Burger King
Meanwhile, Burger King Worldwide Inc (NYSE:BKW), the third-largest burger chain in America, has been experiencing lopsided growth, with rising profits on declining sales. During its first quarter, Burger King Worldwide Inc (NYSE:BKW) reported that net income more than doubled to $35.8 million, or $0.10 per share, up from $14.3 million, or $0.04 per share, in the prior year quarter. However, revenue plunged 42% to $327.7 million as global same-store sales slid 1.4%, exacerbated by a disappointing 3% decline in the United States and Canada.
Burger King attributed the sales decline to a poor mix of menu items. Alex Macedo, president of Burger King North America, stated that the company “had strayed from the strategy of having both premium and value messages in the marketing mix.” In other words, it wasn’t offering enough value menu items to drive sales, just as Wendy’s reported last quarter. However, Macedo emphasized that the company would bring back promotions such as the $1.29 Whopper Junior and “2 for $5 special”.
Despite Burger King’s value menu weakness, some unique, limited-time offerings such as the Chipotle Whopper, a turkey burger and Cheesy Tots, were well received and helped offset some of those declines. Burger King Worldwide Inc (NYSE:BKW) also borrowed a play from McDonald’s Corporation (NYSE:MCD) successful McCafe offerings, recently introducing its new coffee program with Seattle’s Best Coffee to complement its breakfast menu. After the program was implemented, coffee sales rose 20%.
Just like Wendy’s, Burger King Worldwide Inc (NYSE:BKW) is renovating its locations to a more modern look. It renovated 600 locations, or 19% of its system, last year, and intends to renovate 40% of its system by the end of fiscal 2015. These renovations were started when the company was taken private in 2010 by 3G Capital, and have continued since its public return last year.
On a positive note, Burger King Worldwide Inc (NYSE:BKW), which has nearly half of its locations overseas, soundly beat McDonald’s in Europe and Asia, where it posted respective same-store increases of 0.8% and 2.7%. This suggests that although Burger King is smaller and struggling in the Americas, it could evolve into a major contender in overseas markets.
The Foolish bottom line
Studying these three fast food giants reveals several key factors.
First, properly promoted value menus are essential to boosting top-line growth. Second, the rise of bistros have disrupted the market, forcing fast food companies to offer higher-end products in more modern restaurants. This has caused McDonald’s, Wendy’s and Burger King to engage in a tough juggling act to appeal to both lower and middle income customers. Lastly, global expansion can be a blessing when those markets are soaring, but a curse when they are caught in the grips of a recession.
In closing, let’s compare the fundamentals of these three companies.
Forward P/E | 5-year PEG | Price to Sales (ttm) | Return on Equity (ttm) | Debt to Equity | Profit Margin | Dividend Yield | |
McDonald’s | 15.95 | 2.06 | 3.66 | 36.59% | 84.04 | 19.79% | 3.00% |
Wendy’s | 27.57 | 2.37 | 0.91 | 0.40% | 73.40 | 0.28% | 2.60% |
Burger King Worldwide | 20.45 | 1.34 | 3.81 | 12.07% | 255.33 | 8.07% | 1.30% |
Advantage | McDonald’s | Burger King | Wendy’s | McDonald’s | Wendy’s | McDonald’s | McDonald’s |
Source: Yahoo Finance, 5/9/2013
Although the fast food sector’s growth has slowed significantly over the past year, McDonald’s Corporation (NYSE:MCD) is still the best all-around choice. McDonald’s has the cheapest forward valuation and the highest margins, despite its slow same-store sales growth. Meanwhile, The Wendy’s Co (NASDAQ:WEN) and Burger King Worldwide Inc (NYSE:BKW) are more speculative investments, as their remodeling and value menu initiatives are still relatively new and unproven.
The article Should You Invest in These Fast Food Giants? originally appeared on Fool.com and is written by Leo Sun.
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