Wendy's (Wendy's (WEN)) shares popped in premarket trading Friday after the fast-food chain served up first-quarter results that beat Wall Street's expectations. But beneath the headline numbers, the company is still grappling with margin pressure from inflation and slower customer traffic.
The company reported adjusted earnings per share of $0.12, two cents above the analyst consensus of $0.10. Quarterly sales came in at $540.6 million, up 3.3% from a year ago and well ahead of the $518 million Street view. Adjusted revenues rose 2.2% to $432.3 million.
So far, so good. But dig into the restaurant-level numbers, and you'll see the squeeze. U.S. company-operated restaurant margins fell 340 basis points year over year to 11.4%. The culprit? A trifecta of declining traffic, commodity inflation, and higher labor costs. Wendy's partially offset those headwinds with a higher average check and some labor efficiencies, but not enough to keep margins from shrinking.
Global systemwide sales were $3.2 billion in the quarter, down 5.5%. Adjusted EBITDA dropped 10.6% to $111.3 million, dragged down by lower restaurant margins, less franchise royalty revenue, and higher general and administrative expenses. Higher net franchise fees provided a partial offset.
Interim CEO Ken Cook acknowledged the challenges but pointed to early signs of progress. The company is rolling out a new Biggie platform, upgrading its premium burgers, and introducing new chicken sandwiches. Cook said operational improvements are boosting order accuracy and customer satisfaction, though he stressed the business is still in the early stages of a turnaround.
One bright spot: Wendy's international business. Systemwide sales outside the U.S. rose 6% in the quarter, fueled by expansion in key growth markets. The company also signed a new franchise agreement to open up to 1,000 restaurants across China over the next decade. Cook said these initiatives are aimed at strengthening Wendy's foundation, restoring momentum, and supporting long-term growth.
Looking ahead, Wendy's reaffirmed its full-year 2026 adjusted EPS guidance of $0.56 to $0.60, right in line with the $0.57 analyst estimate. The company still expects roughly flat global systemwide sales growth for the year. It also reiterated adjusted EBITDA guidance of $460 million to $480 million, capital expenditures of $120 million to $130 million, and free cash flow of $190 million to $205 million.
Shares of Wendy's were up 4.46% at $7.25 in premarket trading Friday. Short interest in the stock remains elevated after a sharp rise in bearish positioning earlier this year, adding some extra spice to the day's price action.
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