Wendy’s rolls out Project Fresh amid weak US traffic; valuation and dividend remain attractive but execution risk rises

What happened

Wendy’s shares have been cut roughly half from prior highs as US traffic softness, record beef costs and a CEO transition pressured 2025 results, leaving the stock trading near ~9–10x FY2025 EPS with an elevated dividend yield. Management announced Project Fresh — a plan to close 200–350 underperforming U.S. restaurants, simplify value/promotions and accelerate digital/AI deployments (FreshAi, digital boards, loyalty) to restore throughput and check size. International operations are a clear offset, posting ~8.6% sales growth and being positioned as the primary source of net new units going forward. The franchised model and steady royalty/rental streams have supported healthy free cash flow, buybacks and a roughly 6–6.6% yield, but Wendy’s securitized financing and continued beef inflation make dividend coverage and covenant risk non-trivial. Execution is now the deciding factor — measurable traffic recovery and digital productivity gains validate the upside; rollout delays, persistent beef-cost pressure or covenant triggers would rapidly erode the case.

Implication

At current multiples and yield, Wendy’s offers a compelling risk/reward if Project Fresh and digital/AI initiatives reverse US traffic and lift margins — international growth and a franchise-heavy model provide downside protection. Expect near-term volatility: closures and promo simplification can depress sales and require closure costs, while FreshAi and digital boards are unproven at scale and may take quarters to move metrics. The dividend is attractive but not sacrosanct; sustained beef inflation or profit erosion could pressure coverage and expose securitization covenants. Investors should size positions incrementally and watch four catalysts — US same-restaurant sales inflection, measurable digital ROI, international unit momentum, and any securitization covenant disclosures — over the next 6–12 months.

Thesis delta

No material change to the DeepValue BUY: the valuation, franchised cash flows and international runway still underpin upside. However, Project Fresh’s scale (200–350 closures) and heavier reliance on unproven AI/digital productivity raise near-term execution and cash-flow timing risk, elevating the probability of short-term volatility and making covenant/dividend monitoring more urgent.