Prepared remarks
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 system-wide 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. 2025 was a challenging year, but it was also an important year as we began laying the foundation to rebuild. Global system-wide sales declined 3.5%, driven by 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've continued to make improvements to the Wendy's app, including a redesigned home screen and gamification features, which drove higher customer engagement and record conversion rates. Next, our international business continued to be a strong growth engine throughout the year, delivering an 8.1% increase in system-wide sales with growth across all regions and 159 new restaurant openings. Net unit growth was up over 9% with 121 net new restaurants in 2025, marking a new record in the history of our international business, a clear sign that our international strategy is working and that investments in on-the-ground local resources, including regional franchisee recruiting, marketing and the globalized supply chain are delivering benefits. We achieved growth in both existing markets like Canada and Mexico as well as entry into 7 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 4 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 improve messaging and media effectiveness, we expect momentum to build sequentially as we move through 2026. Moving on to our next 2 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 architecture, enabling a substantial increase in product and promotion testing, reducing deployment timelines for new product launches and allowing us to bring innovation to life faster and more efficiently across the system. Turning to system optimization, which is about having the right footprint in each market to improve franchisee economics and enhance the customer experience. By closing consistently underperforming restaurants, we are enabling our franchisee partners to increase focus on locations with the greatest potential for profitable growth. Since we announced this program in November, we have been working with our franchisees to evaluate restaurants on a store-by-store basis and make collaborative decisions to optimize performance across the 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 fillets 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 initiative. 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 EPS 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 initiative, 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 3.5 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.
Questions and answers
Thank you, Ken. On March 10, we will participate in the Citibank Global Consumer and Retail Conference in Miami. And on March 11, 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. Due to the high number of covering analysts, please limit yourself to one question only. Operator, please queue up the first question.
Lots of 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 a 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 needed to be successful. We have an iconic brand, determined 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 focused 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 a lot of things that are going to be different. We have a new menu calendar framework. We've divided the year into 8 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 Biggie 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, and 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 0 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.
I'm hoping you can elaborate on your work with Creed UnCo and the segmentation study you conducted. What insights did you gain about your target customer, particularly in terms of who you thought it was versus who it actually is? How is this impacting your strategy moving forward? Ken, you mentioned that we've already seen some changes in the approach. Are you referring to what we can expect next week with the launch of the new burgers and the wrap?
Thank you for your question, Jake. The customer segmentation study we conducted was the initial phase of our engagement with Creed UnCo and serves as a foundation for our strategy. We completed this study in December, and I'm pleased to share that Wendy's has a very strong brand perception. This needs-based approach allows us to understand the reasons why customers choose Wendy's. We segment customers based on their motivations, whether it's the quality of our food, pricing, convenience, or specific occasions such as family dinners or celebrating a child's game. Gaining insights into these reasons enables us to effectively categorize our target audience into primary, secondary, and those we may not need to focus on due to their small representation among our customer base. We validated some existing knowledge while uncovering new insights. For instance, a significant segment of our customers prefers Wendy's for the everyday quality upgrade in hamburgers, particularly due to our fresh, never frozen beef. Looking back at 2025, we recognized that we did not innovate or emphasize our hamburgers, which we are rectifying this year with new premium hamburger limited-time offers, starting with the launch of our Cheesy Bacon Cheeseburger next week. Additionally, we plan to enhance our entire menu, including a new lineup of improved chicken sandwiches. We are thrilled to offer customers an upgraded experience compared to competitors. Another insight revealed a considerable portion of our customers enjoys our sides, like Frosty's, particularly for snacking. This understanding sheds light on the success we had with Girl Scout Thin Mints in 2025, and we will soon launch a new collaboration featuring the Girl Scout Thin Mints Frosty. We've also crafted our March Madness campaign around these sweet and savory elements. Our new Biggie Deal platform addresses snacking behavior with a $4 price option, along with $6 and $8 choices for those seeking more value. We've found that many customers decide where to eat only when they're already on their way, emphasizing the need for Wendy's to remain top-of-mind. This has led us to enhance our social media presence to increase brand awareness. Conversely, we recognize that a small segment of our audience consists of adventurous eaters looking for unique and extreme flavors. However, they represent a minor portion of our customer base, and focusing on them has not significantly impacted our growth. Thus, we will shift away from that approach. In summary, what we've learned helps us better target customer segments we aim to engage and makes us more relevant through our menu choices, messaging, and operations, which are crucial to our brand identity.
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. October was indeed our lowest point. November and December showed improvement over October, which is encouraging. As we transitioned from 2025 to 2026, we noticed some positive changes in early January. Mid-January marked the launch of our new Biggie Deal platform, which we are very excited about and satisfied with so far. However, we faced some significant weather challenges. By the end of January, we saw a decline of about 8% in U.S. same-store sales. We anticipate that the full first quarter will show slightly better results. We are enthusiastic about our established value platform, particularly with the emphasis on Biggie, a unique asset for Wendy's. Next week, we'll introduce the Girl Scout Thin Mint Frosty, available in both a swirl and fusion option, which we believe will appeal to our customers. We've also been building on the Chicken Tenders launch from the fourth quarter and will unveil a new Chicken Tenders Ranch Wrap next week. Additionally, we have the Cheesy Bacon Cheeseburger launching, focusing on high-quality hamburgers. All these initiatives contribute to our excitement for 2026. We plan to continue building throughout the year and have highlighted 2026 as a rebuilding year. The fourth quarter of 2025 was our low point, and we expect improvements as we implement our Project Fresh initiatives.
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, can 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, I’d be happy to. System optimization focuses on enhancing franchisee profitability and improving customer experience. We have implemented a structured process with our franchisees to evaluate each restaurant individually, collaborating with them to make informed decisions that will benefit the system in the long run. As part of this initiative, we closed 28 stores in the fourth quarter. The average unit volumes for those closures were significantly below our overall average, which was anticipated. We project that about 5% to 6% of our U.S. restaurants will be closed under this program, primarily within the first half of 2026. We initiated the process by identifying restaurants and also allowed franchisees to submit their own closure requests. A thorough evaluation was conducted, taking into account trade area, operational metrics, and profitability, while utilizing our enhanced restaurant-level economic data. We expect that 5% to 6% of the U.S. system will be affected. Regarding total sales, this system optimization is expected to reduce global system-wide sales by approximately 4%, which we estimate will result in a $15 million to $20 million impact on adjusted EBITDA for the entire year, including all elements associated with this program, such as 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.
Great. Ken, for a turnaround to work in a franchise model, it's obviously very delicate. It seems like it's 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, whether 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.
Thank you for the question, Jeff. Under the One Wendy's approach, franchisees appreciate the flexibility we've been offering and our efforts to enhance their overall economics. We understand that the success of our company is tied to the success of our franchisees, which is why we prioritize their economics. Sales pressure is impacting these economics, and we are currently observing that. There are various situations across the U.S., and we are collaborating with franchisees on an individual basis, partnering where possible and implementing the Project Fresh initiative for system optimization. One key takeaway over the past few months is the vital role of communication. We are making many changes throughout our system regarding menu, marketing, operations, and optimization, and effective communication is essential. Therefore, we have significantly increased our communication frequency with franchisees. I spoke with franchisees yesterday, previewing information they would hear on this earnings call. Pete and I met with franchisees two weeks ago to discuss system optimization details and allowed them to ask questions in an open setting. Lindsay also engaged with franchisees a couple of weeks ago to explain the new menu approach and its operational implications. This communication is crucial. Franchisees value the flexibility we provide and our collaborative efforts to enhance their overall economics.
Can I return to the segmentation study? I'm a bit surprised to hear that the insights from the customer segmentations highlighted the importance of the beef platform and the concept of fresh, never frozen products. You also mentioned snacking, which has been a fundamental aspect of the brand for quite a while. I'm curious if there might be some institutional knowledge that has diminished within the organization over time. Additionally, could you elaborate on the internal turnover and employee engagement scores? Furthermore, do you believe the real opportunity lies in translating the knowledge already within the organization into actionable initiatives? Is your current organizational structure and general and administrative investment adequate to support that?
Yes, great question, Danilo. You're correct that we had a mix of findings from the Creed UnCo study and the customer segmentation study. We gained some new insights from these, but the key focus is on how we're addressing these insights. It became clear that we had somewhat lost sight of who our target segments were and how we were approaching our menu and messaging. Now, we are emphasizing everyday quality upgrades and enhancing our menu, showcasing the quality of our food compared to competitors. This new focus will guide our menu strategy and our marketing approach, helping us communicate our story to consumers. As part of this effort, we have implemented a new marketing framework to ensure discipline and consistency. The year is now divided into eight periods, allowing for a consistent introduction of new products relevant to our target segments. This regular schedule also enables our restaurant teams to train effectively, ensuring excellence in execution. We aim to achieve a balance between core innovation and value. In our first window, we launched Biggie Deals, which leverages a distinctive Wendy's value proposition to provide everyday value for our customers. This will also inform decisions regarding product quality enhancements, such as significant improvements to our chicken sandwiches, which we have offered for 30 years. We are planning bun upgrades for all our premium sandwiches as well. Moreover, we've learned the importance of maintaining a consistent focus on quality across everything we do. You'll see this reflected in our menu innovations and in our marketing communications. Building this strong foundation takes time, but our team is making significant progress, and we expect these benefits to grow throughout the year.
And Danilo, I might add from an investment standpoint in G&A, we have strong free cash flow and our #1 capital allocation priority is investing in the business and our outlook for 2026 reflects those investments. Ken mentioned on the call, investments in field 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.
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 make 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 think about that gap in comp performance and kind of narrowing that gap as the franchisees improve their performance as this rolls out.
Yes, Dennis, that’s an excellent question. I want to express my pride in the U.S. operations team. The company restaurant performance, which outperformed the system by 310 basis points in SRS for the full year 2025, is truly impressive. When we look deeper, we see that overall satisfaction for company restaurants increased by 370 basis points year-over-year in the fourth quarter. Key metrics such as accuracy, friendliness, and taste also saw improvements of over 300 basis points. These results reflect the strength of our operations, which begin with having great teams. People activation involves ensuring we have the right skills and experience in our restaurants. This starts with enhanced training, focusing on hospitality and excellent guest service, which we mandated for our restaurant teams to ensure quality and adherence to brand standards. We also took a systematic approach to performance management and continuous improvement, where each restaurant focused on the key areas that could yield the biggest enhancements, supported by disciplined action plans and accountability processes involving district manager oversight. We implemented this in company restaurants in early 2025, leading to significant results in the second half of the year. In the first quarter, there was about a 20 basis point difference between company restaurant SRS and the system. This gap increased to just under 2% in the next quarter and exceeded 400 basis points in the latter half of the year. Franchisees have been receptive to this, with 20% fully adopting the program we've rolled out, and we are currently working to expand this to the rest. I anticipate improvements to take shape in the second half of 2026. However, it’s important to remember that we are continuously pushing our company-operated restaurants to keep improving. There’s no endpoint to this journey, and we aim for incremental progress every day to foster healthy competition within the system.
I just wanted to ask about breakfast. Can you remind us how many stores have it today? Also, how do you expect the flexible changes to impact that number over time? You mentioned redeploying those hours into late night. What are the expectations for franchisees? Are they now open until midnight and still open until 2:00 a.m. going forward? I'd like any thoughts on how this strategy 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. It helps improve franchisee economics. And when they do make changes on the breakfast side, it enables them to start serving lunch 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, if 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 Burrito, which is my personal favorite, we upgraded our beverage lineup in 2025, hot brew, cold brew and sparkling energy and continue to focus on executing the local playbooks to help those restaurants succeed. In terms of the system-wide sales impact, 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.
Ken, I was hoping you could offer some thoughts maybe at a higher level on how your expectations for QSR as a whole is going to progress this year. We've seen the industry pressured, obviously, around traffic and consumer being still very kind of value conscious, kind of continuing the trend from last year. Is the LTO 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?
Yes. 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 gain 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, which includes $4 Biggie bites that attract customers who are looking for that lower price point, as well as 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, with the $8 option providing 2 sandwiches, fries, and a drink. So full meal, 2 sandwiches, highest quality beef, highest quality food, fresh, never frozen beef. So we're excited about that and a lot of abundance. We're talking about it. 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 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, and when you look at system optimization and potentially closing 5% to 6% of the worst-performing restaurants in the U.S., all those things are going to improve the customer experience, combined with a new marketing approach that highlights 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 dividend payout ratio is approaching 100% in 2026, 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 materialize the slope you expect or more investments required in the turnaround?
Yes, that's a great question. We are dedicated to maintaining the dividend and have a well-balanced capital allocation strategy. Our top priority is to invest in the business, having allocated $140 million in capital expenditures for 2025, with plans to invest an additional $120 million to $130 million in 2026. We have a healthy cash reserve of $340 million, which gives us the flexibility to possibly acquire restaurants if we choose to. Additionally, we have around $100 million set aside for dividends. We expect to generate strong cash flow of $200 million in both 2025 and 2026, along with a $300 million revolving credit facility. Overall, we feel confident about our liquidity and the flexibility we have as we work on executing the Project Fresh turnaround.
I wanted to go back to the comp side. I know that January is challenging with 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%. So 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. January was a challenging month, but we did see some improvements as we began the year. There was incremental progress from the end of 2025 into 2026, although we faced significant weather disruptions, resulting in an 8% decline in January. We expect Q1 to perform slightly better as we leverage the benefits of the new Biggie platform and the new products launching next week. By refining our messaging to align with our core consumers, we're confident in our upcoming chicken sandwich lineup, which will significantly upgrade our current offerings and provide customers with a better everyday option compared to what’s currently available. We believe this will further enhance our performance. As we integrate these efforts along with Project Fresh, system optimization, and operational excellence initiatives along with our renewed approach to menu and messaging, we anticipate sales will continue to improve 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.