Wendy's, McDonald's, and Burger King: Is Growth on the Menu?

Source: The Wendy's Co. 

The Wendy's Co.  (NASDAQ: WEN  ) will report its first-quarter earnings on May 8. The company's coming off an unusually strong year thanks to the launch of the successful Pretzel Bacon Cheeseburger. However, the company only made the item available for a limited time and Wendy's has increasingly leaned on that model. Will Wendy's growth stay ahead of that of competitors McDonald's Corporation (NYSE: MCD  ) and Burger King Worldwide Inc (NYSE: BKW  ) ?

Wendy's fell behind its lower-priced competitors when the recession hit but it has climbed back as the economy recovers. However, last year the company began to offer a menu based on rapid-fire releases of limited-time items that could lead to the same problems that thwarted McDonald's in 2013, overcrowded inventory and menu items that don't find strong audiences.

Analysts expect $499 million in revenue and earnings per share of $0.05. However, what should investors look for in Wendy's first-quarter earnings release?

Comps growth
Wendy's will lose to McDonald's every time on basic metrics such as revenue since McDonald's has a far larger, global presence. However, comparable-store sales growth offers a way to compare the three largest burger chains.  

 

1Q13

2Q13

3Q13

4Q13

1Q14

Wendy's

0.8%

0.4%

3.2%

3%

---

Burger King

-1.4%

0.6%

0.9%

1.7%

2%

McDonald's

-1%

1%

0.9%

-0.1%

0.5%

No company stood out greatly in early 2013. McDonald's struggled with its menu issues and Burger King mostly treaded water. However, that changed in the third quarter when Wendy's comps growth jumped to over 3%. That was the quarter that first showed the success of the Pretzel Bacon Cheeseburger, which helped drive the company to its highest comps since 2005.

Wendy's comps held strong at year's end as the company moved the Pretzel Bacon Burger and its chicken sibling off the menu in favor of a Brioche Bacon Portabella Melt and value-menu chipotle sandwiches. However, the first-quarter comps will show whether the limited-time strategy is still working for the chain.

What the company says -- or doesn't say -- about the newer products could also provide a clue. 

Limited-time product details
Wendy's mentioned the Pretzel Bacon Cheeseburger several times in its third-quarter release last year. The company specifically said that the sandwich drove its comps. So if Wendy's names another sandwich -- or more -- and ties its performance to positive results, then the company has at least another modest hit on its hands.

However, if comps slip, Wendy's could find itself with a year similar to what McDonald's experienced last year.  

Competitor comparison 
McDonald's first-quarter results included revenue of $6.7 billion and EPS of $1.21. In comparison with the prior year's quarter, those numbers were up by 1% and down 5%, respectively, but they failed to meet analysts' estimates of $6.72 billion and $1.24. 

Burger King's first quarter included a 26% year-over-year drop in revenue to $241 million and EPS of $0.17 -- growth of a whopping 69% over the prior year. The company met analysts' revenue estimates but it missed on the EPS estimate of $0.19.

Foolish final thoughts 
Wendy's comps and product details will serve as the quickest ways to check its health in the first quarter. A drop in comps doesn't spell immediate doom but it does mean that investors should keep an eye on whether the limited-time menu is also limiting growth. 

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