Wendy's Q4 Earnings Preview Reinforces U.S. Traffic Woes and Turnaround Risks

What happened

Wendy's heads into its Q4 2025 earnings release with weak U.S. traffic and falling sales estimates, as highlighted in recent news, underscoring persistent challenges in its domestic market. The DeepValue report reveals that U.S. same-restaurant sales deteriorated to -4.7% in Q3 2025, driven by inflation, competitive pressures, and consumer trade-downs, leading to margin compression and earlier guidance cuts. Management's multi-year Project Fresh turnaround, including store closures and digital initiatives like FreshAI, aims to reset the brand but remains capital-intensive and unproven in stemming traffic declines. High leverage at 6.6x net debt to EBITDA constrains financial flexibility, increasing vulnerability if the turnaround fails to gain traction quickly. Investors are now watching Q4 results for any signs of sales stabilization or further guidance adjustments, which will test the credibility of Wendy's recovery narrative.

Implication

The persistent U.S. traffic declines highlight that Wendy's core business remains under severe pressure, with no immediate relief from Project Fresh's long-term initiatives. Store closures and digital investments may temporarily weigh on earnings and cash flow, exacerbating margin compression amid high leverage. International growth, while positive, is too small to fully offset domestic headwinds, limiting near-term upside and exposing the stock to further downside if U.S. trends worsen. Without clear evidence of comp stabilization in Q4, the bear scenario with sustained sales declines becomes more probable, justifying the DeepValue 'WAIT' call. Therefore, investors should avoid new positions until either U.S. metrics improve or shares drop closer to the attractive entry level, prioritizing risk management over speculative bets.

Thesis delta

The news does not shift the core DeepValue thesis, which already anticipates weak U.S. trends and rates Wendy's as 'WAIT'. However, it amplifies the downside risk that Q4 earnings could fail to show sequential improvement, increasing the probability of the bear scenario where sales stay below -3%. If management issues further guidance cuts or lacks a clear path to stabilization, the thesis would tilt more negatively, emphasizing the need for patience or a lower entry price.