News
Value fails to improve Burger King's U.S. comps
August 24, 2009
The economic recession and heavy discounting by other quick-service chains has impacted Burger King's fourth quarter global comparable sales, Burger King Holdings Inc. has reported. But the company was able to see a 16 percent boost in its net income for the quarter ended June 30, due to improved operating margins in some countries as well as gains in refranchising and a lower tax rate.
Overall, it was the first time the company failed to post positive global quarterly comps after 21 consecutive quarters of positive growth. Global systemwide comps were down 2.4 percent for the quarter compared to positive 5.3 percent growth in the same period last year.
Burger King's switch to promoting its value offerings in the United States and Canada came too late in the fourth quarter to boost comparable-store sales there. U.S. and Canada comps were down 4.5 percent, compared to positive comps of 5.5 percent in the same period last year.
Comps also were down 3.0 percent Latin America, compared to positive 5.2 percent comps in the same period last year, impacted bycontinued adverse socio- and macro-economic conditions in Mexico, where several stores in Mexico City were temporarily closed to foot traffic and sales were negatively impact by the H1N1 flu outbreak there early in the quarter.
Europe, the Middle East, Africa and Asia Pacific (EMEA/APAC) saw the only positive comps for the quarter at 2.5 percent but were still down compared to 4.7 percent in the same period last year.
Burger King responded to consumers' desire for affordable options with value promotions in various counties. In EMEA/APAC, value-driven promotions included the King Deals in Germany, the United Kingdom and Spain. The Latin America business segment featured the Come Como Rey (or Eat Like a King) everyday value menu in Mexico. In the latter half of the fourth quarter, U.S. marketing efforts. tactically focused on value with the $1 Whopper Jr. sandwich and local market value promotions such as 2 for $3.50 Whopper sandwiches and 2 for $3 chicken sandwiches across many cities/
Additional U.S. marketing efforts in the fourth quarter included SuperFamily promotions such as the SpongeBob SquarePants 99 cent Kids Meal promotion, Pokémon and The Jonas Brothers tour sponsorship, advertising focused on indulgent products such as the BBQ Stackticon and Steakhouse XT as well as blockbuster movie-tie-ins with Star Trek and Transformers 2.
For the year, Burger King completed six consecutive years of positive comps with global comps increasing 1.2 percent, compared to 5.4 percent in the same period last year.
Revenues, net income
Revenues for the fourth quarter were down 2 percent at $629.9 million, compared to $645.7 million in the same period last year. For the year, the company's revenues were up 3 percent to $2.54 billion, compared to $2.45 billion last year. Currency translation negatively impacted quarterly revenues by $39.4 million and yearly revenues by $110.6 million. For the year, refranchising a net of 36 restaurants, positive comps and a worldwide net restaurant growth rate of 3.1 percent drove revenues.
Net income for the quarter was up 16 percent at $58.9 million, compared to $50.6 in the same period last year. For the year, net income was up 6 percent to $200.1 million, compared to $189.6 last year.
"In the face of a continuingly challenging macro-economic environment, our business model remains strong," said Burger King chairman and CEO John Chidsey in a news release. "In fiscal 2009, we completed six consecutive years of positive comparable sales growth, achieved record revenues, generated strong cash flow from operations and increased net restaurant count by 360, our strongest development year in almost a decade."
2010 guidance
Looking ahead to fiscal year 2010, the company anticipates the consumer environment will continue to be challenged by high unemployment rates and fewer people eating at restaurants, Chidsey said.
"We experienced a difficult operating environment in fiscal 2009 with unprecedented volatile currency markets, significant commodity inflation and 25-year-high unemployment levels," Chidsey said. "In spite of these challenging macro-economic conditions adjusted earnings per share, net of currency translation, grew by 14 percent, cash flow from operations increased 28 percent to $311 million and the brand experienced the highest net restaurant growth in almost a decade. This growth is a testament to our franchisees and our employees who are committed to the brand and focused on continuous improvement across all of our strategic global growth pillars – development, products, operations and marketing."
Burger King expects worldwide comparable sales to be soft in the first half of the fiscal year but improve in the second half, if consumer sentiment improves as economists forecast, as the company's affordability messages resonates with consumers and as compared to previous softer comparable sale comparisons.
Softer comparable sales are expected primarily in the United States, Germany and Mexico markets, three of the chain's largest markets. The company does expect solid comparable sales in the United Kingdom, Spain, and throughout most of Europe and in many Asia Pacific markets.
Earnings call
Burger King will hold its fourth quarter earnings call for fiscal year 2009 Aug. 25 at 10 a.m. Eastern time, following the release of its fourth quarter and full fiscal year results before the stock market opens on the same day. During the call, Chidsey; chief financial officer Ben Wells; president, global marketing, strategy and innovation Russ Klein; and senior vice president, investor relations and global communications Amy Wagner will discuss the company's fourth quarter and full fiscal year results.
The earnings call will be webcase live via the company's investor relations Web site atinvestor.bk.comand available for replay for 30 days.
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