While casual dining may be on the decline, according to Steven West of Stifel, Nicolaus & Co., “we continue to eat out; we are just eating out at cheaper options…” As a result of this, West’s top pick in this space is Burger King (BKC). Here’s why:
Mr. West: They are where McDonald’s was a few years ago. They’ve done most of the McDonald’s playbook, if you will, such as the rationalization, although they didn’t have to re-franchise because they were so heavily franchised already. Now they’re going to the remodeling phase. Pushing forward, I think the focus would be on remodeling their US stores. Burger King’s average store age is over 20 years. One of the big drivers of McDonald’s sales over the last few years has been because their stores are in good shape again. Healthy looking stores attract consumers. That’s where Burger King needs to get. So you will see them really focus on remodeling, which should continue to drive incremental sales. They are seeing about a 15% to 20% boost to sales on their remodeled stores.
For the complete restaurants report, including a roundtable discussion of the sector and more stock picks, click here.
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