Wendy's Earnings: Guidance Revised Downward as Challenging Backdrop Weighs on Results

No-moat Wendy's reported weak second-quarter results, pulling down its systemwide sales growth guidance by 150 basis points to 3% to 5% growth for the full year as guest traffic has proved weaker than expected. The firm's 3%-4% comparable sales growth guidance laid out in its fourth-quarter 2023 call always looked ambitious, as we outlined in a Feb. 15 note, so the pullback isn't entirely unforeseen. Nevertheless, we plan to trim our $20.50 fair value estimate by a mid-single-digit percentage as we take a harder look at our medium-term unit growth forecasts, with the combination of quotidian unit-level economics, a weaker financing environment for franchisees, and slowing consumer spending in the category suggesting that our prior 120 net store growth forecast in 2025 was a bit aggressive. We now expect the firm to add closer to 75 net units in that year, with proportionately slower openings in the US market also pushing into the outer years. Separately, we plan to lower our Uncertainty Rating for the company to Medium from High, consistent with our Quantitative Uncertainty Rating methodology.