Revenue growth drives earnings and raises investor confidence, which should ultimately push stock prices upward. In 2Q16, the median revenue growth for the five fast food restaurants under review in this series was -0.2%.
With revenue growth of 2.6%, Jack in the Box (JACK) beat the other four fast food restaurants in this metric. JACK’s revenue growth was largely driven by Qdoba brand’s revenue growth of 8.6%. The Jack in the Box brand’s revenue grew by 0.4% due to positive same-store sales growth and the addition of two company-owned restaurants. Notably, JACK forms 0.22% of the holdings of the SPDR S&P MIDCAP 400 ETF (MDY).
JACK was followed by Sonic (SONC) with revenue growth of 0.3%. SONC’s revenue growth was driven by positive same-store sales growth and the addition of 50 franchised restaurants. The increase in franchised restaurants raises franchise fees and royalties, thus increasing overall revenue.
As part of its optimization initiative, Wendy’s planned to decrease its company-owned restaurants to 5% of the total unit count by the end of 2016. In the last 12 months, the company has refranchised 278 company-owned restaurants, which led Wendy’s (WEN) revenue to fall 21.8%. Some of the declines were offset by the addition of new franchised restaurants and positive same-store sales growth.
Wendy’s was followed by McDonald’s (MCD) and Restaurant Brands International (QSR) with revenue growth of -3.6% and -0.2%, respectively. MCD’s revenue fell due to the refranchising of company-owned restaurants in the last 12 months. QSR’s revenue fell due to the strengthening of the US dollar, as the strong dollar reduced the revenue from international operations.
Next, we’ll look at same-store sales growth, one of the key revenue drivers for fast food restaurants.