2nd UPDATE:Burger King 1Q Profit Falls 3.2% On Weak Sales
October 29 2009 - 12:21PM
Dow Jones News
Burger King Holdings Inc. (BKC) said early results from a deeply
discounted double cheeseburger have matched the performance of test
markets, but a sales rebound will need a rosier consumer attitude
and improving job market.
Burger King on Thursday reported a fiscal first-quarter profit
decline of 3.2% amid a tough environment in the fast-food industry
where high unemployment is hurting sales across the sector. Burger
King cited worsening joblessness among its target "Super Fan"
demographic that dines at fast-food burger chains nine times or
more a month for a 4.6% same-store sales decline in the U.S. and
Canada.
Amplifying the sales woe is a competitive price environment in
fast-food as chains vie for a shrinking pool of customers.
Burger King last week started selling its double cheeseburger
for $1 nationwide, slicing the price from the usual $1.89 to $2.39.
While still early in the roll-out, Burger King says company-owned
stores performed in-line with stores that tested the discount over
the last 18 months or so, which margins declining less than
anticipated. Traffic got a boost from the deal, but the company
would not specify how much is needed to break even.
"I remain cautiously optimistic but I also remain realistic,"
Burger King Chairman and Chief Executive John Chidsey said Thursday
on the company's earnings call.
Burger King is still forecasting "soft" same store sales through
the end of the calendar year, and says it needs consumers to start
feeling better about spending before same-store sales improve.
"We realize that reigniting sales growth will likely remain
difficult until both consumer sentiment and unemployment levels
improve globally," Chidsey said.
Burger King shares were down 13 cents, or 0.8%, in recent
trading, at $17.16, as its results missed analysts' expectations.
First-quarter profit fell to $46.6 million, or 34 cents a share,
from $50 million, or 36 cents, a year earlier. The latest period
included a two cents charge due to currency translation, while the
prior year included acquisition-related costs of 2 cents.
Revenue decreased 5% to $636.9 million, with global same-store
sales down 2.9%, including a 1% increase in the region encompassing
Europe, the Middle East, Africa and Asia Pacific and a 4.6% decline
in Latin America.
Analysts polled by Thomson Reuters most recently forecast
earnings of 37 cents on revenue of $653 million.
Burger King has been struggling to strike the right balance on
price this year after failing to step into the value game soon
enough.
At the same-time, fast-food players are rolling out premium
products, with McDonald's Corp. (MCD) and Wendy's, of
Wendy's/Arby's Group Inc. (WEN), both recently launching new
burgers. Burger King plans its premium push starting earlier next
year with the national launch of its "Steakhouse XT" burger in
February.
Lower costs for food, paper and other items helpd Burger King
improve global restaurant margins to 13% from 12.6% amid the sales
decline. The chain also maintained most of its fiscal 2010
guidance. It sees general and administrative expenses at the high
end of its range and also expets the weak U.S. dollar to provide an
overall boost to earnings.
-By Paul Ziobro, Dow Jones Newswires; 212-416-2194;
paul.ziobro@dowjones.com
(Tess Stynes contributed to this article.)