The Wendy's Company WEN continues to grapple with strong headwinds, including inflationary pressures on beef and fries, higher commodity costs and rising labor expenses. Also, increased investments in breakfast menu advertising are putting pressure on its margins.

Shares of WEN have lost 14.6% in the past year against the Zacks Retail - Restaurants industry’s growth of 6.6%. WEN also underperformed the broader Retail-Wholesale sector and the S&P 500 index's 30.8% and 26.1% growth, respectively, during the same period.

Earnings estimates for the fiscal 2025 have moved south to $1.03 per share from $1.04 in the past 60 days. This depicts analysts' concern over the company’s growth prospects.

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Let us discuss the factors affecting this Zacks Rank #4 (Sell) company’s growth potential.

Factors Impacting WEN Stock

Wendy's is facing significant challenges, including rising labor costs and a decline in customer counts, which are negatively impacting profitability. Also, the company continues to experience inflationary pressures, particularly on beef and fries, adding to the cost pressure.

During the first nine months of fiscal 2024, the global company-operated restaurant margin was 15.2% compared with 15.1% in the prior year. During the said time frame, the U.S. company-operated restaurant margin was 15.8% compared with 15.9% a year ago. This downside was due to higher labor costs and reduced customer count, though this was partly offset by an increased average check and labor efficiencies.

Rising costs and ongoing investments are negatively impacting the company’s financial performance. In the third quarter and first nine months of fiscal 2024, adjusted EBITDA was down 2.9% year over year to $139.2 million and 0.8% to $409.3 million, respectively. This downtick was due to an incremental investment in breakfast advertising, higher depreciation, an increase in general and administrative expenses, and a lower U.S. company-operated restaurant margin.

For fiscal 2024, the company expected labor inflation to be within the 3-5% range, indicating ongoing pressures in the labor market and the need for continued cost management strategies to maintain profitability.

While the company intends to strategically adjust select menu prices and product offerings to mitigate the challenges, potential delays in implementation and competitive pressures may hinder its ability to offset cost increases fully.

Stocks to Consider

Some better-ranked stocks in the Zacks Retail-Wholesale sector include:

Chipotle Mexican Grill, Inc. CMG presently carries a Zacks Rank #2 (Buy).  You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.  

CMG delivered a trailing four-quarter earnings surprise of 9.8%, on average. The stock has surged 34.8% in the past year. The consensus estimate for CMG’s 2025 sales and earnings per share (EPS) indicates growth of 12.8% and 17.9%, respectively, from the year-ago period’s levels.  

Brinker International, Inc. EAT presently has a Zacks Rank #2. EAT delivered a trailing four-quarter earnings surprise of 12.1%, on average. The stock has surged 222.5% in the past year.  

The consensus estimate for EAT’s fiscal 2025 sales and EPS indicates growth of 9.3% and 44.2%, respectively, from the year-ago period’s levels.

Shake Shack Inc. SHAK currently carries a Zacks Rank of 2. SHAK delivered a trailing four-quarter earnings surprise of 18.3%, on average. The stock has gained 89.6% in the past year.

The Zacks Consensus Estimate for SHAK’s 2025 sales and EPS indicates a rise of 14.7% and 42%, respectively, from the year-ago period’s levels.

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