Wendy's (WEN) nearly two years of struggles competing with the likes of behemoths McDonald's (MCD) and Yum! Brands' (YUM) Taco Bell, plus upstarts such as Shake Shack, are creating one big problem.<\/p>\n
Franchisees are closing their locations and heading for the hills.<\/p>\n
Buried inside Wendy's brutal second quarter earnings call last week was a mention that 289 locations closed in the US during the first half of the year.<\/p>\n
It doesn't sound like US closures will be abating.<\/p>\n
"Understand that the health of franchisees certainly is pressured right now because of the sales declines that we have had," new Wendy's CEO Bob Wright told analysts on the call. "You guys know this business. When you see some of the sales declines, it is going to show up in restaurant profitability. It is going to pressure the franchisees and create a little bit of fragility there. When it came to closures, I think what you heard in some previous quarters was closures addressed more as a program for the system. You will see us take a much more targeted approach. We are going to come alongside our franchisees if they need our help."<\/p>\n
Wright added, "If we need to use closures of a few restaurants here and there to make a portfolio a little bit healthier and help that franchisee get to the right place. Maybe a trade area has moved on, and it's no longer a business that's viable going forward, then we'll certainly help them make that decision, close a restaurant, and get their portfolio healthier. Overall, the health of the system is tied to the health of the brand."<\/p>\n
Wright officially took over as CEO on May 21, adding to the yawning list of executive turnover at the fast food chain over the past two years. All the revolving door of leaders has done is bring on various new strategies that have confused franchisees and disenchanted customers.<\/p>\n
He is a seasoned fast food exec who spent the previous five years fixing Potbelly as CEO. Wright's appointment marked a return to Wendy's, where he previously served in several senior leadership roles, including COO.<\/p>\n
Wright has his work cut out for him in saving Wendy's.<\/p>\n
Wendy's same-restaurant sales in the US crashed 7% in the second quarter versus a 2.3% drop a year earlier. Adjusted operating profits tanked 13.2% year over year.<\/p>\n
Bernstein analyst Danilo Gargiulo said, "We think investors are likely to stay on the sidelines until the next update provides a quantified plan, even as the leadership and capital allocation overhangs we have flagged over the past year are now more constructively addressed. We view the dividend cut as a more deliberate decision to free up capital for investments rather than a distress signal. However, net leverage at 5.0x, the top of the company's target range, still constrains the pace at which management can deploy capital toward the turnaround, and with FY26 guidance withdrawn, investors have no financial framework to hold the plan accountable to until the next quarterly update. We reduce our estimates to account for the flow-through in the model from 2Q."<\/p>\n
Wendy's stock has fallen 65% in the past five years.<\/p>\n
Wendy's has posted six straight quarters of same-store sales declines, per Yahoo Finance AlphaSpace analysis. Not helping performance this year \u2014 besides a revolving door in the C-suite \u2014 are a revitalized Burger King (QSR) promising higher-quality burgers and McDonald's revamping its value menu.<\/p>\n
Wright and whoever he is able to attract as executive talent have their work cut out for them. Don't expect any turnaround in the business until early 2027, at the very best.<\/p>\n
Brian Sozzi is Yahoo Finance's Executive Editor, host of the Power Players with Brian Sozzi podcast, and a member of Yahoo Finance's editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.<\/p>\n