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Invest in Burger King for Long-Term Growth

April 23, 2014 | About:
kcpl

kcpl

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Burger King Worldwide (BKW) has turned around things with its strategic refranchising efforts that have helped the company post much better financial and operational results. As a result, the stock has jumped up 15% this year so far. With the positive movement to continue throughout the year, investors can expect good returns on the stock. Its peers like McDonald’s (MCD) have been left behind, but the company must watch Wendy’s (WEN), which is witnessing strong demand for its Pretzel Burgers.

Good Performance

In its recently released quarterly results, Burger King’s revenue slid 34% to $265.2 million due to the refranchising efforts the company undertook in order to increase profit. It has altogether refranchised 360 company-owned restaurants during 2013. And Burger King’s continuation of this strategic move will certainly fetch better results in the long run. However, its same store sales increased 1.7% in the last reported quarter and its sales grew to 6.2% in the Asia-Pacific region, accompanied by increased sales in Australia and South Korea. Moreover, Burger King opened 670 new restaurants in 2013 to increase its footprint across various markets.

Burger King looks to be in the right direction as it posted $66.8 million, or earnings of $0.19 per share compared to $48.6 million or earnings of $0.14 per share in the same quarter a year earlier. When special items are excluded, it earned $0.24 a share, thus exceeding analysts’ estimates of $0.23 a share.

More Growth

As it diversifies its menu base, Burger King further expects growth in its earnings. It has recently included Satisfries to its menu that has helped significant earnings growth and has also attracted more customers to its chain. These fries have a 20% lower calorie count than the regular fries, proving to be a key item for health-conscious customers. In addition, the popularity of its other new menu items such as BBQ rib sandwiches and the Big King burger have led to demand growth in the overseas markets.

This diversification of its menu such as low-fat fries and bacon sundaes has helped Burger King to compete against rivals McDonald’s and Wendy’s. Burger King has recently reported improved sales trends at the start of fiscal 2014 on account of launching fewer, but more meaningful products in North America. This sounds like a good strategy for the company as it has to compete against McDonald’s Big Mac.

Burger King has increased the size of its Big King burger so that it can take away market share from the Big Mac. This initiative is already leading to strong results, since McDonald’s, which is a lot bigger in size than Burger King, reported poor results in January. McDonald’s comparable sales in the U.S. have been on the decline, dropping 1.4%. Analysts were expecting a smaller drop of 0.2%. In the Asia-Pacific, Middle East and Africa region, McDonald’s same-store sales were down once again to the extent of 2.4% in the quarter. In comparison, Burger King is recording growth in international operations.

Conclusion

It is evident that Burger King is progressing in the right direction and investors should definitely take a close look at the company.


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