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Burger King Flips the Script, and Sizzles as McDonald's Shrinks


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Burger King Worldwide Inc. Products & Signage Ahead Of Earns
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Don't let the recent weakness at McDonald's (MCD) lead you to the conclusion that all burger flippers are struggling. It's just not true, and Burger King (BKW) proved that in its latest quarter.

McDonald's longtime nemesis posted better than expected profitability during the first three months of the year, fueled by marginally positive comparable-restaurant sales for the period.

It may not seem like much of a victory. Burger King's worldwide comps rose 2 percent, with its U.S. and Canada locations clocking in with a meager 0.1 percent increase. However, even that baby step up is better than the 1.7 percent decline at McDonald's.

Unlike Ronald McDonald, Burger King isn't clowning around.

The Whopper Beats the Big Mac?

This would be an opportune time for Burger King to break away from the larger chain that it's been copying for years. We've seen Burger King offer up items that are blatantly similar to McCafe smoothies, Chicken McBites, Big Macs, Egg McMuffins, and even the cult fave McRibs.

However, now that McDonald's is in a rut -- having posted three consecutive quarters of negative comparable-restaurant sales in this country -- it appears Burger King is ready to carve its own path.

"We started off 2014 strong by generating comparable sales growth across all four regions during the first quarter," Burger King Worldwide CEO Daniel Schwartz explained in the fast food giant's earnings release. "Despite severe winter weather in the U.S. and Canada, our commitment to launching fewer, more impactful products and simplifying in-restaurant operations helped drive improved performance."

If there's one thing in that statement that should stand out as a sharp contrast to the current strategy at McDonald's it's that Burger King is rolling out "fewer" products as it is "simplifying" operations. That's an entirely different strategy than the one being used by McDonald's, which seems to involve rolling out a lot of new menu items and seeing what sells.

McDonald's big push for 2014 is the installation of deeper prep tables in its kitchens that will allow the chain to offer more ingredients as burger toppings. That's a pretty big gamble for McDonald's; it could easily result in a slow-down in orders or more mistakes.

Burger King isn't performing perfectly. Sales did come in a bit lighter than Wall Street was forecasting. We also saw the chain close 43 more restaurants than it opened during the period. Burger King's overall restaurant count grew on the heels of its popularity overseas, but it needs to begin growing its store count closer to home to make the most of its inspiring unit-level performance.

Fast Food Roundup

It may not be fair to pick on McDonald's just to show that Burger King is doing relatively better. Other fast food concepts that have reported this earnings season haven't been very impressive. Yum! Brands (YUM) posted negative comps at KFC, Taco Bell, and Pizza Hut during the same three-month period.

We'll get a clearer snapshot of the burger industry in the coming days. Wendy's (WEN) reports next week, and Jack in the Box (JACK) follows shortly after that. Will they be positive like Burger King or negative like McDonald's? Wendy's offered up guidance back in late February, forecasting comparable-restaurant sales to climb 2.5 percent to 3 percent this year. That implies strength for all of 2014, but we still don't know how well it navigated January storms that melted into diner apathy in February and March for McDonald's.

Burger King is getting it right by not following McDonald's. Soon we will see what the rest of the industry is up to.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide and McDonald's. The Motley Fool owns shares of McDonald's. Try any of our newsletter services free for 30 days.


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