Burger King Worldwide (BKW, Financial) posted impressive quarterly results. Despite seeing weakness in the past, the food joint has turned around strongly due to its solid strategies. The company’s franchising efforts led it to a strong comeback, resulting in its stock growing by 15% this year. The company is already holding a competitive edge over peers such as McDonald’s. On the other hand, analysts are expecting Burger King to post better results in the future. Burger King might face stiff competition from Wendy’s, which is also gaining traction in the market with its famous Pretzel Burger.
A better business model
In the previous quarter, Burger King saw slight weakness in its business as the company was making franchising efforts for long term gains. So, the company’s revenue fell 34%. But, the food joint succeeded in franchising 360 company-owned restaurants, which helped it deliver growth in sales. Burger King’s same store sales increased 1.7%. It also saw 6.2% sales growth in the Asia-Pacific region, driven by increased sales in Australia and South Korea. Moreover, Burger King opened 670 new restaurants in 2013.
Burger King’s strategies were successful, and the company has started seeing gains. A good menu has always been Burger King’s key driver for success. Further, the company is making advances to diversify its menu to attract more customers to its joints. Burger King is focusing on adding healthy ingredients in the menu.
It is focusing on attracting health-conscious customers by adding Satisfries to its menu. These fries have a 20% lower calorie count than normal fries, which might prove to be a key reason for more customer engagement. Further, addition of new items such as BBQ rib sandwiches and the Big King burger have led to demand growth in overseas markets.
Positive moves
Burger King is undertaking many strategies to compete with its peers. For example, in the past, addition of low fat fries and bacon sundaes has enabled Burger King to compete against McDonald's and Wendy's. The company’s CEO is confident of seeing growth in sales. Burger King is also planning to introduce new products as it faces stiff competition from McDonald’s Big Mac.
In line with this strategy, Burger King has increased the size of the burger. With this, the company aims to poach customers from McDonald’s. This strategy is working well for Burger King as McDonald’s posted weak sales in January. Further, McDonald’s comparable store sales declined by 1.4% in regions such as Asia-Pacific, Middle East, and Africa. With these facts, it can be seen that Burger King is excelling on the international front as well.
Moving on, Burger King is making advances in making itself unique in the business. Management is focusing on developing breakfast and chicken items, which will be unique in the industry and can help the company enjoy an added advantage over peers. This concept can benefit Burger King in the long run.
Competition
But Burger King should also be alert. One of its peers, Wendy’s, is making aggressive moves to diversify its menu. Its Pretzel Burger is seeing strong customer attraction due to its good quality bread. In addition, Wendy’s saw a 3.2% increase in same-store sales in the previous quarter at company-owned restaurants and a 3.1% jump at franchised restaurants. So, Burger King will have to focus greatly on the innovation of its menu items apart from the refranchising effort to be competitive to Wendy’s.
Conclusion
Looking at the valuation, Burger King is trailing at 40 times earnings, which is not too high as compared to Wendy’s 107. So, on the trailing P/E basis, Burger King appears reasonable. Further, Burger King is doing well with its franchises and it is also making innovations in the menu. So, Burger King looks like a good buy.
