Wendy's Confirms Aggressive U.S. Store Closures Amid Deepening Sales Decline

What happened

Wendy's has moved forward with closing 5-6% of its U.S. restaurants, as revealed in its fourth-quarter 2025 earnings report, highlighting a strategic retreat in its core market. This action is part of the 'Project Fresh' turnaround plan, which aims to rationalize the footprint by shuttering underperforming stores to improve system economics. Domestic same-restaurant sales have worsened sequentially, dropping from -2.8% in Q1 2025 to -4.7% in Q3, driven by traffic losses and intense competitive pressure. The scale of closures, amounting to hundreds of locations, underscores management's reactive stance to persistent weakness rather than a proactive brand revitalization. While international growth offers a partial offset, this retrenchment signals that Wendy's U.S. challenges are more severe than previously acknowledged, aligning with the bear case in the DeepValue report.

Implication

The store closures will impose immediate financial drag through impairment and lease exit costs, straining an already leveraged balance sheet with net debt to EBITDA at 6.6x and limited cushion for missteps. If U.S. same-restaurant sales remain below -3% through 2026, as per the report's bear case, further guidance cuts could push the stock toward the $6.50 implied value, highlighting elevated downside risk. Success hinges on Project Fresh's execution, including digital tools like FreshAI, to boost restaurant-level margins and justify the closures as a strategic reset rather than a distress signal. Investors must closely monitor international growth, which has shown +3.0% SRS, to assess if it can meaningfully offset the shrinking U.S. base and support long-term EBITDA targets of $650-700 million by 2028. Given the high uncertainty and lack of margin of safety, maintaining a cautious stance with an attractive entry at $7.25 is prudent until clearer evidence of U.S. recovery emerges, as per the base scenario.

Thesis delta

The confirmation of large-scale U.S. store closures reinforces the report's bear case, indicating that domestic weakness is more entrenched and requires more aggressive action than previously framed. This development does not alter the core 'WAIT' thesis but heightens the urgency for visible U.S. comp stabilization or international outperformance in the next 6-12 months to avoid further downside. Without improvement, the risk of franchisee distress and additional guidance cuts remains elevated, supporting the need for patience or a lower entry point.