Burger King Reports Second Quarter Sales

MIAMI — Burger King Holdings Inc. (NYSE:BKC) today reported results for the second quarter of fiscal 2010. Key highlights of the companys second quarter results include:

Robust development growth across all business segments as net restaurant count increased by 95 restaurants. International segments accounted for over 90 percent of the net restaurant increase compared to the same quarter last year;

Celebrated the grand opening of the brands 12,000th restaurant, located in Beijing;

Worldwide comparable sales were negative 2.0 percent compared to positive 2.9 percent in the same period last year;

U.S. and Canada comparable sales were negative 3.3 percent compared to positive 1.9 percent in the same period last year;

Worldwide company restaurant margin improved 20 basis points to 13.8 percent from 13.6 percent in the same period last year;

U.S. and Canada company restaurant margin improved 160 basis points to 14.4 percent from 12.8 percent in the same period last year; and

Earnings per share were $0.37 compared to earnings per share of $0.33 in the same period last year; up 12 percent.

In the second quarter of fiscal 2010, the company continued to face a challenging operating and consumer environment. Quick Service Restaurant (QSR) traffic in the U.S. fell 3.0 percent in the quarter ended November 20091 as a result of continued adverse macroeconomic conditions including high unemployment levels.

The industry and our brand continued to experience weak consumer spending as global unemployment levels remained high, said Chairman and Chief Executive Officer John W. Chidsey. However, we continue to tactically respond to the current consumer need for extreme affordability with our value promotions while remaining focused on managing the brand for the long-term and investing in the future.

We added 95 net new restaurants, increased worldwide company restaurant margin and continued to invest in our infrastructure with our North America reimaging program and advanced Point of Sales systems, Chidsey added.

Revenues for the second quarter of fiscal 2010 were up 2 percent at $645.4 million, compared to $634.1 million in the same quarter last year. Revenues were aided by a worldwide net restaurant growth rate of 2.7 percent, among the highest in the industry, and by currency translation, which positively impacted quarterly revenues by $22.8 million.

Second quarter worldwide comparable sales were negative 2.0 percent compared to positive 2.9 percent in the same quarter last year. Comparable sales were negatively impacted by a continued weak labor market, lower discretionary spending and competitive discounting. Worldwide traffic was positive and increased quarter-over-quarter largely driven by the brands popular $1 lb. Double Cheeseburger promotion in the U.S. The promotions performance was in-line with the companys expectations, positively impacting traffic and gross profit dollars. The company posted positive comparable sales of 0.9 percent in its EMEA/APAC business segment lapping a strong same-store-sales comparison of 5.0 percent in the same period last year. Leading this performance were the U.K., Spain and the companys major APAC markets including Korea, Australia and New Zealand offset by negative comparable sales in Germany and the Netherlands.

Marketing in the U.S. continued to focus on value with the six month limited-time-offer (LTO) national launch of the $1 lb. Double Cheeseburger on October 19th. The company augmented this promotion during the busy holiday season with ‘BK Dollar Holidays’ featuring 20 greeting cards containing a dollar bill for a $1 lb. Double Cheeseburger. The company also continued its product innovation efforts adding new Funnel Cake Sticks to the menu aimed at driving profitable breakfast and dessert sales.

Other marketing initiatives during the second quarter included a U.S. campaign with NASCAR Sprint Cup Series driver Tony Stewart, and a multifaceted promotion with The Twilight Saga: New Moon aimed at female SuperFans of all ages. In the U.S. and Canada, marketing efforts also included SuperFamily promotions such as SpongeBob SquarePantsTM, Planet 51TM and FurReal/Super Hero Squad, which were also leveraged across many international markets.

EMEA/APAC focused on promoting the companys barbell menu strategy throughout the quarter with a combination of value and premium offerings such as value-oriented King DealsTM and Stunner Deals and indulgent products such as various angus burger builds and Whopper sandwich LTOs. The Latin America business segment also continued to leverage the barbell menu strategy, promoting everyday value platforms such as the Come Como ReyTM (Eat Like a King) and BK Ofertas (King Deals), along with affordably indulgent LTO product offerings including the Mega Angus XT Furioso sandwich.

In the second quarter, the company increased its worldwide net restaurant count by 95 and reached a significant milestone with the grand opening of its 12,000th restaurant located in Beijings Joy City. The company also unveiled its new 20/20 restaurant design at Schiphol Airport in Amsterdam, which features a fresh, eye-catching sleek dcor, and opened its first WhopperTM Bar in both the Asia-Pacific and Latin America regions. During the last 12 months, the company opened a total of 321 net new restaurants and is on target to open 250 to 300 net new restaurants during fiscal 2010.

During the second quarter, the company posted worldwide company restaurant margins of 13.8 percent, a 20 basis point improvement over the prior year and a sequential improvement of 80 basis points from the fiscal 2010 first quarter. Worldwide company restaurant margins benefited from lower food, paper and product costs in the U.S. and Canada segment. Company restaurant margin in the U.S. and Canada segment increased 160 basis points compared to the same period last year driven by lower commodity and other operating costs. Lower company restaurant margin in EMEA/APAC and Latin America segments as compared to the same period last year partially offset the improvements realized in the U.S. and Canada. Company restaurant margins in the international business segments were primarily negatively impacted by increased occupancy and other operating costs.

General and administrative (G&A) expenses increased by $3.3 million compared to the same period last year. Currency translation negatively impacted G&A by $4.1 million, which was partially offset by reductions in corporate expenses and bad debt recoveries. Net of currency translation, G&A decreased 1 percent compared to the same quarter last year.

The company reported second quarter earnings per share of $0.37, including a $0.02 favorable impact due to currency translation, compared to earnings per share of $0.33 in the same quarter last year.

Looking ahead

The QSR industry is expected to face strong macroeconomic headwinds throughout 2010, as unemployment conditions are not likely to improve, Chidsey said. Therefore, we will continue to focus on our guests desire for extreme affordability with promotions such as the $1 lb. Double Cheeseburger and other value promotions we will be introducing in the near-term. We will balance those offerings with a strong indulgent product mix including our Steakhouse XT burger, which launches nationally this month with the full implementation of our new batch broilers across the U.S. system. And we continue to invest in the brand with initiatives such as our advanced point-of-sales system roll-out, which is enhancing order taking, inventory control, labor costs, cash management and our market research with the availability of transactional level data.

Our development plans, including our North America reimaging program and portfolio management strategy, are expected to remain on track, Chidsey said. In fact, this month, we signed an agreement to acquire 35 restaurants in Singapore, which will become our second company market in Asia Pacific and the center of development and product innovation for the region. And we entered the Russian market with the opening of two restaurants in January, an important step in our expansion efforts in the EMEA region.

Chidsey concluded: The fundamentals of our True North plan remain intact as we grow the brand, run great restaurants, invest wisely and focus on our people including working collaboratively with our franchisees. And while we continue to nimbly respond to the current consumer environment, we are committed to managing the brand for the long-term, making the right decisions to drive the business forward.”

Source: Burger King Holdings, Inc.