Why investors should look at Burger King’s same-store sales first

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Same-store sales

Same-store sales drive revenues. Burger King (BKW) reported global same-store sales growth of 1% in the second quarter. As you saw in the earlier part of this series, 99% of Burger King restaurants are franchised and system-wide sales grew by more than 5% year-over-year in the second quarter.

In contrast, Chipotle Mexican Grill (CMG) only has company-operated restaurants. Read this series to learn more.

System Sales Year-Over-Year 2014-09-01

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Management credited positive system sales to an increase in traffic from attracting new guests. Incentives included product innovations like the launch of Big King, which was part of a “2 for $5 platform.” Big King burgers have three layers of bun and resemble the Big Mac. To improve the product mix, Burger King launched five new items in all.

Restaurant chains introduce new products at various price points to offer variety to customers. Yum! Brands (YUM), for example, introduced new offerings at Taco Bell and Pizza Hut. McDonald’s (MCD), too, has been rapidly expanding its menu recently, according to Business Insider.

Too many new offerings may result in failure by stressing the line staff and reducing efficiency, which could reduce the guests served and affect revenues.

To protect against these risks, you can get exposure to the restaurant industry by investing in exchange-traded funds (or ETFs) like the Consumer Discretionary Select Sector SPDR Fund (XLY).

What are same-store sales?

Same-store sales measure the percentage change in revenues generated by existing restaurant locations over the same period last year. Same-store sales are in turn driven by the number of customers visiting the restaurant (traffic), and the average amount spend per customer per visit (average check).

Traffic and average check are driven by various factors, like product mix, price points, and advertising and promotion, which we discuss in the next parts of this series. We’ll also discuss Burger King’s top line.

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