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Item 2. Management’s Discussion and Analysis

2024-05-02 compared with 2023-11-02 · 176 added, 210 removed, 249 unchanged (61% of the section changed)

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This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of The Wendy’s Company (“The Wendy’s Company” and, together with its subsidiaries, the “Company,” “we,” “us,” or “our”) should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the related notes included elsewhere within this report and “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended January 1, 2023 (the “Form 10-K”).

There have been no material changes as of October 1, 2023 to the application of our critical accounting policies as described in Item 7 of the Form 10-K.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “Form 10-K”).

There have been no material changes as of March 31, 2024 to the application of our critical accounting policies as described in Item 7 of the Form 10-K.

Certain statements we make under this Item 2 constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995.

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Today, Wendy’s is the second largest quick-service restaurant company in the hamburger sandwich segment in the U.S.

based on traffic share, and the third largest globally with 7,166 restaurants in the U.S.

based on traffic and dollar share, and the third largest globally with 7,248 restaurants in the U.S.

and 32 foreign countries and U.S.

territories as of October 1, 2023.

territories as of March 31, 2024.

Each Wendy’s restaurant offers an extensive menu specializing in hamburger sandwiches and featuring filet of chicken breast sandwiches, which are prepared to order with the customer’s choice of toppings and condiments.

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The Company’s fiscal reporting periods consist of 52 or 53 weeks ending on the Sunday closest to December 31.

All three- and nine-month periods presented herein contain 13 weeks and 39 weeks, respectively.

All three-month periods presented herein contain 13 weeks.

All references to years, quarters and months relate to fiscal periods rather than calendar periods.

Executive Overview

As of October 1, 2023, the Wendy’s restaurant system was comprised of 7,166 restaurants, with 6,010 Wendy’s restaurants in operation in the U.S.

As of March 31, 2024, the Wendy’s restaurant system was comprised of 7,248 restaurants, with 6,028 Wendy’s restaurants in operation in the U.S.

restaurants, 399 were operated by the Company and 5,629 were operated by a total of 208 franchisees.

In addition, at October 1, 2023, there were 1,156 Wendy’s restaurants in operation in 32 foreign countries and U.S.

In addition, at March 31, 2024, there were 1,220 Wendy’s restaurants in operation in 32 foreign countries and U.S.

Of the international restaurants, 1,208 were operated by a total of 106 franchisees and 12 were operated by the Company in the United Kingdom (the “U.K.”).

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(1) sales at Company-operated restaurants and (2) franchise-related revenues, including royalties, national advertising funds contributions, rents and franchise fees received from Wendy’s franchised restaurants.

Company-operated restaurants comprised approximately 5% of the total Wendy’s system as of October 1, 2023.

Company-operated restaurants comprised approximately 5% of the total Wendy’s system as of March 31, 2024.

Wendy’s operating results are impacted by a number of external factors, including commodity costs, labor costs, intense price competition, unemployment and consumer spending levels, general economic and market trends and weather.

Wendy’s long-term growth opportunities include delivering accelerated global growth through (1) driving strong same-restaurant sales momentum across all dayparts, (2) accelerating our implementation of consumer-facing digital platforms and technologies and (3) expanding the Company’s footprint through global restaurant expansion.

Wendy’s long-term growth opportunities include delivering accelerated global growth through (1) driving same-restaurant sales momentum across all dayparts, (2) accelerating our consumer-facing digital platforms and technologies and (3) expanding the Company’s footprint across the globe.

Key Business Measures

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Restaurants temporarily closed for more than one week are excluded from same-restaurant sales.

This methodology is consistent with the metric used by our management for internal reporting and analysis.

The table summarizing same-restaurant sales below in “Results of Operations” provides the same-restaurant sales percent changes.

• Restaurant Margin - We define restaurant margin as sales from Company-operated restaurants less cost of sales divided by sales from Company-operated restaurants.

• Company-Operated Restaurant Margin - We define Company-operated restaurant margin as sales from Company-operated restaurants less cost of sales divided by sales from Company-operated restaurants.

Cost of sales includes food and paper, restaurant labor and occupancy, advertising and other operating costs.

Cost of sales excludes certain costs that support restaurant operations that are not allocated to individual restaurants, which are included in “General and administrative.” Cost of sales also excludes depreciation and amortization expense and impairment of long-lived assets.

Therefore, as restaurant margin as presented excludes certain costs as described above, its usefulness may be limited and may not be comparable to other similarly titled measures of other companies in our industry.

Restaurant margin is influenced by factors such as price increases, the effectiveness of our advertising and marketing initiatives, featured products, product mix, fluctuations in food and labor costs, restaurant openings, remodels and closures and the level of our fixed and semi-variable costs.

Therefore, as Company-operated restaurant margin as presented excludes certain costs as described above, its usefulness may be limited and may not be comparable to other similarly titled measures of other companies in our industry.

Company-operated restaurant margin is influenced by factors such as price increases, the effectiveness of our advertising and marketing initiatives, featured products, product mix, fluctuations in food and labor costs, restaurant openings, remodels and closures and the level of our fixed and semi-variable costs.

• Systemwide Sales - Systemwide sales is a non-GAAP financial measure, which includes sales by both Company-operated restaurants and franchised restaurants.

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The Company’s consolidated financial statements do not include sales by franchised restaurants to their customers.

The Company’s royalty and advertising funds revenues are computed as percentages of sales made by Wendy’s franchisees.

The Company’s royalty and advertising

funds revenues are computed as percentages of sales made by Wendy’s franchisees.

As a result, sales by Wendy’s franchisees have a direct effect on the Company’s royalty and advertising funds revenues and profitability.

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The Company considers economies that have had cumulative inflation in excess of 100% over a three-year period as highly inflationary.

The Company believes its presentation of same-restaurant sales, restaurant margin and systemwide sales provide a meaningful perspective of the underlying operating performance of the Company’s current business and enables investors to better understand and evaluate the Company’s historical and prospective operating performance.

The Company believes its presentation of same-restaurant sales, Company-operated restaurant margin and systemwide sales provide a meaningful perspective of the underlying operating performance of the Company’s current business and enables investors to better understand and evaluate the Company’s historical and prospective operating performance.

The Company believes that these metrics are important supplemental measures of operating performance because they highlight trends in the Company’s business that may not otherwise be apparent when relying solely on GAAP financial measures.

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Because all companies do not calculate non-GAAP financial measures in the same way, this measure as used by other companies may not be consistent with the way the Company calculates such measure.

Third Quarter Financial Highlights

• Revenue increased 3.4% to $550.6 million in the third quarter of 2023 compared with $532.6 million in the third quarter of 2022;

• Global same-restaurant sales increased 2.8%, U.S.

same-restaurant sales increased 2.2% and international same-restaurant sales increased 7.8% compared with the third quarter of 2022.

On a two-year basis, global same-restaurant sales increased 9.7%;

• Global Company-operated restaurant margin was 15.0% in the third quarter of 2023, an increase of 70 basis points compared with the third quarter of 2022;

• Net income increased 14.9% to $58.0 million in the third quarter of 2023 compared with $50.5 million in the third quarter of 2022.

Year-to-Date Financial Highlights

• Revenue increased 5.3% to $1.64 billion in the first nine months of 2023 compared with $1.56 billion in the first nine months of 2022;

First Quarter Financial Highlights

• Revenue increased 1.1% to $534.8 million in the first quarter of 2024 compared with $528.8 million in the first quarter of 2023;

• Global same-restaurant sales increased 0.9%, U.S.

same-restaurant sales increased 4.7% and international same-restaurant sales increased 9.4% compared with the first nine months of 2022.

same-restaurant sales increased 0.6% and international same-restaurant sales increased 3.2% compared with the first quarter of 2023.

On a two-year basis, global same-restaurant sales increased 8.9%;

• Global Company-operated restaurant margin was 15.1% in the first nine months of 2023, an increase of 160 basis points compared with the first nine months of 2022;

• Net income increased 15.7% to $157.5 million in the first nine months of 2023 compared with $136.1 million in the first nine months of 2022.

• Global Company-operated restaurant margin was 14.7% in the first quarter of 2024, an increase of 90 basis points compared with the first quarter of 2023;

• Net income increased 5.5% to $42.0 million in the first quarter of 2024 compared with $39.8 million in the first quarter of 2023.

Global Same-Restaurant Sales

Wendy’s long-term growth opportunities include driving strong same-restaurant sales momentum across all dayparts through our ownable core products, exciting menu innovation, compelling value offerings and improvements in speed, consistency and accuracy in our restaurants.

Global same-restaurant sales increased 2.8% in the third quarter of 2023 and

increased 9.7% on a two-year basis.

Global same-restaurant sales increased 5.2% in the first nine months of 2023 and increased 9.6% on a two-year basis.

Wendy’s long-term growth opportunities include accelerated implementation of consumer-facing digital platforms and technologies.

The Company has invested significant resources to focus on consumer-facing technology, including activating mobile ordering via Wendy’s mobile app, launching the Wendy’s Rewards loyalty program in the U.S.

Wendy’s long-term growth opportunities include driving same-restaurant sales across all dayparts through quality differentiation, exciting menu innovation and compelling value offerings.

Global same-restaurant sales increased 0.9% in the first quarter of 2024 and increased 8.9% on a two-year basis.

To drive same-restaurant sales across the breakfast daypart, the Company plans to fund approximately $27.0 million of incremental breakfast advertising in 2024.

Wendy’s long-term growth opportunities include accelerating consumer-facing digital platforms and technologies to drive global systemwide sales.

Over the past several years, the Company has invested significant resources to focus on consumer-facing technology, including activating mobile ordering via Wendy’s mobile app, launching the Wendy’s Rewards loyalty program in the U.S.

and Canada and establishing delivery agreements with third-party vendors.

The Company is also partnering with key technology providers to help execute our digital, restaurant technology and enterprise technology initiatives and support our technology innovation and growth.

The Company is also continuing to make digital investments and is partnering with key technology providers to help execute our digital, restaurant technology and enterprise technology initiatives and support our technology innovation and growth.

During the second quarter of 2023, the Company revised its definition of digital sales to reflect our full digital portfolio by including in-restaurant mobile scans, in addition to our previously included delivery, mobile order and kiosk digital channels.

Under the revised definition, the Company’s digital business represented approximately 12.8% and 10.7% of global systemwide sales during the nine months ended October 1, 2023 and October 2, 2022, respectively.

The Company’s digital business has continued to grow and, under the revised definition, digital sales as a percent of global systemwide sales increased from approximately 13.0% during the first quarter of 2023 to approximately 16.8% during the first quarter of 2024.

New Restaurant Development

Wendy’s long-term growth opportunities include expanding the Company’s footprint through global restaurant expansion.

To promote new restaurant development, the Company has provided franchisees with certain incentive programs for qualifying new restaurants, in addition to our $100.0 million build to suit development fund.

Wendy’s long-term growth opportunities include expanding the Company’s footprint across the globe.

To promote new restaurant development, the Company has provided franchisees with certain incentive programs for qualifying new restaurants, in addition to our build to suit development fund.

In February 2023, the Company announced a new restaurant development incentive program in the U.S.

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In addition, the Company has development agreements in place with a number of franchisees that contractually obligate such franchisees to open additional Wendy’s restaurants over a specified timeframe.

During the nine months ended October 1, 2023, the Company and its franchisees added 71 net new restaurants across the Wendy’s system.

During the three months ended March 31, 2024, the Company and its franchisees added eight net new restaurants across the Wendy’s system.

Organizational Redesign

In February 2023, the Board of Directors approved a plan to redesign the Company’s organizational structure to better support the execution of the Company’s long-term growth strategy by maximizing organizational efficiency and streamlining decision making (the “Organizational Redesign Plan”).

As a result of the Organizational Redesign Plan, the Company expects to hold its general and administrative expense in 2023 and 2024 relatively flat compared with 2022.

The Company expects to incur total costs of approximately $11 million to $13 million related to the Organizational Redesign Plan, of which approximately $9 million to $11 million will be cash expenditures.

The cash expenditures are expected to continue into 2025, with approximately two-thirds of the total cash expenditures occurring in 2023.

Costs related to the Organizational Redesign Plan are recorded to “Reorganization and realignment costs.” During the nine months ended October 1, 2023, the Company recognized costs totaling $8.0 million, which primarily included severance and related employee costs and share-based compensation.

The Company expects to incur additional costs aggregating approximately $3 million to $5 million, comprised of (1) severance and related employee costs of approximately $1.5 million, (2) recruitment and relocation costs of approximately $0.5 million, (3) third-party and other costs of approximately $0.5 million and (4) share-based compensation of approximately $1.5 million.

The Company expects costs related to the Organizational Redesign Plan to continue into 2026, with approximately three-fourths of the total costs to be recognized during 2023.

As a result of the Organizational Redesign Plan, the Company held its general and administrative expense in 2023 relatively flat compared with 2022.

Additionally, in January 2024, the Board of Directors announced the appointment of Kirk Tanner as the Company’s new President and Chief Executive Officer, effective February 5, 2024.

Tanner succeeded Todd A.

Penegor, the Company’s previous President and Chief Executive Officer, who departed from the Company in February 2024.

The Company expects to incur total costs of approximately $17 million to $19 million related to the Organizational Redesign Plan, including costs related to the succession of the President and Chief Executive Officer role.

Of the total costs, approximately $15 million to $17 million will be cash expenditures expected through 2026.

Costs related to the Organizational Redesign Plan are recorded to “Reorganization and realignment costs.” During the three months ended March 31, 2024, the Company recognized costs totaling $5.6 million, which primarily included severance and related employee costs.

The Company expects to incur additional costs aggregating approximately $2.5 million to $4.5 million, comprised of (1) severance and related employee costs of approximately $2.0 million, (2) recruitment and relocation costs of approximately $0.2 million and (3) share-based compensation of approximately $1.5 million.

The Company expects costs related to the Organizational Redesign Plan to continue into 2026.

Results of Operations

The tables included throughout this Results of Operations set forth in millions the Company’s condensed consolidated results of operations for the third quarter and the first nine months of 2023 and 2022.

Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

The tables included throughout this Results of Operations set forth in millions the Company’s condensed consolidated results of operations for the first quarter of 2024 and 2023.

First Quarter

2024 2023 Change

Sales $ 225.3 $ 227.9 $ (2.6)

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Amortization of cloud computing arrangements 3.5 1.6 1.9

System optimization gains, net (0.1) (0.5) 0.4 (0.1) (4.1) 4.0

System optimization losses (gains), net 0.1 — 0.1

Reorganization and realignment costs 5.7 6.8 (1.1)

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Loss on early extinguishment of debt — (1.3) 1.3

Investment (loss) income, net — — — (10.4) 2.1 (12.5)

Investment loss, net — (3.6) 3.6

Other income, net 6.8 7.4 (0.6)

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Net income $ 42.0 $ 39.8 $ 2.2

Third Quarter Nine Months

Total Revenues 2022 % of

Total Revenues 2023 % of

First Quarter

Total Revenues 2023 % of

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$ 534.8 100.0 % $ 528.8 100.0 %

Third Quarter Nine Months

Sales 2022 % of

Sales 2023 % of

First Quarter

Sales 2023 % of

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Total cost of sales $ 192.1 85.3 % $ 196.5 86.2 %

Third Quarter Nine Months

Sales 2022 % of

Sales 2023 % of

First Quarter

Sales 2023 % of

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The table below presents certain of the Company’s key business measures, which are defined and further discussed in the “Executive Overview” section included herein.

Third Quarter Nine Months

2023 2022 2023 2022

First Quarter

Key business measures:

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Franchised 0.7 % 7.2 %

2.2 % 6.4 % 4.7 % 3.3 %

International same-restaurant sales (a) 3.2 % 13.9 %

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(a) Excludes Argentina due to the impact of that country’s highly inflationary economy.

(b) During the third quarter of 2023 and 2022, global systemwide sales increased 4.8% and 8.9%, respectively, U.S.

systemwide sales increased 3.6% and 7.7%, respectively, and international systemwide sales increased 13.6% and 18.3%, respectively, on a constant currency basis.

During the first nine months of 2023 and 2022, global systemwide sales increased 7.2% and 6.3%, respectively, U.S.

(b) During the first quarter of 2024 and 2023, global systemwide sales increased 2.6% and 10.0%, respectively, U.S.

systemwide sales increased 1.7% and 8.6%, respectively, and international systemwide sales increased 8.8% and 21.0%, respectively, on a constant currency basis.

Third Quarter

First Quarter

Company-operated U.S.

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Restaurant count:

Restaurant count at July 2, 2023

403 5,590 11 1,111 7,115

Opened — 27 1 44 72

Closed — (10) — (11) (21)

Restaurant count at October 1, 2023

403 5,607 12 1,144 7,166

Company-operated U.S.

Franchised International Company-operated International Franchised Systemwide

Restaurant count at January 1, 2023

Restaurant count at December 31, 2023

403 5,627 12 1,198 7,240

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Closed (5) (15) — (7) (27)

Restaurant count at October 1, 2023

Restaurant count at March 31, 2024

399 5,629 12 1,208 7,248

Sales Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

Sales First Quarter

2024 2023 Change

Sales $ 225.3 $ 227.9 $ (2.6)

The increase in sales during the third quarter and the first nine months of 2023 was primarily due to (1) a 1.0% and 3.8% increase in global Company-operated same-restaurant sales of $3.5 million and $25.4 million, respectively, and (2) net new restaurant development of $2.5 million and $10.2 million, respectively.

Company-operated same-restaurant sales increased due to higher average check, partially offset by a decrease in customer count.

Franchise Royalty Revenue and Fees Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

The decrease in sales during the first quarter of 2024 was primarily due to (1) a 0.9% decrease in global Company-operated same-restaurant sales of $1.8 million and (2) net closures of Company-operated restaurants of $1.6 million.

Company-operated same-restaurant sales decreased due to a decrease in customer count, partially offset by higher average check.

Franchise Royalty Revenue and Fees First Quarter

2024 2023 Change

Franchise royalty revenue $ 125.7 $ 122.2 $ 3.5

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$ 146.6 $ 141.7 $ 4.9

Franchise royalty revenue during the third quarter of 2023 increased $5.6 million, of which (1) $3.2 million was due to net new restaurant development and (2) $2.4 million was due to a 3.0% increase in global franchise same-restaurant sales.

Franchise royalty revenue during the first nine months of 2023 increased $22.9 million, of which (1) $14.8 million was due to a 5.4% increase in global franchise same-restaurant sales and (2) $9.4 million was due to net new restaurant development.

Franchise same-restaurant sales during the third quarter and the first nine months of 2023 increased due to higher average check, partially offset by a decrease in customer count.

The increase in franchise fees during the third quarter of 2023 was primarily due to higher fees for providing information technology services to franchisees of $1.9 million.

The increase in franchise fees during the first nine months of 2023 was primarily due to (1) higher fees for providing information technology services to franchisees of $3.8 million and (2) an increase in fees as a result of Franchise Flips and other miscellaneous fees of $3.0 million.

Franchise Rental Income Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

Franchise royalty revenue during the first quarter of 2024 increased $3.5 million, of which (1) $2.0 million was due to net new restaurant development and (2) $1.2 million was due to a 1.1% increase in global franchise same-restaurant sales.

Franchise same-restaurant sales during the first quarter of 2024 increased due to higher average check, partially offset by a decrease in customer count.

The increase in franchise fees during the first quarter of 2024 was primarily due to (1) higher fees for providing information technology services to franchisees of $0.4 million and (2) an increase in other miscellaneous franchise fees of $1.0 million.

Franchise Rental Income First Quarter

2024 2023 Change

Franchise rental income $ 58.0 $ 57.8 $ 0.2

The decrease in franchise rental income during the third quarter and the first nine months of 2023 was primarily due to the impact of assigning certain leases to franchisees, partially offset by an increase in executory costs.

The increase in franchise rental income during the first quarter of 2024 was primarily due to increases in percent rent and executory costs, partially offset by the impact of assigning certain leases to franchisees.

See Note 11 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information.

Advertising Funds Revenue Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

Advertising Funds Revenue First Quarter

2024 2023 Change

Advertising funds revenue $ 104.9 $ 101.4 $ 3.5

The increase in advertising funds revenue during the third quarter and the first nine months of 2023 was primarily due to an increase in franchise same-restaurant sales in the U.S.

Cost of Sales, as a Percent of Sales Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

The increase in advertising funds revenue during the first quarter of 2024 was primarily due to (1) net new restaurant development of $1.3 million and (2) an increase in franchise same-restaurant sales in the U.S.

and Canada of $0.9 million.

Cost of Sales, as a Percent of Sales First Quarter

2024 2023 Change

Food and paper 30.7 % 32.4 % (1.7) %

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85.3 % 86.2 % (0.9) %

The decrease in cost of sales, as a percent of sales, during the third quarter and the first nine months of 2023 was primarily due to higher average check.

This impact was partially offset by (1) an increase in restaurant labor rates, (2) a decrease in customer count, (3) higher commodity costs and (4) the impact of the Company’s investments to support the entry into the U.K.

The decrease in cost of sales, as a percent of sales, during the first quarter of 2024 was primarily due to (1) higher average check and (2) higher investments to support the entry into the U.K.

market and additional inflationary pressures in the U.K.

Franchise Support and Other Costs Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

in the prior year.

These impacts were partially offset by (1) a decrease in customer count and (2) an increase in restaurant labor costs.

Franchise Support and Other Costs First Quarter

2024 2023 Change

Franchise support and other costs $ 14.7 $ 13.3 $ 1.4

The increase in franchise support and other costs during the third quarter and the first nine months of 2023 was primarily due to an increase in costs incurred to provide information technology and other services to franchisees.

Franchise Rental Expense Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

The increase in franchise support and other costs during the first quarter of 2024 was primarily due to an increase in costs incurred to provide information technology and other services to franchisees.

Franchise Rental Expense First Quarter

2024 2023 Change

Franchise rental expense $ 31.8 $ 30.6 $ 1.2

The increase in franchise rental expense during the third quarter and the first nine months of 2023 was primarily due to an increase in executory costs.

The increase in franchise rental expense during the first quarter of 2024 was primarily due to (1) the impact of assigning certain leases to franchisees and (2) increases in percent rent and executory costs.

See Note 11 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information.

Advertising Funds Expense Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

Advertising Funds Expense First Quarter

2024 2023 Change

Advertising funds expense $ 107.4 $ 101.7 $ 5.7

On an interim basis, advertising funds expense is recognized in proportion to advertising funds revenue.

The Company expects advertising funds expense to be lower than advertising funds revenue by approximately $3.0 million for 2023, which includes the amount by which advertising funds expense exceeded advertising funds revenue in prior years (excluding the Company’s funding of incremental advertising) of approximately $5.0 million, partially offset by the Company’s incremental funding of advertising in Canada of approximately $2.0 million.

The decrease in advertising funds expense during the third quarter of 2023 was due to a decrease in the Company’s funding of incremental advertising, partially offset by an increase in franchise same-restaurant sales in the U.S.

The increase in advertising funds expense during the first nine months of 2023 was due to an increase in franchise same-restaurant sales in the U.S.

and Canada, partially offset by a decrease in the Company’s funding of incremental advertising.

General and Administrative Third Quarter Nine Months

2023 2022 (a) Change 2023 2022 (a) Change

The Company expects advertising funds expense to be higher than advertising funds revenue by approximately $27.0 million for 2024, which represents the Company’s plan to fund incremental breakfast advertising.

The increase in advertising funds expense during the first quarter of 2024 was due to (1) the recognition of $2.5 million of the expected Company breakfast advertising spend in excess of advertising funds revenue and (2) an increase in franchise same-restaurant sales in the U.S.

General and Administrative First Quarter

2024 2023 Change

Share-based compensation $ 5.7 $ 3.8 $ 1.9

Employee compensation and benefits 34.6 33.8 0.8

Professional fees 13.9 15.0 (1.1)

Incentive compensation 5.4 6.4 (1.0) 20.4 19.2 1.2

Other, net 9.6 9.7 (0.1)

$ 63.8 $ 62.3 $ 1.5

_______________

(a) Certain reclassifications have been made to the prior year presentation to conform to the current year presentation.

The decrease in general and administrative expenses during the third quarter of 2023 was primarily due to a decrease in professional fees, primarily as a result of costs associated with the Company’s enterprise resource planning (“ERP”) system implementation during the third quarter of 2022.

The decrease in general and administrative expenses during the first nine months of 2023 was primarily due to (1) a decrease in share-based compensation and (2) lower professional fees, primarily as a result of costs associated with the Company’s ERP system implementation during the first nine months of 2022.

These decreases were partially offset by an increase in incentive compensation accruals, reflecting higher operating performance as compared to plan in 2023 versus 2022.

Depreciation and Amortization (exclusive of amortization of cloud computing arrangements shown separately below) Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

The increase in general and administrative expenses during the first quarter of 2024 was primarily due to (1) an increase in share-based compensation and (2) higher employee compensation and benefits.

These increases were partially offset by a decrease in professional fees, primarily as a result of costs associated with the Company’s human capital management (“HCM”) system implementation completed in the third quarter of 2023.

Depreciation and Amortization (exclusive of amortization of cloud computing arrangements shown separately below) First Quarter

2024 2023 Change

Restaurants $ 22.5 $ 20.9 $ 1.6

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$ 35.5 $ 33.5 $ 2.0

The increase in depreciation and amortization during the first nine months of 2023 was primarily due to depreciation and amortization for technology investments and new restaurant assets, partially offset by assets becoming fully depreciated.

Amortization of Cloud Computing Arrangements Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

The increase in depreciation and amortization during the first quarter of 2024 was primarily due to (1) asset additions for new and remodeled restaurants and (2) depreciation and amortization for technology investments.

Amortization of Cloud Computing Arrangements First Quarter

2024 2023 Change

Amortization of cloud computing arrangements $ 3.5 $ 1.6 $ 1.9

Amortization of cloud computing arrangements primarily represents amortization of assets associated with the Company’s ERP system implementation completed in the third quarter of 2022.

System Optimization Gains, Net Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

System optimization gains, net $ (0.1) $ (0.5) $ 0.4 $ (0.1) $ (4.1) $ 4.0

System optimization gains, net for the first nine months of 2022 were primarily comprised of post-closing adjustments on previous sales of restaurants.

The increase in amortization of cloud computing arrangements was primarily due to amortization of assets associated with the Company’s HCM system implementation completed in the third quarter of 2023.

System Optimization Losses (Gains), Net First Quarter

2024 2023 Change

System optimization losses (gains), net $ 0.1 $ — $ 0.1

System optimization losses (gains), net for the first quarter of 2024 were comprised of losses on the sale of surplus and other properties.

See Note 3 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information.

Reorganization and Realignment Costs Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

Reorganization and Realignment Costs First Quarter

2024 2023 Change

Organizational redesign $ 5.6 $ 6.7 $ (1.1)

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$ 5.7 $ 6.8 $ (1.1)

During the first nine months of 2023, the Company recognized costs totaling $8.0 million under the Organizational Redesign Plan, which primarily included severance and related employee costs of $5.7 million and share-based compensation of $1.1 million.

The decrease in reorganization and realignment costs was primarily due to (1) lower share-based compensation and (2) a decrease in third-party and other costs under the Organizational Redesign Plan.

See Note 4 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information.

Costs incurred under the Company’s other reorganization and realignment plans were not material during the three and nine months ended October 1, 2023 and October 2, 2022.

Costs incurred under the Company’s other reorganization and realignment plans were not material during the three months ended March 31, 2024 and April 2, 2023.

The Company does not expect to incur any material additional costs under these plans.

Impairment of Long-Lived Assets Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

Impairment of Long-Lived Assets First Quarter

2024 2023 Change

Impairment of long-lived assets $ 2.0 $ 0.4 $ 1.6

The decrease in impairment of long-lived assets during the first nine months of 2023 was primarily due to higher impairment charges in the prior year as a result of the deterioration in operating performance of certain Company-operated restaurants.

Other Operating Income, Net Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

Gain from insurance recoveries $ — $ (8.6) $ 8.6 $ — $ (8.6) $ 8.6

Lease buyout 0.2 — 0.2 0.2 (2.1) 2.3

The increase in impairment of long-lived assets during the first quarter of 2024 was primarily due to higher impairment charges as a result of the deterioration in operating performance of certain Company-operated restaurants.

Other Operating Income, Net First Quarter

2024 2023 Change

Equity in earnings in joint venture, net $ (2.5) $ (2.1) $ (0.4)

Other, net (0.5) (0.3) (0.2)

$ (3.0) $ (2.4) $ (0.6)

The decrease in other operating income, net during the third quarter and the first nine months of 2023 was primarily due to a gain from insurance recoveries during the third quarter of 2022.

Other operating income, net during the first nine months of 2023 also decreased due to prior year lease buyout activity.

Interest Expense, Net Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

The increase in other operating income, net during the first quarter of 2024 was primarily due to an increase in the equity in earnings from our TimWen joint venture.

Interest Expense, Net First Quarter

2024 2023 Change

Interest expense, net $ 30.5 $ 31.7 $ (1.2)

The decrease in interest expense, net during the third quarter of 2023 was primarily due to the impact of repurchasing $39.3 million in principal of the Company’s 7% debentures during the first nine months of 2023.

The increase in interest expense, net during the first nine months of 2023 was primarily due to the impact of completing a debt financing transaction under the Company’s securitized financing facility in the first quarter of 2022, partially offset by the impact of repurchasing $39.3 million in principal of the Company’s 7% debentures during the first nine months of 2023.

Loss on Early Extinguishment of Debt Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

The decrease in interest expense, net during the first quarter of 2024 was primarily due to lower outstanding long-term debt.

Loss on Early Extinguishment of Debt First Quarter

2024 2023 Change

Loss on early extinguishment of debt $ — $ 1.3 $ (1.3)

During the first nine months of 2023, the Company incurred a loss on early extinguishment of debt of $1.6 million due to the repurchase of $39.3 million in principal of the Company’s 7% debentures.

Investment (Loss) Income, Net Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

Investment (loss) income, net $ — $ — $ — $ (10.4) $ 2.1 $ (12.5)

During the first nine months of 2023, the Company recorded a loss of $10.4 million due to impairment charges for the difference between the estimated fair value and the carrying value of an investment in equity securities.

During the first nine months of 2022, the Company recognized a gain of $2.1 million on an investment in equity securities as a result of an observable price change.

Other Income, Net Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

During the first quarter of 2023, the Company incurred a loss on early extinguishment of debt of $1.3 million related to the repurchase of $31.6 million in principal of the Company’s 7% debentures.

Investment Loss, Net First Quarter

2024 2023 Change

Investment loss, net $ — $ 3.6 $ (3.6)

During the first quarter of 2023, the Company recorded a loss of $3.6 million due to impairment charges for the difference between the estimated fair value and the carrying value of an investment in equity securities.

Other Income, Net First Quarter

2024 2023 Change

Other income, net $ 6.8 $ 7.4 $ (0.6)

The increase in other income, net during the third quarter and the first nine months of 2023 was primarily due to interest income earned on our cash equivalents, which increased as a result of cash received from our debt financing transaction under the Company’s securitized financing facility in the first quarter of 2022.

Provision for Income Taxes Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

The decrease in other income, net during the first quarter of 2024 was primarily due to a decrease in interest income, reflecting lower balances of cash equivalents.

Provision for Income Taxes First Quarter

2024 2023 Change

Income before income taxes $ 57.5 $ 55.3 $ 2.2

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26.9 % 28.0 % (1.1) %

Our effective tax rates for the third quarter and the first nine months of 2023 and 2022 were impacted by variations in income before income taxes, adjusted for recurring items such as non-deductible expenses and state income taxes, as well as non-recurring discrete items.

The decrease in the effective tax rate for the third quarter of 2023 compared with the third quarter of 2022 was primarily due to (1) a decrease in the tax effects of our foreign operations and (2) additional net income from our national advertising funds, which are not subject to tax.

These decreases were partially offset by an increase in state income taxes, including discrete changes to state deferred income taxes.

The decrease in the effective tax rate for the first nine months of 2023 compared with the first nine months of 2022 was primarily due to additional net income from our advertising funds, which are not subject to tax, partially offset by an increase in the tax effects of our foreign operations.

Our effective tax rates for the first quarter of 2024 and 2023 were impacted by variations in income before income taxes, adjusted for recurring items such as non-deductible expenses and state income taxes, as well as non-recurring discrete items.

The decrease in the effective tax rate for the first quarter of 2024 compared with the first quarter of 2023 was primarily due to a decrease in the tax effects of our foreign operations.

This decrease was partially offset by (1) an increase in state income taxes, including discrete changes to state deferred income taxes, and (2) a decrease in the benefit of share-based compensation.

Numerous countries have enacted the Organization of Economic Corporation and Development’s framework on a global minimum tax (referred to as “Pillar 2”), with the earliest effective date for taxable years beginning after December 31, 2023.

While the Company does not expect this enactment will have a material impact on the condensed consolidated financial statements, we will continue to evaluate and monitor as additional guidance and clarification becomes available.

Segment Information

See Note 16 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information regarding the Company’s segments.

Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

First Quarter

2024 2023 Change

Sales $ 219.5 $ 222.6 $ (3.1)

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The increase in Wendy’s U.S.

revenues during the third quarter and the first nine months of 2023 was primarily due to an increase in same-restaurant sales.

Same-restaurant sales increased during the third quarter and the first nine months of 2023 primarily due to higher average check, partially offset by a decrease in customer count.

revenues during the first quarter of 2024 was primarily due to (1) net new restaurant development and (2) an increase in franchise same-restaurant sales.

Franchise same-restaurant sales increased during the first quarter of 2024 primarily due to higher average check, partially offset by a decrease in customer count.

These increases were partially offset by a decrease in Company-operated sales driven by the same factors as described above for “Sales.”

The increase in Wendy’s U.S.

segment profit during the third quarter and the first nine months of 2023 was primarily due to (1) higher revenues, (2) lower cost of sales, as a percent of sales for Company-operated restaurants driven by the same factors as described above for “Cost of Sales, as a Percent of Sales” (excluding the impact of the U.K.

market) and (3) a decrease in the recognition of the Company’s funding of incremental advertising.

segment profit during the first quarter of 2024 was primarily due to (1) an increase in franchise royalty revenue and fees and (2) lower cost of sales, as a percent of sales for Company-operated restaurants driven by the same factors as described above for “Cost of Sales, as a Percent of Sales” (excluding the impact of the U.K.

These changes were partially offset by (1) an increase in the Company’s funding of incremental advertising and (2) higher franchise support and other costs.

Wendy’s International

Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

First Quarter

2024 2023 Change

Sales $ 5.9 $ 5.3 $ 0.6

4 unchanged sentences

Segment profit $ 10.7 $ 7.4 $ 3.3

The increase in Wendy’s International revenues during the third quarter and the first nine months of 2023 was primarily due to (1) net new restaurant development in the U.K.

and (2) an increase in same-restaurant sales.

Same-restaurant sales increased during the third quarter and the first nine months of 2023 due to (1) higher average check and (2) an increase in customer count.

The increase in Wendy’s International segment profit during the third quarter and the first nine months of 2023 was primarily due to higher revenues.

This increase was partially offset by (1) higher franchise support and other costs, (2) the Company’s investments to support the entry into the U.K.

market and inflationary pressures in the U.K and (3) other international advertising expenses.

The increase in Wendy’s International revenues during the first quarter of 2024 was primarily due to (1) net new restaurant development and (2) an increase in franchise same-restaurant sales.

Franchise same-restaurant sales increased during the first quarter of 2024 due to higher average check, partially offset by a decrease in customer count.

The increase in Wendy’s International segment profit during the first quarter of 2024 was primarily due to higher revenues.

This increase was partially offset by higher franchise support and other costs.

Global Real Estate & Development

Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

First Quarter

2024 2023 Change

Franchise fees $ 1.1 $ 0.7 $ 0.4

2 unchanged sentences

Segment profit $ 24.1 $ 25.1 $ (1.0)

The decrease in Global Real Estate & Development revenues during the third quarter and the first nine months of 2023 was primarily due to the impact of assigning certain leases to franchisees, partially offset by an increase in executory costs.

The decrease in Global Real Estate & Development segment profit during the third quarter and the first nine months of 2023 was primarily due to (1) a decrease in franchise rental income, reflecting the impact of assigning certain leases to franchisees, and (2) lower gains on sales-type leases.

The increase in Global Real Estate & Development revenues during the first quarter of 2024 was primarily due to higher development-related fees.

The decrease in Global Real Estate & Development segment profit during the first quarter of 2024 was primarily due to an increase in franchise rental expense, reflecting the impact of assigning certain leases to franchisees.

Liquidity and Capital Resources

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• capital expenditures of approximately $73.0 million to $83.0 million, resulting in total anticipated cash capital expenditures for the year of approximately $90.0 million to $100.0 million;

• cash dividends aggregating approximately $51.6 million as discussed below in “Dividends;”

• stock repurchases under the Company’s January 2023 Authorization as discussed below in “Stock Repurchases;” and

• debt repurchases under the Company’s February 2023 Authorization as discussed below in “Long-Term Debt, Including Current Portion.”

• cash dividends aggregating approximately $153.9 million as discussed below in “Dividends;” and

• stock repurchases under the Company’s January 2023 Authorization as discussed below in “Stock Repurchases.”

Based on current levels of operations, the Company expects that available cash and cash flows from operations will provide sufficient liquidity to meet operating cash requirements for the next 12 months.

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However, there can be no assurance that additional liquidity will be readily available or available on terms acceptable to us.

The table below summarizes our cash flows from operating, investing and financing activities for the first nine months of 2023 and 2022:

The table below summarizes our cash flows from operating, investing and financing activities for the first three months of 2024 and 2023:

First Quarter

2024 2023 Change

4 unchanged sentences

Effect of exchange rate changes on cash (2.3) 0.2 (2.5)

Net (decrease) increase in cash, cash equivalents and restricted cash $ (158.9) $ 453.9 $ (612.8)

Net increase (decrease) in cash, cash equivalents and restricted cash $ 4.3 $ (91.2) $ 95.5

Operating Activities

Cash provided by operating activities consists primarily of net income, adjusted for non-cash expenses such as depreciation and amortization, deferred income tax and share-based compensation, and the net change in operating assets and liabilities.

Cash provided by operating activities was $269.5 million and $182.6 million in the first nine months of 2023 and 2022, respectively.

The change was primarily due to (1) higher net income, adjusted for non-cash expenses, and (2) a decrease in payments for incentive compensation.

Cash provided by operating activities was $100.0 million and $53.0 million in the first three months of 2024 and 2023, respectively.

The change was primarily due to (1) the timing of payments for marketing expenses of our national advertising funds and (2) the timing of receipt of vendor incentives.

Investing Activities

Cash used in investing activities was $55.5 million and $46.1 million in the first nine months of 2023 and 2022, respectively.

The change was primarily due to (1) an increase in capital expenditures of $5.7 million and (2) a decrease in proceeds from dispositions of $3.5 million.

Cash used in investing activities was $20.8 million and $12.1 million in the first three months of 2024 and 2023, respectively.

The change was primarily due to (1) an increase in capital expenditures of $5.1 million and (2) an increase in expenditures associated with the Company’s franchise development fund of $4.5 million.

Financing Activities

Cash (used in) provided by financing activities was $(373.2) million and $324.5 million in the first nine months of 2023 and 2022, respectively.

The first nine months of 2023 was primarily comprised of (1) dividends of $157.9 million, (2) repurchases of common stock of $142.4 million and (3) long-term debt activities of $61.3 million, including the impact of repurchases of the Company’s 7% debentures during the first nine months of 2023.

The first nine months of 2022 was primarily comprised of long-term debt activities of $470.3 million, reflecting the impact of the completion of the Company’s debt financing transaction during the first quarter of 2022, partially offset by (1) dividends of $80.2 million and (2) repurchases of common stock of $52.0 million.

Cash used in financing activities was $72.6 million and $132.3 million in the first three months of 2024 and 2023, respectively.

The change was primarily due to (1) a decrease in repayments of long-term debt of $31.8 million, reflecting the impact of repurchases of the Company’s 7% debentures in the first quarter of 2023, and (2) a decrease in repurchases of the Company’s common stock of $29.4 million.

Long-Term Debt, Including Current Portion

During the nine months ended October 1, 2023, Wendy’s repurchased $39.3 million in principal of its 7% debentures for $39.3 million.

We may from time to time seek to repurchase additional portions of our outstanding long-term debt, including our 7% debentures and/or our senior secured notes, through open market purchases, privately negotiated transactions or otherwise.

In December 2022, our Board of Directors authorized debt repurchases of up to $25.0 million and, in February 2023, our Board of Directors authorized additional debt repurchases of up to $50.0 million through February 2024 (the “February 2023 Authorization”), resulting in total debt repurchase authorizations of up to $75.0 million.

As of October 1, 2023, the Company had completed the December 2022 debt repurchase authorization and had $35.7 million remaining under the February 2023 Authorization.

Subsequent to October 1, 2023 through October 26, 2023, the Company repurchased $29.2 million and $1.2 million in principal of its Class A-2 senior secured notes and 7% debentures, respectively, for a total of $26.1 million.

In addition, in October 2023, our Board of Directors approved an increase of $10.0 million to the February 2023 Authorization, which continues to expire in February 2024.

Further repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

Whether or not to repurchase any additional debt and the size and timing of any such repurchases will be determined at our discretion.

Except as described above, there were no material changes to the Company’s debt obligations since January 1, 2023.

The Company was in compliance with its debt covenants as of October 1, 2023.

See Note 6 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information related to our long-term debt obligations.

On March 15, 2023, June 15, 2023 and September 15, 2023, the Company paid quarterly cash dividends per share of $.25, aggregating $157.9 million.

On November 2, 2023, the Company announced a dividend of $.25 per share to be paid on December 15, 2023 to stockholders of record as of December 1, 2023.

As a result, the Company expects that its total cash requirement for the fourth quarter of 2023 will be approximately $51.6 million based on the number of shares of its common stock outstanding at October 26, 2023.

We may from time to time seek to repurchase portions of our outstanding long-term debt, including our 7% debentures and/or our senior secured notes, through open market purchases, privately negotiated transactions or otherwise.

No debt repurchases were made during the three months ended March 31, 2024.

Future repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

Whether or not to repurchase any debt and the size and timing of any such repurchases will be determined at our discretion.

There were no material changes to the Company’s debt obligations since December 31, 2023.

The Company was in compliance with its debt covenants as of March 31, 2024.

On March 15, 2024, the Company paid a quarterly cash dividend per share of $.25, aggregating $51.4 million.

On May 2, 2024, the Company announced a dividend of $.25 per share to be paid on June 17, 2024 to stockholders of record as of June 3, 2024.

If the Company pays regular quarterly cash dividends for the remainder of 2024 at the same rate as declared in the second quarter of 2024, the Company’s total cash requirement for dividends for the remainder of 2024 would be approximately $153.9 million based on the number of shares of its common stock outstanding at April 25, 2024.

The Company currently intends to continue to declare and pay quarterly cash dividends;

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In January 2023, our Board of Directors authorized a repurchase program for up to $500.0 million of our common stock through February 28, 2027, when and if market conditions warrant and to the extent legally permissible (the “January 2023 Authorization”).

In connection with the January 2023 Authorization, the remaining portion of the previous February 2022 authorization for $250.0 million was canceled.

During the nine months ended October 1, 2023, the Company repurchased 6.7 million shares under the January 2023 Authorization with an aggregate purchase price of $144.3 million, of which $2.0 million was accrued as of October 1, 2023, and excluding excise tax of $1.3 million and commissions of $0.1 million.

As of October 1, 2023, the Company had $355.7 million of availability remaining under the January 2023 Authorization.

Subsequent to October 1, 2023 through October 26, 2023, the Company repurchased 1.2 million shares under the January 2023 Authorization with an aggregate purchase price of $23.6 million, excluding applicable excise tax and commissions.

During the three months ended March 31, 2024, the Company repurchased 0.4 million shares under the January 2023 Authorization with an aggregate purchase price of $7.2 million, of which $0.5 million was accrued as of March 31, 2024, and excluding excise tax and commissions.

As of March 31, 2024, the Company had $302.8 million of availability remaining under the January 2023 Authorization.

Subsequent to March 31, 2024 through April 25, 2024, the Company repurchased 0.2 million shares under the January 2023 Authorization with an aggregate purchase price of $4.3 million, excluding applicable excise tax and commissions.

Cloud Computing Arrangements

In addition to the anticipated cash requirements for capital expenditures noted above in “Cash Flows,” the Company expects to spend approximately $30.0 million during 2023 on cloud computing arrangements (“CCA”), primarily related to the Company’s human capital management system implementation.

The Company’s cash expenditures related to CCA amounted to $25.2 million during the nine months ended October 1, 2023.

In addition to the anticipated cash requirements for capital expenditures noted above in “Cash Flows,” the Company expects to spend approximately $25.0 million during 2024 on cloud computing arrangements (“CCA”), primarily related to data

platforms, enterprise resource planning projects and investments associated with the Company’s growth initiatives.

The Company’s cash expenditures related to CCA amounted to $2.9 million during the three months ended March 31, 2024.

General Inflation, Commodities and Changing Prices

Inflationary pressures on labor and commodity price increases directly impacted our consolidated results of operations during the nine months ended October 1, 2023, and we expect this to continue throughout the remainder of 2023.

Inflationary pressures on labor directly impacted our consolidated results of operations during the three months ended March 31, 2024, and we expect this to continue throughout the remainder of 2024.

We attempt to manage any inflationary costs and commodity price increases through selective menu price increases and product mix.

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Because our business is moderately seasonal, results for a particular quarter are not necessarily indicative of the results that may be achieved for any other quarter or for the full fiscal year.

Quantitative and Qualitative Disclosures about Market Risk.

As of March 31, 2024 there were no material changes from the information contained in the Company’s Form 10-K for the fiscal year ended December 31, 2023.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis