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Investing in This Growing Fast Food Chain Is a Good Idea
Posted by: Suravi Thacker (IP Logged)
Date: May 8, 2014 10:30AM
Fast food chains are much in vogue these days since they offer food at comparatively cheap prices as compared to restaurants. Hence, cost-conscious people prefer to walk up to retailers such as Burger King Worldwide (BKW) and McDonald’s Corporation (MCD) who offer value meals which are pocket friendly. However, there are various other factors, such as weather and consumer confidence, which affect sales at such stores. Burger King Worldwide reported its first quarter numbers last week, which were mixed.
Into the Numbers
Revenue for the quarter plunged 26% to $240.9 million, over last year’s quarter. The drop in revenue was mainly because of unfavorable currency movements as well as due to the strategy of refranchising adopted by the company. Since the company is moving from owned restaurants to franchised ones, revenue has taken a hit.
Nonetheless, if we exclude the effects of refranchising and currency headwinds, the top line has actually grown 6% over last year. The growth was driven by comparable store sales growth of 2% and new stores added to its network.
The retailer’s strategy of franchising has benefited the bottom line since it lowered costs and expanded margins. Hence, earnings surged 19% over last year, clocking in at $0.20 per share. Also, the retailer has shifted to more chicken-oriented products since beef prices are on the rise. It recently added chicken burgers to its menu.
The Secret to Success
The burger company managed to register growth in organic revenue and earnings despite the problems of severe weather conditions and lower consumer confidence mainly because of its strategic moves. It now focuses on three key areas, namely, remodelling of stores, improvements in the menu and expansion into new markets.
Burger King added a host of new items to its menu in order to boost its sales. It introduced four new products during the quarter, which attracted customers. The addition of the Rodeo Burger and Rodeo Chicken Sandwich drove sales higher since it was a part of King Deals Value Menu which has products for $1.
Also, the company offers value-oriented meals for cash-strapped customers. Further, its introduction of low-calorie fries, called Satisfries, have become very popular since people are becoming highly health conscious. In fact, the food retailer also plans to enter the breakfast segment with the introduction of wraps and sandwiches. This should prove to be advantageous since the breakfast market has been growing largely in the U.S. However, it will face stiff competition from a number of players, including McDonald’s, one of the leading players in the breakfast segment.
The retailer has also adopted the strategy of remodelling its stores in order to increase sales. The stores which have been remodeled have witnessed sales growth of 15% to 20%. Therefore, the fast food chain plans to continue to remodel its stores in the U.S. with a target of 40% of its total stores to be done by 2015.
Moreover, Burger King plans to expand its geographical footprint. After adding 670 new outlets in fiscal 2013, the retailer plans to continue to expand into new regions of France and India in 2014.
Therefore, the company looks good to go with so many initiatives under its sleeve. Although the first quarter was not as expected, its focus on three key areas should be fruitful. Moreover, the company has lowered its costs significantly by opting for a refranchising model. These factors together make Burger King an interesting pick. Prudent investors should take note of this growing company.
Stocks Discussed: BKW, MCD,