3rd UPDATE: Burger King 4Q Profit Tops Street; Sales Weak
August 25 2009 - 12:02PM
Dow Jones News
Burger King Holdings Inc. (BKC) shares rose Tuesday after the
company's fiscal fourth-quarter profits topped low expectations
even as sales were stung by a weak global economy and rampant
discounting by fast-food chains.
Burger King shares were recently up $1.45, or 8.2%, at $19.12
after reporting a 16% increase in profits on benefits from improved
restaurant margins, a low tax rate and gains from selling
company-owned stores to franchisees.
The report did enough to allay market fears that profits were at
risk, which could prove analysts expectations to be
conservative.
"When all's said and done, they're likely going to come above
the current conservative consensus that's out there," Oppenheimer
& Co. analyst Matthew DiFrisco said. Analysts, on average, see
Burger King posting earnings of $1.46 a share for fiscal 2010,
according to Thomson Reuters.
Sales continue to be a concern at a time of mounting
unemployment, especially as it hits Burger King's key "Superfan"
demographic - 18- to 35-year-old men - worse than the broader
population.
Burger King expects "soft" trends through Christmas after a 2.4%
drop in global same store sales in its latest quarter, and is
hoping for better sales in the second half of fiscal 2010 if
consumer sentiment improves.
With consumer wallets pinched, Burger King sped up a shift in
its advertising to value-based products such as its $1 Whopper Jr.
to help drive traffic, and pushed similar lower-priced offerings
overseas. That helped, as the company said traffic appears to have
bottomed out in May, although it is still negative.
Burger King will continue to pump up value, with a planned
October campaign slated to highlight its $1 sandwiches against
competitors. "We remain laser-focused to do all we can to re-ignite
traffic," Russ Klein, Burger King's president of global marketing
and innovation strategy, told investors during an earnings
conference call Tuesday.
The chain will still attempt to promote premium products too,
and will begin a campaign next year focusing on premium products
cooked on a new broiler, like thicker burger and ribs, to
complement its lower-priced items, Klein said.
The moves comes as McDonald's (MCD) sells its Angus burger for
about $4, while Wendy's, of Wendy's/Arby's Group Inc. (WEN),
expects to introduce its own premium burger later this year.
For the quarter ended June 30, Burger King reported a profit of
$58.9 million, or 43 cents a share, up from $50.6 million, or 37
cents a share, a year earlier. Revenue decreased 2% to $629.9
million. Analysts were looking for earnings of 33 cents a share on
$634 million in sales.
Same-store sales fell 4.5% in the U.S. and Canada, while Latin
America posted a 3% decline, offsetting a 2.5% gain at stores in
the Europe, Middle East, Africa and Asia Pacific region.
The chain held off issuing specific guidance for fiscal 2010.
Instead, it reiterated long-term goals for annual per-share
earnings growth 15% and same-store sales growth of 2% to 3%.
Burger King said it will slow new-store openings in the coming
year to between 250 and 300, largely on delayed commercial
construction, and up to 90% of new stores will be outside the U.S.
and Canada.
-By Paul Ziobro, Dow Jones Newswires; 212-416-2194;
paul.ziobro@dowjones.com
(Tess Stynes contributed to this report.)