Will Burger King Satisfry Long-Term Investors?

(bk.com) 

Satisfries jumped onto the fast-food restaurant scene in a hurry. News outlets across the country told consumers about Burger King Worldwide's (NYSE: BKW  ) new French fry that offers 20% fewer calories and 25% less fat than the fast-food company's traditional fries. According to a Burger King television ad, its Satisfries also have 30% fewer calories and 40% less fat than McDonald's (NYSE: MCD  ) French fries (per 70-gram serving).

All of this is exciting, but the term Satisfries isn't exactly on the tip of consumers' tongues these days. It seems as though the Satisfries excitement faded in a hurry. Unfortunately, Burger King doesn't offer specific results for the performance of its Satisfries, but a recent move indicates that Burger King might have needed to renew Satisfries excitement and potentially steal young customers from McDonald's and Wendy's (NASDAQ: WEN  ) .

Targeting younger consumers
Burger King continues its effort to attract more health-conscious consumers, including younger consumers. Back in 2008, Burger King added apple slices to its kids' meals. Now it's adding Satisfries as well.

The goal is for this move to help attract more health-conscious families. Ironically, a Burger King kid's meal including a four-piece nugget with Satisfries, apples, and non-fat milk is 500 calories, whereas a similar meal at McDonald's is 410 calories. On the other hand, McDonald's French fries are only 1.1 ounces, whereas Burger King's Satisfries are 3 ounces. Therefore, it depends what consumers seek.

Adding Satisfries to the kid's meal is a big move for Burger King considering 10% of its sales comes from kids' meals. Since today's consumer is more health conscious than at any time throughout history, adding "healthier" French fries has the potential to boost sales of kids' meals.

If you're looking down the road, then it's imperative for a fast-food chain to land consumers while they're young. If a fast-food company can accomplish this goal, then it's more likely for those consumer to remain loyal to the brand in the future. This isn't just important because Burger King battles against McDonald's and Wendy's but also because today's consumer favors fast-casual brands like Chipotle Mexican Grill and Panera Bread. If Burger King can find a way to attract families with young consumers today via health-conscious initiatives, then this could lead to Burger King having a significant edge over McDonald's and Wendy's in the future.

Overall performance
Burger King needed to make a move in order to sustain recent momentum. In the fourth quarter, comps increased 1.7% year over year. In the U.S. and Canada, comps improved 0.2%. These are positive numbers, but they're far from jaw-dropping. Additionally, the full-year performance is potentially cause for concern.

In fiscal-year 2012, comps improved 3.2%. In fiscal-year 2013, comps improved just 0.5%. If you only look at the U.S. and Canada, fiscal-year 2012 comps improved 3% but declined 0.9% in fiscal-year 2013.

In January, McDonald's reported comps performance that might confuse some investors, and rightfully so. In the U.S., comps declined 3.3%. However, in Europe and Asia Pacific/Middle East/Africa, comps improved 2% and 5.4%, respectively. The bottom line here is that McDonald's is a tale of two companies, one that's suffering domestically due to the rise of the health-conscious consumer (American consumers prefer fresher food at fast-casual dining establishments) and one that's growing internationally due to geographical expansion in markets seeing rising incomes. 

As far as Wendy's is concerned, it delivered 1.9% comps growth in fiscal-year 2013 at North American company-owned locations. It expects fiscal-year 2014 comps growth of 2.5%-3% at company-owned restaurants and fiscal-year 2015 comps growth of at least 3%.

Based on these numbers, Wendy's appears to be the most appealing of the three. However, Wendy's is trading at 87 times earnings, whereas Burger King and McDonald's are trading at 41 and 17 times earnings, respectively. As far as dividend yields go, Burger King currently yields 1.1%, whereas Wendy's and McDonald's currently yield 2.1% and 3.4%, respectively. 

The Foolish takeaway
Burger King is making a strategic long-term move by improving the health offerings of its kids' meals, which could attract more families to its restaurants given the rise of the health-conscious consumer. That said, recent comps comparisons indicate that Wendy's is outperforming its peers right now. The negative here is high valuation, which leads to more risk. Please do your own research prior to making any investment decisions.

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