Which Fast Food Restaurant Saw the Highest Earnings Margin in 2Q17?
The EBIT (earnings before interest and tax) margin measures the efficiency of a company’s business and is key to making investment decisions. EBIT margins affect EPS and ultimately drive the company’s stock price.
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With more than 99% of its restaurants being franchised, Restaurant Brands International (QSR) enjoys higher EBIT margins than its peers. In 2Q17, the company posted EBIT margins of 42.1% compared to 41.8% in fiscal 2Q16. The expansion in EBIT margins was due to a lower cost of sales and a decline in franchise and property expenses. However, some of the expansion in EBIT margins was offset by the rise in SG&A (selling, general, and administrative) expenses.
Restaurant Brands International was followed by McDonald’s (MCD) with EBIT margins of 38.6%. The sales leverage from positive SSSG (same-store sales growth) increased revenue from franchised restaurants, and lower G&A (general, and administrative) expenses expanded the company’s margins from 34.1% in 2Q16.
During the quarter, Wendy’s (WEN) posted EBIT margins of 26.5% compared to 19.1% in 2Q16. The expansion was due to lower cost of sales, sales leverage, and increased revenue from franchisees.
Jack in the BOX (JACK) operates a higher number of company-owned restaurants than its peers, which has led the company to operate at lower margins. Also, JACK is the only company we’re considering that has seen a year-over-year fall in its EBIT margins. In 2Q17, the company posted an EBIT margin of 15.5% compared to 17.1% in 2Q16. The decline in EBIT margins was due to inflation in commodity prices, a rise in labor and occupancy expenses, and sales deleverage from negative SSSG.
Next, we’ll compare the 2Q17 EPS growth of fast food companies.