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Burger King (BKW) recently reported 3Q12 earnings and while it beat on the EPS estimates, it’s clear the company has a lot of work to do going forward. With competition from the likes of everyone from Wendy’s (WEN) to McDonald’s (MCD) to even Chipotle (CMG), BKW needs to grow SSS aggressively in the US and Canada while focusing on its four pillars strategy that involves Image, Menu, Marketing Communications and Operations. We consider this a problem that may be too big to fix.

BKW: Too Big To Fix?  - bkw1

BKW: Too Big To Fix?  - bkw2

Hedgeye Restaurants Sector Head Howard Penney laid out BKW’s future in our sales note this morning:

The performance in sales trends is what carries most weight for the Burger King investment thesis.  On that metric, the outlook is uncertain.  In the U.S., two-year average trends accelerated by 100 basis points, sequentially, from 2Q12 to 3Q12.  The U.S. constitutes almost 60% of the store-base.  As the charts below highlight, consensus is expecting a sharp acceleration in trends during the first half of 2013.  Holding current two-year trends level suggests negative same-restaurant sales trends for 1H13