Wendy's (WEN)

Fast-food chain Wendy’s (NASDAQ:WEN) reported Q3 CY2025 results exceeding the market’s revenue expectations, but sales fell by 3% year on year to $549.5 million. Its non-GAAP profit of $0.24 per share was 22.9% above analysts’ consensus estimates.

Company Overview

Founded by Dave Thomas in 1969, Wendy’s (NASDAQ:WEN) is a renowned fast-food chain known for its fresh, never-frozen beef burgers, flavorful menu options, and commitment to quality.

Traditional fast-food restaurants are renowned for their speed and convenience, boasting menus filled with familiar and budget-friendly items. Their reputations for on-the-go consumption make them favored destinations for individuals and families needing a quick meal. This class of restaurants, however, is fighting the perception that their meals are unhealthy and made with inferior ingredients, a battle that's especially relevant today given the consumers increasing focus on health and wellness.

competitors include Burger King and Popeyes (owned by Restaurant Brands, NYSE:QSR), Jack in the Box (NASDAQ:JACK), McDonald’s (NYSE:MCD),Taco Bell and KFC (owned by Yum! Brands, NYSE:YUM).

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $2.21 billion in revenue over the past 12 months, Wendy's is a mid-sized restaurant chain, which sometimes brings disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale.

As you can see below, Wendy’s sales grew at a sluggish 4.7% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts).

This quarter, Wendy’s revenue fell by 3% year on year to $549.5 million but beat Wall Street’s estimates by 3.1%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last six years. This projection is underwhelming and suggests its menu offerings will see some demand headwinds.

Number of Restaurants

A restaurant chain’s total number of dining locations influences how much it can sell and how quickly revenue can grow.

Wendy's opened new restaurants quickly over the last two years, averaging 1.4% annual growth, faster than the broader restaurant sector.

When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.

Note that Wendy's reports its restaurant count intermittently, so some data points are missing in the chart below.

Same-Store Sales

A company's restaurant base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales is an industry measure of whether revenue is growing at those existing restaurants and is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Wendy’s demand within its existing dining locations has barely increased over the last two years as its same-store sales were flat. Wendy's should consider improving its foot traffic and efficiency before expanding its restaurant base.

In the latest quarter, Wendy’s same-store sales fell by 3.7% year on year. This decrease represents a further deceleration from its historical levels. We hope the business can get back on track.

Wendy's has great unit economics for a restaurant company, giving it ample room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an excellent 35.2% gross margin over the last two years. That means Wendy's only paid its suppliers $64.77 for every $100 in revenue.

Wendy’s gross profit margin came in at 34.4% this quarter, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as ingredients and transportation expenses) have been stable and it isn’t under pressure to lower prices.

Wendy’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 16.7% over the last two years. This profitability was top-notch for a restaurant business, showing it’s an well-run company with an efficient cost structure. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Wendy’s operating margin might fluctuated slightly but has generally stayed the same over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Wendy's generated an operating margin profit margin of 16.8%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Wendy’s unimpressive 6.5% annual EPS growth over the last six years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

In Q3, Wendy's reported adjusted EPS of $0.24, down from $0.25 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Wendy’s full-year EPS of $0.98 to shrink by 10.3%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Wendy's has shown robust cash profitability, driven by its attractive business model that enables it to reinvest or return capital to investors. The company’s free cash flow margin averaged 11.1% over the last two years, quite impressive for a restaurant business.

Wendy’s free cash flow clocked in at $104.3 million in Q3, equivalent to a 19% margin. The company’s cash profitability regressed as it was 2.8 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, leading to short-term swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Wendy's hasn’t been the highest-quality company lately because of its poor top-line performance, it historically found a few growth initiatives that worked. Its five-year average ROIC was 11.8%, higher than most restaurant businesses.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Wendy’s $4.12 billion of debt exceeds the $325.8 million of cash on its balance sheet. Furthermore, its 7× net-debt-to-EBITDA ratio (based on its EBITDA of $546.7 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Wendy's could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Wendy's can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

We were impressed by how significantly Wendy's blew past analysts’ EBITDA expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a solid print. The stock traded up 6.7% to $9.41 immediately following the results.

Updated: December 4, 2025 at 9:41 PM EST

Before investing in or passing on Wendy's, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Wendy's isn’t a terrible business, but it doesn’t pass our bar. To begin with, its revenue growth was a little slower over the last six years, and analysts expect its demand to deteriorate over the next 12 months. And while its strong free cash flow generation allows it to invest in growth initiatives while maintaining an ample cushion, the downside is its projected EPS for the next year is lacking. On top of that, its poor same-store sales performance has been a headwind.

Wendy’s P/E ratio based on the next 12 months is 10.2x. This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $10.25 on the company (compared to the current share price of $8.54).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.