Burger King has the template to remake McDonald's

Chris Nichols

Restaurant Brands International (QSR), the company formed late last year by the merger of Burger King and Tim Hortons, started its earnings history with an upbeat report, one that investors thought enough of to send the stock sharply higher.

On Tuesday, Restaurant Brands said its fourth-quarter revenue was $416.3 million, with a loss of $514.2 million, or $2.52 a share. For the year, revenue was $1.2 billion, with a loss of $2.34 a share. The results included various merger and debt-retirement costs, so the losses weren't leading to any particular concerns. The focus instead was on the positives. For the full year, Tim Hortons same-store sales rose 3.1%, and at Burger King they were up 2.1%. Sales for the entire Tim Hortons' system climbed 6.6%, while at Burger King, the advance was 6.8%. Comparable sales for the fourth quarter also were higher. After the numbers were released, the shares added 8.7% to $42.12.

[Get the Latest Market Data and News with the Yahoo Finance App]

Restaurant Brands' management said on a conference call that fewer, "more impactful" items and value offerings such as the ongoing deal of two sandwiches for $5, were important components for the last few months at Burger King. With system sales of $17 billion, or about 70% of the corporate total, Burger King is the majority of the new company. The reintroduction of chicken fries and a bacon cheeseburger with A.1. sauce were called out as notable contributors to 2014, in no small part because they were simple items to add to the menu that didn't add great complications. While pricier, premium items have helped restaurant sales and will keep appearing here and there, affordability continues to be key, and the idea of "value" at Burger King arose more than once on the call.

It's not alone in this. Wendy's (WEN), which formerly operated Tim Hortons, is going in the same direction. Its CEO recently said that, even though the company has benefited from its higher-end sandwiches, marketing for the premium burgers has to be de-emphasized somewhat in order to remind patrons about the low-priced menu. Those remarks followed a 2014 in which Wendy's still had record average annual sales per restaurant and a same-store sales increase of 2.3% at company-owned locations.

And that brings us to McDonald's (MCD). Last year, its global comparable sales fell 1%, including a decline of 2.1% in the U.S. The number of transactions at McDonald's worldwide fell 3.6% last year and 1.9% the year before. Although McDonald's is still the burger group leader in system sales and restaurant count, its growth has stopped. That's not the case, clearly, at Burger King or Wendy's -- or Sonic (SONC) or the "better burger" restaurants.

McDonald's does have a great deal in its favor, but it's got issues, too. The menu has gotten too crowded as it tried to reinvent itself over and over, reports on fretting franchise owners have emerged, and now it has a new CEO, Steve Easterbrook, to try and restore sales momentum. The good news for McDonald's is domestic same-store sales have ticked up for two consecutive months. Meanwhile, it's started down a path to attempt to correct some of its problems. In a way, it in fact can be cheered by how well its competitors are doing, because it indicates that, despite fast-casual's emergence as an increasingly popular food option, people aren't giving up fast food. They still want consistency, they want their food quickly, and they want it a low price. McDonald's can do this.

That template, after all, is what got McDonald's to 36,000 global stores today. Simplicity, low prices, fast service. Burger King's doing that. Wendy's is doing that. And so are others. Now it's up to McDonald's to get back to that.