The war between the fast food chains is getting better. Each of the players is trying to give customers more and more reasons to visit its stores, resulting in higher revenue. Among them, Burger King Worldwide (BKW, Financial) has been in the headlines recently for various reasons. Its share price has also surged 40% since the beginning of the year.
The burger giant is talked about mainly due to its second-quarter results, which were pretty impressive. Its earnings beat the Street’s estimates, sending its share price higher. Further, its plans to acquire Tim Hortons (THI, Financial) attracted investors' attention.
The numbers
Revenue for the quarter plunged 6% to $261 million, as compared to the prior year’s quarter. Although this was a decline over last year’s quarter, the top line is on the road to recovery. It is better than the previous quarters wherein revenue fell drastically. This was mainly because the company is changing its business model to a franchised one rather than having company-owned stores. This should result in lower costs and regular royalty income. The company has almost finished with its refranchising initiatives and is now left with 50 odd stores only, which will be done in the next quarter.
In fact, the retailer is expanding its footprint and added 131 new stores during the quarter. Also, its same store sales grew 1%, which is better than flat comparable store sales in the previous quarter. The company’s earnings stood at $0.25 per share, higher than the estimate of $0.23 per share. Refranchising stores seem to be bearing fruits.
By introducing items which are more attractive in nature, Burger King was able to attract customers. For example, new items such as Chicken Big King, Cinnabon and sausage biscuit have been quite successful. Additionally, it has started offering Starbucks’ coffee at its restaurants which lures more breakfast customers.
The most eyed acquisition
The biggest move made by the burger retailer is its expected acquisition of Tim Hortons. This buyout has a large number of advantages that will help the company witness growth. First, it will help in expanding its footprint in Canada. Tim Hortons has a large chunk of Canada’s breakfast and coffee segment; 75% of Canada’s coffee market is led by Tim Hortons. Similarly, it has 70% of Canada’s baked food market. Therefore, it will provide Burger King a competitive edge over other industry players in the region. Also, it complements the retailer’s efforts to expand its international footprint.
Further, the breakfast segment will be strengthened by Tim Hortons’ mouth-watering doughnuts, amazing coffees and other menu items.
Moreover, the doughnut retailer will add to the acquirer’s top line. Tim Hortons' recently reported quarter was a blockbuster one with a 9% jump in revenue and 2.6% growth in same store sales in Canada and 5.9% growth in the U.S. Thus, Burger King will benefit from this growth in the future.
My takeaway
Tim Hortons, if acquired, will be a great part of Burger King’s success. It will not only help in lowering costs related to tax but will have a host of benefits. Moreover, the burger retailer too is undertaking a lot of initiatives to broaden its product portfolio as well as expand its international footprint. With almost all the restaurant refranchised, this company should help you make money.
