down the pike?

Thanks, Jake. Great question. So we were happy with reaffirming our full year guidance today. Like we talked about on the last call, the second half of this year was about simplifying the programming calendar so we could focus our execution on a handful of things that we're going to make the biggest difference. Instead of trying to throw too much at the fourth quarter, which may have resulted in some short-term sales gain at the expense of long term, we pushed a couple of product launches out of the second half of the year into 2026. And so all that is playing out as we expected, which is why we reaffirmed our full year guidance today. That has a couple of benefits for us. So number one, significantly strengthens the marketing can 2026 and and then provides time now to start building up this tested cover of ideas that we can then use to further enhance the calendar as we move throughout 2026. So this is about focusing on a couple of things. The big thing is pending. So we launched that at the beginning of the fourth quarter. Customer feedback has been very, very strong. We're pleased with the way that promote is going. We think it will provide momentum as we move through the fourth quarter and into 2026. And that also provides us some exciting ways how we can further innovate on that new core menu offering.

Our question comes from Eric Gonzalez of KeyBanc Capital Markets.

Related to an earlier question about closures, I think you said mid-single-digit percentage, which I believe is about 300 units. Do you still charge a closure fee to franchisees when they close their stores. And to the extent that you do, is that embedded in the EBITDA outlook this year? And maybe if you could touch on what the expectation related to those [ tenalfees ] next year?

Yes. So thank you for the question, Eric. I think historically, we have charged fees for restaurant closures. That is not the intent. So the intent is to make sure that we are strengthening the system for the long term, we are to approach this on a case-by-case basis and work with our franchisees for what makes the most sense. So allowing a franchisee to close a restaurant to in response for that, we're going to ask them to invest in their meeting restaurants. That can be equipment upgrades, technology, digital menu boards, there's a whole range of prioritized investments that we would ask them to make. It can also include building new restaurants. We have really good operators in the system that may have a restaurant area that moved we exit has closed or changed. And that restaurant is a financial big on their portfolio, but they're a great operator, allowing them to close a restaurant and then open a new one the next year or the year after, that can also be on the table going to evaluate this on a case-by-case basis, working through this with each franchisee to make the best long-term decisions for the system.

Our next question comes from Sara Senatore of Bank of America.

This is [indiscernible] on for Sara. Just a quick question about the US 4.7 comps in the quarter. I think that was better than what was anticipated. Do you guys mind just speaking about maybe from like a concentration standpoint, on what drove that, whether it was more effective marketing or the menu innovation? Or do you feel like hamburger QSR demand might have just been better than anticipated? Just curious for some color on that.

Yes, this is Suzie. Overall, our Q3 was in line with our expectations. As we stated on our prior call, July was down more than 5%. The balance of the core improvement was supported by a reduction, as Ken mentioned, in the program complexity, which allowed our restaurants to focus on the execution of Wednesday, which performed in line with our expectations as well. And then also as we head out of order in September, we allowed time for training and preparation for our chicken sures launch, which coming into the fourth quarter provided strong results, and we are happy and pleased with those results not only from an execution standpoint, but also how it's resonating with our consumer.

Our next question comes from Brian Bittner of Oppenheimer.

You're talking about this strategic shift in capital allocation in the United States from unit growth towards initiatives that will drive AUV growth. And I'd just love for you to unpack unpack this comment further, like what can specifically be done with this redirected capital to improve same-store sales? Are we talking about doubling down on remodels, digital menu boards. If you could talk more about that. Does this capital -- is this franchisee's capital, or does this include capital that you'll be investing at the corporate level to support these franchisee investments?

Yes. So thank you for the question, Brian. So this is a strategic shift in the near term to focus on AUVs. Fundamentally, if we improve AUVs, we are going to significantly enhance the franchisee profitability, improve the overall restaurant level economics and drive better customer experience and more demand for Wendy's and Wendy's restaurants. So that's ultimately what we're after here and what we think we can achieve. From a capital deployment perspective, we are shifting capital out of the build-to-suit program and towards initiatives that will support overall AUV growth throughout the system. A couple of things that we're focused on is technology and marketing. From a technology perspective, that can include anything that makes our -- makes life easier for our restaurant teams. One example of that, that we're working on that is improving the kitchen view system that we have in back of house, basically the screens that the sandwich makers use to build our orders. We're investing in improvements there to make it easier for the sandwich makers to deliver an accurate, customized burger every single time. That's one area. Another area is market effectiveness. So that includes the data analytics capability that we're investing in, which includes a lot of technology investment and also the outside consulting work that we've procured this year and the partnerships that we have there. So it's really taking a holistic view. We'll provide more updates about that when we give you the 2026 guide, but that's how we're looking at it.

Our next question comes from Jim Salera of Stephens.

And earlier, you had called out the company-owned same-restaurant sales out for, I think it was about 400 basis points. I was curious if you could maybe just give us some color among the franchisee base, if there's any characteristics or geographic tilt or tenure or anything that you can talk about your outperforming restaurants within the franchisee base and are there learnings that you can incorporate to kind of the broader store base as you think about that mid-single-digit U.S. restaurant closing?

Yes. Thank you for the question. So in terms of the outperformance, there wasn't -- the biggest correlation that we saw with the outperformance was really around the customer satisfaction scores that we saw in the U.S. company. Now we have a lot of franchisees in the system that run phenomenal restaurants as good or better than the company. But we're really proud of the improvements that we've made by focusing on getting the right people in the right seats by enhancing our training and then holding ourselves accountable. 75% of that 400 basis point outperformance came from traffic growth. And so that gives us an important proof point of how important that customer experience is and the type of guest frequency that we can drive by focusing on accuracy and friendliness.

Our next question comes from Andrew Strelzik of BMO.

I had a question about how you're thinking about restaurant margins going forward. And implicitly, what that means for franchisee profitability and their willingness to invest. And so I think your U.S. company-operated margins were down about 250 basis points, even though the comps were down less than 1%, and appreciating you want to get the comps an even better level than that. It doesn't seem like beef is going to be getting any better anytime soon. And so I guess I'm just curious how you're thinking about restaurant margins moving forward? Is there anything that you're doing from an ops perspective that you've already talked about, we should think about cushioning some of that margin compression potentially next year? Any color on that would be helpful.

Yes. Andrew, this is Suzie. So from a margin perspective, let me just say we did reiterate our outlook of 14% company-operated restaurant margin for the year, but we do continue to see pressure on beef. So beef drove our commodity outlook up from that 4% previously stated outlook up to 5%. And we now have 96% of our commodity basket locked for the year. So we feel good about where we'll land this year. In terms of the future, you can expect to see finish out the year with low single-digit pricing as we've seen throughout the remainder of the year. We know that, that lower-income consumer continues to remain under pressure, and we'll be disciplined about our approach to pricing. I just want to point out, too, we have a diverse menu. So while beef and our hamburgers play a huge role in our messaging, as you saw from the chicken tenders launch. We have a great chicken offering, and that's part of our brand story, that we'll continue to tell here in the fourth quarter and into 2026 as tender starts to pick up momentum as part of our core offering. So it's about balancing our menu, but luckily, it's focused on that profitable AUV growth. And that's really at the heart of Project Fresh and the biggest lever to offset and say inflation is an improved margins is focusing on that profitable AUV growth.

Yes, that's right. And that's why that is the cornerstone of Project Fresh, improving profitable AUVs in the U.S. So we are laser-focused on working with our franchisees to improve overall restaurant level margins, we believe the most effective way to do that in the long term is about revitalizing the brand, reestablishing Wendy's as the highest quality and freshest food in QSR, improving the effectiveness of our marketing, which those initiatives are well underway and then deploying operational excellence throughout the system. Another area that will help franchisee margin perspective is the system optimization. We have franchisees that are fantastic operators, and they may have 1 or 2 stores that are in bad areas that are dragging down their financial performance. So allowing them to close those, we'll free up capital, improve their margins and allow them to invest in the remaining restaurant which then enhances the customer experience and enables us to grow faster and increase those AUVs profitably.

Our next question comes from Gregory Francfort of Guggenheim Securities.

I wanted to just ask, I think we have almost 800 properties where you own either the land or the building on your books. Can you remind me how many of those stores do you have the land for and whether or not you would consider monetizing some portion of that portfolio to reinvest in the business for this brand-new retaliation.

Yes. Thanks for the question, Gregory. So we have about 645 properties, where we own the land. I think in total, we're in the lease chain on about 1,600 restaurants across the U.S. That is not going to be a disqualifier for looking at these restaurants to optimize just because we're on the lease change do not mean that we wouldn't look to significantly improve performance in those restaurants, including potentially closing them. And you're right, if we do close a restaurant that's on Wendy's property, then we would look to optimize and create value from that transaction, potentially selling the land under there, which creates more capital for us to reinvest in the system to accelerate the AUV and franchisee profitability flywheel. So that's something we're looking at as we work through with franchisees on a restaurant-by-restaurant basis. And we will provide additional updates on that on our fourth quarter call.

Our last question for today comes from Andrew Charles of TD Cowen.

Just want to understand within the 4Q guidance that sales are likely to decline or decelerate on a 1-year basis. What's your level of confidence on a 2-year basis, you could see some improvement just given some of the initiatives you're putting into place?

Yes, Andrew, we were able to reaffirm the guys because the back half of the year is playing out as we expected. I think when you look at the strategic decisions we made to pool some of the programming complexity out of the fourth quarter and push that into 2026. That does create a little bit of pressure on the fourth quarter from an SRS perspective. But we're confident it's the right long-term decision, and we are focused on optimizing long-term value. So by pushing some of that programming into 2026, it enabled us to focus our restaurant teams on the successful launch of chicken tenders in the fourth quarter. That is going to build momentum as we move throughout the back half of the fourth quarter and into 2025 and sets us up to have a much more successful of 2026. So yes, the Q4 is going to be the trough. October was the month that's going to be the trough, and we look forward to continuing to improve from here as we move into 2026.

That was our last question of the call today. I want to thank everybody for joining us this morning. Have a fantastic day.

Thank you all for joining today's call. You may now disconnect your lines.