THE BIG FOUR – QSR SANDWICH TRENDS

With the exception of Burger King, the Street is expecting a continued recovery in same-store sales trends for the biggest QSR chains in 2H13.  The following is a look at what each chain will be promoting for the balance of 2013 in order to drive incremental customers.

 


WEN - Wendy’s

  • Pretzel Bacon Cheeseburger – the national rollout of the summer LTO will begin by July 4th weekend in the U.S. and Canada and could potentially become a permanent menu item
  • Berry Almond Chicken Salad – returned at the end of May for its yearly appearance
  • Strawberry Tea and Strawberry Lemonade
  • Waffle Cone Frosty

HEDGEYE – Expectations are high for the Pretzel Bacon Cheeseburger.  The product is different enough to potentially generate significant trial.  The retail price for the burger is expected to be $4.69, which is an expensive burger, particularly when most consumers are looking for items with better value.  Given the extremely difficult comparisons in 2Q13 and 3Q13, management is relying upon the new burger to drive traffic and check.  Street expectations are for a 1.0% increase in 2Q13 same-store sales.  We believe that the turnaround at Wendy’s is going to take time.

 

Given that this recent run has been driven largely by multiple expansion rather than earnings revisions, we expect the stock to “take a breather” at this point.  Due to a lack of catalysts, it will be difficult for the stock to continue on its current trajectory.  We believe the next two quarters are likely to see choppy top line performance from WEN.

 

 

YUM - Taco Bell

  • Will continue to build on the Doritos Locos Tacos and Cantina Bell platforms
  • Cool Ranch Doritos Locos Tacos – expected to be a strong performer in 2Q13
  • Will release a third flavor of Doritos Locos Tacos “soon”
  • New Cantina Double Steak Quesadilla

HEDGEYE – Taco Bell is up against a 13% comparison from last year.  The trends in 1Q13 suggest that Taco Bell will be see same-store sales down by 1% in 2Q13 compared to Street expectations of a 1.3% increase.  While this might be slightly disappointing, it is insignificant relative to the poor trends the company is seeing in China.  YUM has underperformed the S&P 500 by 820bps year-to-date and it is our view that the company’s performance in 2Q13 will do little to change the Street’s perception. 

 

 

MCD - McDonald’s

  • New variations of the Quarter Pounder will replace Angus Burgers
  • New Egg White Delight option on breakfast sandwiches
  • McCafe Blueberry Pomegranate Smoothie
  • McCafe Dulce de Leche Shake
  • Premium McWraps

HEDGEYE – Despite all that MCD has going on, we don’t believe the company’s performance is going to match the lofty expectations embedded in the numbers for 2H13.  While expectations are reasonable for McDonald’s USA to post 1.6% same-store sales in 2Q13, we suspect that 3% same-store sales estimates for 2H13 are too aggressive.  We remain bearish on MCD.

 

 

BKW - Burger King

  • Soft Serve Cones – $0.50 item will be available through August 4th
  • New Summer BBQ-themed menu
  • New Rib Sandwich (reminiscent of the MCD McRib)
  • Return of the Memphis BBQ Pulled Pork Sandwich
  • Carolina BBQ Whopper
  • Carolina BBQ Chicken Sandwich
  • Return of Sweet Potato Fries
  • Buffalo Chicken Strips
  • Frozen Lemonade and Frozen Strawberry Lemonade

HEDGEYE – We do not see anything in Burger King’s new product pipeline that suggests the company will separate itself from others in a very competitive QSR landscape.  BKW is comparing against 4.4% same-store sales growth and we believe the Street estimate of a 1.4% same-store sales decline in 2Q13 is too conservative.  It is very possible that 2Q13 same-store sales could be down nearly 2%.  We continue to believe the fundamental issues in the business model and the cash flow pressure on franchisees will prove to be two major headwinds sometime in the future; in the meantime, however, positive restaurant industry and macro data continue to support the stock.

 

 

THE BIG FOUR – QSR SANDWICH TRENDS - big 4 sss2

 

 

Howard Penney

Managing Director

 

Rory Green

Senior Analyst

 


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