For years, Wendy’s (NASDAQ: WEN | WEN Price Prediction) was the No. 2 fast-food hamburger chain in the US. Burger King was No. 3. Recent earnings show that those positions have reversed, and the leader, McDonald’s (NYSE: MCD), has a rival that is growing faster than it is.
Earnings show that Wendy’s same-store sales have dropped six quarters in a row. At the same time, Burger King’s sales have risen for five quarters. (Burger King is part of Restaurant Brands International (NYSE: QSR).)
Burger King’s increase in same-store sales in the second quarter was 8.3%. Wendy’s dropped 7% for the period. (Wendy’s did particularly poorly in the US, where same-store sales fell 8.2%.) Bob Wright, Wendy’s CEO, did not have much of an excuse: “Our traffic, our value proposition, and franchisee economics are not meeting our expectations.” He went on to lay out why the drop could be arrested.
McDonald’s comparable store sales rose only 1.3% in the most recent quarter. Burger King has a long way to go to beat McDonald’s, but that does not mean it cannot take away market share.
Wendy’s stock has taken an awful beating in the last year. It is down 27% in the last year, while the S&P 500 is 21% higher. At the same time, Restaurant Brands International’s stock is up 14%. (McDonald’s is down 10%.)
McDonald’s revenue was $7 billion in the most recent quarter. Restaurant Brands International’s was $2.5 billion. So, again, the race is for market share, and once again it appears that Burger King is gaining.
What is at stake? It may be that the race ends up as one for net income and net income in ratio to revenue. Restaurant Brands International had net income of $665 million in the second quarter. McDonald’s was $2.86 billion.
Do investors look at same-store sales and net income more than revenue? If so, Burger King’s case as the more successful company is at least plausible.
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