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Burger King (BKW +0.00%) started off 2014 on a good note by generating same-store sales, or comps, growth across its business in the first quarter. This reflects that its plan of transitioning to a franchisee-based model is working well, especially considering that comps grew despite the inclement weather in the U.S and Canada. That said, Burger King competes in a hotly contested market with the likes of McDonald's (MCD +0.00%) and Wendy's (WEN +0.00%). Let's take a look at its business, and how it's positioned versus its peers.
A strong performance
Burger King's systemwide sales, on constant-currency terms, increased 6.9% versus the year-ago quarter. The growth was fueled by system-wide comps growth of 2% year over year, and the addition of 676 net new restaurants during the 12 months across all four regions -- America; Europe, the Middle East, and Africa; Latin America and the Caribbean; and Asia Pacific.
Excluding the impact of refranchising transactions involving 327 company-owned restaurants during the trailing 12-month period, and currency movements, revenue increased 6.2% year over year. On the back of solid top-line growth, adjusted earnings came in at $0.20 per share, representing 19.3% growth versus the year-ago quarter.
Smart strategies
Burger King is focusing on a strategy of fewer, yet more innovative, mouth-watering and affordable menu items, and a simplified in-store experience for driving traffic. This enabled it to ward off the negative impact of harsh weather in the U.S. and Canada, and enabled it to post positive comps in the region. The continued success of the Big King sandwich, and the introduction of the all-new Spicy Original Chicken Sandwich, helped drive sales and traffic during the quarter.
In addition, its menu innovation drive also included the launch of King Deals for delivering attractive value at the $1 price point, featuring all-new products such as the Rodeo Chicken sandwich and Rodeo burger. This was further upgraded in March to include breakfast value items, which helped it to grow traffic. Going forward, Burger King is focusing on driving franchise profitability through ongoing initiatives to simplify menu and in-restaurant operations.
In order to boost sales this summer, Burger King has added a fun twist to its classic cheeseburger by introducing the Extra Long BBQ Cheeseburger. The Extra Long BBQ Cheeseburger is available for a suggested price of $3.59. It's also a part of the two-for-$5 menu alongside the Big King sandwich, the Chicken Big King Sandwich, Original Chicken Sandwich, and Big Fish Sandwich. The summer season menu will be complemented by the new, limited-time Orange Freeze, an icy orange-flavored slush drink, in addition to the usual Frozen Lemonades and Frozen Strawberry Lemonades.
Wendy's turns up the heat
Wendy's has also been innovating on menu, besides its "Image Activation" initiative, including in-store renovations, to drive more traffic by offering a great customer experience. Its limited-time offer of Pretzel Bacon Cheeseburger last summer has been a hit. It was named the "Best Limited-Time Offer" of 2014 by Nation's Restaurant News' MenuMaster.
The fast food chains' "Right Price Right Size" menu offers consumers the choice to create an entire meal, not just a standard value menu of rivals. For the summer, it has the new Steakhouse Jr. Cheeseburger Deluxe as a part of the "Right Price Right Size" menu, for a suggested price of $1.49. It recently introduced the Strawberry Fields Chicken Salad for the summer season as a limited-time offer, for a suggested price of $6.49 for the full size, and $4.49 for the half size. On the back of robust results, Wendy's has been outperforming Burger King and McDonalds.
McDonald's trying to make a comeback
McDonald's has underperformed the market and peers for more than a year now. It's grappling with the problem of declining traffic and competition from upscale competitors. Its comps declined in six of the last seven months, making it the worst slump for the company in more than a decade. One of McDonald's problems is its complex menu, which has made store operations too complicated, and led to unhappy customers.
McDonald's main problem is in the U.S., as global comps have grown. However, despite all the issues, it's a defensive stock with a beta of 0.35, and it's a dividend investors' delight. It has a dividend yield of 3.20% versus 2.30% of Wendy's, and 1.10% of Burger King. However, McDonald's will have to fix its problems at home, and gain relevance with customers, once again.
The takeaway
Burger King is doing extremely well. The company's focus on a franchise-based model is working, and it's also focusing on menu innovations to drive growth. Investors should take a closer look at Burger King, as it could make for a solid long-term investment.