By Ben Edmond · 13 July 2026 · Sourced from Meritage Hospitality Group’s audited Fiscal 2025 Annual Report (BDO USA, P.C., opinion dated 30 March 2026), its Q1 2026 results, and Wendy’s SEC filings. Opinion and analysis. Not investment advice.
Wendy’s does not tell you what a franchisee earns. It isn’t allowed to. Its Franchise Disclosure Document reports the margins of restaurants Wendy’s owns itself — which pay no royalty and no advertising fee — and its Code of Business Conduct and Ethics forbids employees from estimating anything beyond that.
So the P&L of a Wendy’s franchisee is, by design, invisible.
With one exception. Meritage Hospitality Group operates 355 Wendy’s restaurants and trades publicly on the OTCQX. Securities law compels it to publish audited financial statements. It is, as far as I can determine, the only large Wendy’s franchisee on Earth whose books are open — and the only place where you can answer the question Wendy’s cannot: what does this business actually make, and what does it actually pay?
I read the audited statements. Here is the answer.
In the same year, Meritage lost $28.5 million from operations, and $31.5 million in total.
Both figures from BDO-audited financial statements. Not a press release. Not an investor deck.
- Franchisor fees alone exceeded the franchisee’s entire loss. Franchise fees $23,970K + advertising $25,433K = ~$49.4M, roughly 8.0% of sales AUDITED.
- Going concern. BDO’s report contains an explicit substantial-doubt paragraph. $132,474,000 of borrowings reclassified to current liabilities AUDITED.
- Wendy’s itself declared Meritage in default on 24 October 2025 — and then agreed to pause the remodel obligations to keep it alive AUDITED.
- This is not a badly-run operator. Wendy’s gave Meritage its 2022 Monument Award for “Visionary Growth and Expansion.” It earned +$8.0M in FY2024. It collapsed in one year.
- And it tracks the system. Wendy’s own disclosure: average U.S. franchisee EBITDA margin fell 270 basis points to 9.3% in 2025, on a ~6% net sales decline.
- It’s getting worse. Q1 2026: net loss $(9.6)M (vs $(4.3)M), units down to 344 from 384. Going concern unresolved.
In earlier articles I reported Meritage’s FY2025 net loss as $(26.3) million. That figure comes from the company’s preliminary, unaudited press release of 19 January 2026.
The audited net loss is $(31,517,000). BDO USA, P.C., opinion dated 30 March 2026. The audited figure is $5.2 million worse, reflecting a $4.2M goodwill impairment and larger closure charges that the preliminary release did not capture.
I have corrected it here and in the other pieces. I’m flagging it prominently because the distinction between an unaudited press release and an audited financial statement is exactly the kind of thing this article is about — and I got it wrong before I got it right.
- Why Meritage matters more than any analyst note
- $49.4 million paid. $28.5 million lost.
- Anatomy of a one-year collapse
- “They were just badly run” — no, they weren’t
- The default nobody reported
- The $36,100 number, and why I’m being careful with it
- The CEO’s personal guarantee
- Is Meritage the system, or the exception?
- It’s still getting worse
- Three things I won’t tell you
- What this means if you own WEN — or a Wendy’s
- FAQ
1. Why Meritage matters more than any analyst note
Start with the structural fact that makes this article possible.
Wendy’s is ~95% franchised 10-K. Its revenue is a royalty stream collected from 203 U.S. franchisees. And the profitability of those franchisees — the people who actually pay the royalties — is not disclosed.
Item 19 of the Franchise Disclosure Document does disclose a full restaurant P&L: 18.2% Restaurant EBITDA before Rent. But as I’ve written elsewhere, that figure covers 362 company-owned restaurants — restaurants that pay zero royalty and zero advertising. It measures the wrong group. And Wendy’s Code of Business Conduct and Ethics instructs employees: “Do not ever make an estimate of potential profits or sales for a new restaurant to any franchisee that is not set forth in Item 19 of the FDD.”
That rule is good law — it’s the FTC Franchise Rule working as designed. But its effect is that franchisee economics are a black box.
Except at Meritage. Because Meritage is publicly traded, it must file audited financial statements. Its auditor must sign an opinion. Its lenders’ covenants must be disclosed. Its royalty payments appear as line items.
Not because Wendy’s chose to open it. Because securities law pried it open.
355 Wendy’s restaurants. $617.7 million in sales. Audited by BDO USA. Every number below is from a document you can download.
2. $49.4 million paid. $28.5 million lost.
This is the finding. It exists nowhere else, and it took reading an audited income statement to get it.
| Line item | Amount | % of sales |
|---|---|---|
| Advertising expense (Wendy’s requires ≥4.0% of sales — 3.5% national + 0.5% local) | $25,433,000 | ~4.1% |
| Franchise fees (royalties) | $23,970,000 | ~3.9% |
| TOTAL TO WENDY’S | ~$49,403,000 | ~8.0% |
Now set that against what Meritage actually earned.
Sales $617,667,000
Paid to Wendy’s:
Franchise fees (royalties) $23,970,000
Advertising $25,433,000
─────────────
TOTAL $49,403,000
What Meritage earned:
Loss from operations $(28,521,000)
Net loss $(31,517,000)
The franchisor’s fees alone were 1.7× the franchisee’s
entire operating loss.
A royalty is levied on sales, not on profit. Wendy’s collected roughly 8% of Meritage’s top line in 2025 — the same 8% it would have collected if Meritage had been thriving. The franchisee absorbed the entire downside.
That is not a criticism of the contract. It is what the contract says, and Meritage signed it. But it is the clearest possible illustration of something I’ve argued elsewhere: the royalty isn’t a fee. It’s leverage. And leverage is exactly what turns a difficult year into a going-concern qualification.
3. Anatomy of a one-year collapse
What makes Meritage devastating as evidence is not that it’s losing money. It’s how fast it happened.
| FY2024 | FY2025 | Q1 2026 | |
|---|---|---|---|
| Sales | $668,803K | $617,667K | $132.6M (vs $154.5M) |
| Net result | +$8,019K | $(31,517)K | $(9.6)M |
| Loss from operations | — | $(28,521)K | — |
| Goodwill impairment | none | $4,220K | — |
| Closure / restructure charges | $4,993K | $16,344K | — |
| Restaurants | — | 364 (355 Wendy’s) | 344 |
| EPS | — | $(5.10) | — |
From +$8.0 million to −$31.5 million in twelve months. A $39.5 million swing.
And then the distress markers, every one of them from the audited statements:
| Indicator | Detail |
|---|---|
| Going concern | BDO’s report contains an explicit “Substantial Doubt About the Company’s Ability to Continue as a Going Concern” section |
| Debt reclassified to current | $132,474,000 |
| Covenant compliance | “As of December 28, 2025 the Company was not in compliance with these covenants” |
| Forbearance — City National Bank | Through 31 March 2026 (~$150.0M principal) |
| Forbearance — Old National Bank | Through 30 June 2026 (~$15.0M principal) |
| 401(k) employer match | Suspended (November 2025) |
| Rent | Deferred — $2,348K deferred obligation |
| Preferred dividends | In arrears — $565K (one quarter) |
| Deposit Account Control Agreement | February 2026 — lender took first-priority control of the operating accounts |
That last row deserves a moment. A Deposit Account Control Agreement gives the lender direct control over the borrower’s cash. It is not a routine amendment. It is what a bank does when it has stopped trusting a borrower to manage its own money.
4. “They were just badly run” — no, they weren’t
This is the objection I expected, and the one the evidence most decisively answers.
It would be convenient — for Wendy’s, for the bulls, for anyone who’d rather not think about franchisee health — to write Meritage off as a poorly managed outlier. Every system has one. Bad operators fail. That tells you nothing about the brand.
Except Meritage isn’t that.
Wendy’s looked at its entire franchise base and decorated Meritage as best-in-class.
And the record supports the award:
- Profitable in FY2024 — net earnings of $8.0 million AUDITED
- Grew from 28 restaurants in 1998 to more than 355 Wendy’s locations
- President/COO Gary Rose, at the time of the award: “Four years ago, we set a plan in motion with our teams to be the best operator in the system.”
Then, in a single fiscal year, that operator went to a $(31.5) million loss, breached its covenants, and drew a going-concern qualification from its auditor.
If the best operator in the system can’t make the model work, the problem is not the operator.
CEO Robert Schermer’s own account of what happened:
— Robert E. Schermer, Jr., CEO, Meritage Hospitality Group (January 2026)
And more bluntly, on the quarter before:
— Robert E. Schermer, Jr., CEO, Meritage Hospitality Group (Q3 2025)
Note the last four words. Not “stabilize our restaurants.” “Stabilize our franchise business model.”
5. The default nobody reported
Buried in the audited notes is a disclosure I have not seen reported anywhere, and it connects directly to the frozen resale market.
Not from a bank. From Quality Is Our Recipe, LLC, the Wendy’s franchising entity, for failing to remit payments when due.
The franchisor conditionally agreed not to terminate the franchise agreements. And in the same arrangement, the parties agreed to pause reimaging and development requirements.
Read that last sentence again, because it is the whole argument in miniature.
Wendy’s requires franchisees to remodel. It requires a buyer to remodel as a condition of any transfer — the FDD prices a remodel at $150,000 to $2,515,000 — and I’ve argued that this obligation is precisely what froze the secondary market from 99 transactions to one.
And here, when its award-winning franchisee stopped paying, the first thing Wendy’s did was suspend the remodel requirement.
Two franchisees. Three years apart. Same complaint. And in Meritage’s case, Wendy’s implicitly conceded the point by pausing the requirement.
6. The $36,100 number, and why I’m being careful with it
You may have seen this figure, possibly from me. It deserves a proper accounting.
Meritage’s May 2026 investor presentation charts per-restaurant four-wall EBITDA:
| Year | Four-wall EBITDA / restaurant |
|---|---|
| 2022 | ~$69,200 |
| 2023 | ~$71,900 |
| 2024 | ~$67,000 |
| 2025 | ~$36,100 (−48%) |
It’s a striking series. It is also the weakest evidence in this article, and I want to be explicit about why:
2. “Four-wall EBITDA” is undefined. Meritage does not say what the metric includes or excludes. Does it deduct royalty? Advertising? Rent? G&A? We don’t know, and the definition changes the number enormously.
3. It cannot be reconstructed. Meritage reports as a single operating segment — its audited notes state it views Wendy’s and its independent concepts “as one operating and reportable segment.” So there is no audited data from which to rebuild or check this figure.
4. It is produced by an interested party. A distressed company presenting to investors has reasons to frame its numbers a particular way — in either direction.
So use it as illustration, not proof. The audited royalty arithmetic in Section 2 doesn’t need it. The going-concern qualification doesn’t need it. The $(31.5)M audited loss doesn’t need it.
I’m including it because it’s real, published, and directionally consistent with everything the audited statements show. But if someone tells you “a Wendy’s makes $36,100,” the honest answer is: that’s a company-produced, undefined, non-GAAP figure from a deck, and you should treat it accordingly.
7. The CEO’s personal guarantee
One line in the related-party note, easy to miss, and it reframes the whole relationship.
— Meritage Hospitality Group, audited FY2025 financial statements, related-party disclosures
Robert Schermer is not merely running a company that owes Wendy’s money. He is personally on the hook to Wendy’s.
This is standard in franchising — franchisors routinely require personal guarantees, and there’s nothing improper about it. But it tells you something about the true nature of the arrangement that the word “franchisee” obscures.
When the model breaks, it does not break at the corporate level. It breaks at the kitchen table.
8. Is Meritage the system, or the exception?
Everything above is about one company. The question that determines whether any of it matters to a WEN shareholder — or to a prospective franchisee — is whether Meritage is representative.
Here is the test, and Wendy’s answered it themselves.
— Suzanne Thuerk, Chief Accounting Officer, The Wendy’s Company · Q1 2026 earnings call, 1 June 2026
Average franchisee EBITDA margin: 9.3%, down 270 basis points in one year. Average franchisee net sales: −6%.
And the cause Wendy’s names — beef inflation — is the same cause Meritage names. The award-winning franchisee and the system average are telling the same story.
Add to that Wendy’s FY2025 10-K disclosures:
- U.S. franchised same-restaurant sales: −5.8%, versus company-operated at −2.5%
- 106 of 111 restaurant closures were franchised
- Wendy’s acquired 35 restaurants from a franchisee in 2025 — after acquiring none in 2023 or 2024
- Accounts and notes receivable +17.4% while revenue fell 3.1%
- Franchise support costs +19.6% to $81.0M
Meritage isn’t the exception. Meritage is the part you can see.
9. It’s still getting worse
This story has not stabilised. The most recent results, released 8 May 2026:
| Q1 2026 | Q1 2025 | |
|---|---|---|
| Sales | $132.6M | $154.5M |
| Net loss | $(9.6)M | $(4.3)M |
| Consolidated EBITDA (non-GAAP) | $(4.5)M | — |
| Restaurants | 344 | 384 (Q3 2025) |
The loss more than doubled year-over-year. The estate has shrunk by roughly 40 restaurants since Q3 2025 — Schermer says they have closed “almost 60 select locations to date.”
And critically: the going-concern condition has not been resolved. The lead-lender forbearance nominally expired 31 March 2026. Management describes “actively pursuing refinancing opportunities and strategic capital partnerships” — which is the language of a negotiation still in progress, not a cure.
Schermer’s framing of the closures is worth quoting, because of who he credits:
— Robert E. Schermer, Jr., CEO, Meritage Hospitality Group · Q1 2026 (8 May 2026)
Wendy’s guided that Project Fresh would close 5–6% of U.S. restaurants. At Meritage, it’s closed roughly 16% of the estate — and counting.
10. Three things I won’t tell you
Intellectual honesty requires saying what I can’t support as loudly as what I can.
I suspected it. The profile fit — a distressed operator, finance leases, a franchisor stepping in. I checked, and it’s false. Meritage had 384 units in Q3 2025, the window in which Wendy’s made that acquisition. Their unit reductions came later, through closures, not a sale to the franchisor. The unnamed seller of those 35 restaurants is someone else — and whoever they are, their story is not public.
Meritage’s own deck asserts — explicitly as hearsay, in the words “from what we’re hearing” — that as many as nine of Wendy’s ten largest U.S. franchisees have defaulted on their financial covenants. The deck footnote indicates it traces to a Meritage board member.
That is an interested, distressed party characterizing its competitors on the basis of rumor. It cannot be corroborated and I am not going to launder it into fact. It may well be true. It is not evidence.
See Section 6. It’s a company-produced deck figure, undefined and non-GAAP. It’s suggestive. It is not proof, and anyone citing “$36,100” as a hard number — including me, previously — is overstating what the document supports.
And one correction I’ve already made at the top of this piece: the $(26.3)M net loss figure widely reported is the unaudited preliminary number. The audited loss is $(31.5)M. I used the wrong one before. The audited figure is worse.
11. What this means if you own WEN — or a Wendy’s
If you hold the stock
Wendy’s revenue is ~95% a royalty stream. Meritage is the only audited demonstration of what sits underneath that stream — and what sits underneath it, at one of Wendy’s best operators, is a company that paid $49.4 million in fees while losing $31.5 million, is in forbearance, has had its operating accounts placed under lender control, and whose auditor has flagged substantial doubt about its survival.
Wendy’s has already told you this isn’t isolated: 9.3% average franchisee EBITDA margin, down 270 basis points.
As I’ve argued at length, Wendy’s own securitization prices this risk — its rapid-amortization triggers are written on debt-service coverage and systemwide gross sales, both of which are franchisee-generated. The equity multiple, as far as I can tell, prices none of it.
If you’re thinking of buying a Wendy’s
Meritage is what the professional version of your business looks like. They have 355 restaurants, scale purchasing, a public balance sheet, decades of operating history, and an award from the franchisor saying they’re the best in the system.
They are in forbearance and their auditor has questioned whether they can continue.
You would be attempting the same thing with one restaurant, no scale, and a personal guarantee.
- “Meritage paid roughly 8% of sales in royalty and advertising and lost $31.5 million. What is my model that says I’ll do better?”
- “What remodel obligation attaches to this restaurant, and what happens if I can’t fund it?” Wendy’s paused Meritage’s. It won’t necessarily pause yours.
- “Am I personally guaranteeing this?” Schermer did. Read Section 7.
The bottom line
Wendy’s has done nothing improper here. Its royalty structure is disclosed. Its remodel requirements are standard across franchising. Its FDD is more forthcoming than most. It gave Meritage relief when Meritage couldn’t pay, and it paused obligations it was entitled to enforce. Nothing in this article alleges wrongdoing.
But there is one company on Earth that has to show you what a Wendy’s franchisee’s books actually look like. Not because Wendy’s wanted you to see them — because securities law made it so.
And what they show is a franchisor collecting $49.4 million from a franchisee that lost $31.5 million, went into forbearance, suspended its employees’ 401(k) match, deferred its rent, handed control of its bank accounts to a lender, and drew a going-concern opinion from its auditor.
That’s not an analyst’s estimate. It’s an audited financial statement, and you can download it.
Go read it before anyone tells you what a Wendy’s franchise earns.
Frequently asked questions
How much does a Wendy’s franchisee pay Wendy’s?
Meritage’s audited FY2025 statements show franchise fees of $23,970,000 (~3.9% of sales) and advertising expense of $25,433,000 (~4.1%) — roughly $49.4 million, or about 8.0% of sales AUDITED. This is the only audited public figure showing what a large Wendy’s franchisee actually pays.
Is Meritage Hospitality Group profitable?
No. Audited FY2025: loss from operations $(28,521,000), net loss $(31,517,000), on sales of $617,667,000. Covenants breached, $132,474,000 reclassified to current liabilities, and BDO USA included a going-concern paragraph.
Was Meritage a badly run franchisee?
The evidence says no. Wendy’s gave Meritage its 2022 Monument Award for “Visionary Growth and Expansion.” It earned +$8.0M in FY2024 and grew from 28 units in 1998 to 355+. Its collapse took one year — and tracks Wendy’s own disclosure that systemwide franchisee EBITDA margin fell 270bp to 9.3%.
Did Wendy’s declare Meritage in default?
Yes. On 24 October 2025, Meritage received a notice of event of default from Quality Is Our Recipe, LLC for failing to remit payments when due. Wendy’s conditionally agreed not to terminate — and the parties paused reimaging and development requirements AUDITED.
What is Meritage’s four-wall EBITDA per restaurant?
Its investor deck shows ~$69,200 (2022) falling to ~$36,100 (2025), about −48%. Caveat: this is a company-produced, non-GAAP, undefined figure from a slide deck DECK ONLY. It is not audited and cannot be reconstructed from the audited statements. Treat accordingly.
Sources. Primary: Meritage Hospitality Group, Fiscal 2025 OTCQX Annual Report, audited by BDO USA, P.C. (opinion dated 30 March 2026) — income statement, balance sheet, going-concern disclosure, debt and covenant notes, franchisor default disclosure, related-party disclosures. Meritage Q1 2026 results release (8 May 2026); Meritage FY2025 preliminary unaudited results release (19 January 2026); Meritage investor presentation (20 May 2026) — company-produced, non-GAAP, clearly labeled as such throughout. The Wendy’s Company, Form 10-K, fiscal year ended 28 December 2025; Wendy’s Q1 2026 earnings call (1 June 2026). Secondary: Restaurant Business Online; QSR Magazine; GlobeNewswire. Provenance is tagged throughout: AUDITED UNAUDITED DECK ONLY OUR MATH.
Important disclosures. BuyWendys.com is an independent publication, not affiliated with, endorsed by, or sponsored by The Wendy’s Company, Quality Is Our Recipe, LLC, or Meritage Hospitality Group. This article is opinion, analysis, and journalism — not financial, legal, tax, or investment advice, and not a recommendation to buy or sell any security, nor an offer or solicitation regarding any franchise. Nothing here alleges wrongdoing by The Wendy’s Company or by Meritage Hospitality Group; every figure discussed was disclosed by the companies themselves in public filings. The author may hold a position in $WEN. The author holds no position in MHGU. MHGU is a thinly-traded OTC security; nothing here should be read as a view on its shares. Figures were verified as of 13 July 2026 and may be superseded — Meritage’s situation is actively developing. Verify against primary sources and consult qualified professionals before acting. Do your own research.