Wendy's Growth Leaves McDonald's and Burger King Hungry

Maybe Americans are hungry for more beef and less bun these days. Wendy's  (NASDAQ: WEN  ) , famous for its square burgers, is showing impressive sales growth in North America. This comes at a time when McDonald's (NYSE: MCD  )  and its triple-bun Big Mac, along with Burger King Worldwide (NYSE: BKW  )  and its triple-bun Big King, are showing anemic same-store sales growth.

Results
Wendy's reported its third-quarter results on Nov. 7. Same-store sales at North American restaurants jumped 3.2% and 3.1% for company-owned and franchised restaurants, respectively. Adjusted earnings per share leaped enormously on a percentage basis, rising to $0.08 versus $0.02 last year. While revenue only moved a hair higher, with an 0.7% increase to $640.8 million, this was because Wendy's sold stores to franchisees, which results in lower revenue but higher profit.

CEO Emil Brolick credited the improvement to Wendy's strategy of transforming the brand. Wendy's has been changing its restaurant design, packaging, and menu items. He also credited the introductions of Wendy's Pretzel Bacon Cheeseburger and its October Pretzel Pub Chicken sandwich as contributing to the improved results. It seems like Americans like pretzels over buns with their beef.

Wendy's earnings also continue to benefit from the sale of restaurants to franchisees. The company targets the second quarter of 2014 to complete the sale of 425 more restaurants, in addition to the 118 restaurants it has already sold. The company expects this sale to further enhance profit and allow it to focus on further systemwide growth.

Wendy's currently pays a $0.05-per-share quarterly dividend and it is also buying back shares. This is a significant portion of adjusted EPS for the quarter, which suggests that management firmly believes much higher same-store sales and EPS are on the way. For the full year 2013, Wendy's expects adjusted EPS to be $0.25 in total. Wendy's guided for "strong same-store sales in the fourth quarter."

Competitors
Compare Wendy's North American region growth to the U.S. growth for McDonald's. McDonald's reported that its same-store sales only grew by 0.7%, a snail's pace compared to Wendy's. The company blamed this result on the "broad-based challenges of the current environment," while its Mighty Wings failed to achieve the levels it hoped for.

Since the third quarter, things have slowed down even worse for McDonald's. Same-store sales saw only a 0.2% rise in October. McDonald's blamed the disappointing performance on "ongoing competitive activity," but it failed to clarify this with exact details. Perhaps restaurants such as Wendy's are starting to chisel away market share.

Burger King's same-store sales were even worse. It reported a 0.3% decline in the third quarter for its U.S. and Canada region. Though Burger King did see a spike in guest traffic and sales with the launch of its Satisfries, this happened too late in the quarter (during the last week) to make a meaningful contribution. Burger King blamed the decline in the quarter on "continued softness in consumer spending and ongoing competitive headwinds." McDonald's also used the phrase "ongoing competitive." Maybe both Burger King and McDonald's are referring directly to Wendy's without naming the company specifically. 

Foolish final thoughts
McDonald's and Burger King have been trending weaker going into the fourth quarter so far. Look for Wendy's to stand out. The company is showing healthy North American growth at a time when both larger competitor McDonald's and smaller competitor Burger King are struggling to show any growth. As an investment, Wendy's has vastly outperformed the other two this year. Look for it to continue to outperform on same-store sales growth.

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