Revenue, Same-Store Sales Down at Burger King
Burger King Holdings Inc. reports first quarter fiscal 2010 results; company continues strong net restaurant growth globally.
-- Chain Leader, 10/29/2009 3:12:00 PM
PRESS RELEASE: MIAMI--(BUSINESS WIRE)--Burger King Holdings Inc. (NYSE:BKC) today reported results for the first quarter of fiscal 2010.
First Quarter Highlights:
Solid development growth across all business segments as net restaurant count increased by 58 with international markets accounting for approximately 80 percent of the increase;
U.S. and Canada company restaurant margin improved 180 basis points to 13.9 percent from 12.1 percent in the same period last year;
Worldwide company restaurant margin improved 40 basis points to 13.0 percent from 12.6 percent in the same period last year;
Worldwide comparable sales were negative 2.9 percent compared to positive 3.6 percent in the same period last year;
Earnings per share were $0.34, including $0.02 per share of negative impact from currency translation, compared to earnings per share of $0.36 and adjusted earnings per share of $0.38 in the same period last year.
|
|
|
Three months ended September 30, |
|
||||||||
|
|
|
2009 |
|
2008 |
|
% Change |
|
% change excluding currency 3 |
|||
|
Earnings Per Share (EPS)- diluted 1 |
|
$ |
0.34 |
|
$ |
0.36 |
|
-6 |
% |
0 |
% |
|
|
|
|
|
|
|
|
|
|
|||
|
Adjustments 2 |
|
|
- |
|
$ |
0.02 |
|
NM |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|||
|
Adjusted EPS - diluted 1 |
|
$ |
0.34 |
|
$ |
0.38 |
|
-11 |
% |
-5 |
% |
|
|
|
||||||||||
(1) Results include a negative impact due to the effect of currency translation of $0.02 for the three months ended September 30, 2009.
(2) See non-GAAP reconciliations for further details.
(3) Management reviews and analyzes business results excluding the effect of currency translation believing this better represents the company's underlying business trends. Results excluding the effect of currency translation are calculated by translating current year results at prior year average exchange rates.
NM-Not meaningful
In the first quarter of fiscal 2010, the company continued to face a challenging economic and consumer environment with QSR traffic falling three percent in the quarter ended August 20091 and record levels of unemployment especially as it relates to the industry's and the company's targeted demographic. However, quarterly financial results reflected improvements in company restaurant margin through decreased commodity costs in the U.S. and Canada and improved U.S. variable labor costs. Additionally, the company continued to execute on its barbell menu strategy and development growth plans.
Reflecting the challenging macroeconomic environment, total revenues for the first quarter of fiscal 2010 were down 5 percent at $636.9 million, compared to $673.5 million in the same quarter last year. Currency translation negatively impacted quarterly revenues by $20.9 million or 3 percent.
First quarter worldwide comparable sales were negative 2.9 percent compared to positive 3.6 percent in the same quarter last year. Comparable sales were negatively impacted by continued adverse macroeconomic conditions, including record levels of unemployed and underemployed workers, more consumers eating at home and significant competitive discounting. However, the company posted positive comparable sales of 1 percent in its EMEA/APAC business segment versus a strong prior year comparable sales growth of 4.8 percent. Leading this performance were the U.K., Australia, Korea and New Zealand offset by negative comparable sales in Germany.
Marketing efforts in the U.S. and Canada continued to focus on value with the $1 Whopper Jr.(r) sandwich and value promotions such as 2 for $4 Original Chicken sandwiches, Whopper(r) sandwiches and BK Big Fish(r) sandwiches across many markets. Additionally, the $1 1/4 lb. Double Cheeseburger was featured in approximately 25 percent of U.S. restaurants. The company also conducted its semi-annual direct mail coupon drop to 80 million U.S. households and continued to innovate around the snacking category, with offerings such as the Cup Cake BK(r) Sundae Shake and improved BK Joe(r) and Mocha BK Joe(r) coffees.
EMEA/APAC continued to satisfy consumers seeking value and quality with offerings such as King DealsTM and the Whopper(r) sandwich and Whopper Jr.(r) sandwich value meals. The Latin America business segment was also heavily value focused and featured the Come Como ReyTM (Eat Like a King) and "King Ofertas" (King DealsTM) everyday value menus, as well as discounted Family Meal bundles.
Additional marketing efforts in the first quarter included SuperFamily promotions such as G.I. JoeTM, Cloudy with a Chance of MeatballsTM and TransformersTM 2, which were leveraged across many international markets as well as the September U.S. campaign with NASCAR(r) Sprint Cup Series driver Tony Stewart, which showcased the Whopper(r) sandwich, Stewart's favorite BK(r) menu item.
"While we continue to operate in a rapidly changing and difficult consumer environment, our business model remains solid as we manage the brand for the long-term," said Chairman and Chief Executive Officer John W. Chidsey. "We continued to grow the brand globally opening 58 net new restaurants, with approximately 80 percent of those in international markets, and we realized improved company restaurant margins in the U.S. and Canada."
In the first quarter, the company increased its worldwide net restaurant count by 58, incrementally building on the 67 net new restaurants opened in the same period last year. During the last 12 months, the company opened a total of 351 net new restaurants and is on target to open an additional 250 to 300 net new restaurants during fiscal 2010.
During the first quarter, the company posted worldwide company restaurant margin of 13.0 percent, representing an increase of 40 basis points over the prior year period and a sequential improvement of 50 basis points from the fiscal 2009 fourth quarter. Worldwide company restaurant margin benefited primarily from lower food, paper and product costs. Company restaurant margin in the U.S. and Canada segment increased 180 basis points compared to the same period last year, building on the sequential improvement realized in the fiscal 2009 fourth quarter. Lower company restaurant margin in EMEA/APAC and Latin America as compared to the same period last year, albeit improving sequentially, partially offset cost benefits experienced in the U.S. and Canada.
General and administrative (G&A) expenses increased by $8.5 million or 8 percent to $109 million compared to the same period last year. The increase includes $4.7 million in deferred compensation expense which was largely offset by $4.6 million of net gains on investments held in a Rabbi Trust recorded within the Other Operating Income and Expense category. The company also incurred additional professional services fees of $3.7 million and $1.6 million related to the previously announced step-up in share-based compensation. These factors were partially offset by a $2.7 million favorable currency translation impact. The year over year G&A increase was higher than the company's forecasted full year increase of 2 to 3 percent, primarily due to the timing of professional services largely associated with the implementation of new Point of Sales systems, a non-recurring casualty insurance credit realized in the prior year period and deferred compensation expense as a result of the broader market's performance. The company expects full year G&A, net of currency translation, to increase 3%, at the high end of the previously guided range, primarily to account for higher gains on deferred compensation investments, which increases G&A expense as noted above.
The company reported first quarter earnings per share of $0.34, including a $0.02 negative impact due to currency translation, compared to earnings per share of $0.36 and adjusted earnings per share of $0.38 in the same quarter last year. First quarter fiscal 2009 adjusted earnings per share excluded $3.0 million in pre-tax costs related to acquisitions of franchised restaurants.
Uses of Cash
During the first quarter, the company generated $48.0 million of cash flow from operations. The company declared and paid a cash dividend totaling $8.5 million and spent $31.2 million in capital investments primarily used to open new restaurants and re-image existing ones.
"Our highly-franchised business model enables us to generate solid cash flow even in the midst of the current difficult economic environment," said Chief Financial Officer Ben Wells. "In fiscal 2010, we intend to continue to execute on our growth initiatives including strategically investing in the brand and diversifying our portfolio with strong international development."
Looking ahead
"As we look ahead, we will continue to be laser focused on operations, with the goal of providing exceptional service while creating efficiencies and improving profitability," Chidsey said. "Additionally, we will maintain our current marketing strategy focusing on the brand equities that we believe give us a distinct competitive advantage - flame-broiled taste, quality and size at affordable prices.
"From a product standpoint, we will continue to innovate around our barbell strategy offering a robust value menu including the $1 1/4 lb. Double Cheeseburger for those consumers who are focused on extreme affordability. We will balance our value menu offerings with indulgent menu items like our Steakhouse XTTM burger, which will be introduced in all U.S. markets in February with the system-wide implementation of our new batch broilers."
Chidsey concluded: "While we expect that the unpredictable consumer environment will persist in fiscal 2010, we intend to continue to execute on the four pillars of our True North plan of growing the brand, running great restaurants, investing wisely and focusing on our people. We are clearly not where we want to be as it relates to comparable sales and overall profitability. We are, however, managing the brand for the long-term, strategically positioning the company for the future when we return to a more normal consumer environment."
1According to The NPD Group, Inc., which prepares and disseminates CREST(r) data, QSR traffic in the U.S. fell 3 percent versus a year ago in the quarter ended August 2009.
About Burger King Holdings, Inc.
The BURGER KING(r) system operates approximately 12,000 restaurants in all 50 states and in 73 countries and U.S. territories worldwide. Approximately 90 percent of BURGER KING(r) restaurants are owned and operated by independent franchisees, many of them family-owned operations that have been in business for decades. In 2008, Fortune magazine ranked Burger King Corp. among America's 1,000 largest corporations and Ad Week named it one of the top three industry-changing advertisers within the last three decades. To learn more about Burger King Holdings, Inc., please visit the company's Web site at www.bk.com.
Related Communication
Burger King Holdings Inc. (NYSE:BKC) will hold its first quarter earnings call for fiscal year 2010 on Thursday, Oct. 29, at 10 a.m. EDT following the release of its first quarter results before the stock market opens on the same day. During the call, Chairman and Chief Executive Officer John Chidsey; Chief Financial Officer Ben Wells; Senior Vice President Global Business Intelligence and Strategy Mike Kappitt; and Senior Vice President of Investor Relations and Global Communications Amy Wagner will discuss the company's first quarter results.
The earnings call will be webcast live via the company's investor relations Web site at http://investor.bk.com and available for replay for 30 days.
FORWARD-LOOKING STATEMENTS
Certain statements made in this report that reflect management's expectations regarding future events and economic performance are forward-looking in nature and, accordingly, are subject to risks and uncertainties. These forward-looking statements include statements regarding our ability to open an additional 250 to 300 net new restaurants during fiscal 2010; our expectations about our ability to use our disciplined investment approach to profitably grow the brand; our expectations regarding our ability to use our highly-franchised business model to generate solid cash flow even in the midst of the current difficult economic environment; our belief and expectations regarding our ability to continue to execute on our growth initiatives in fiscal 2010, including strategically investing in the brand and diversifying our portfolio with strong international development; our expectations regarding our fiscal 2010 performance due to the challenging consumer environment; our belief and expectations regarding our ability to provide exceptional service while creating efficiencies and improving profitability; our belief and expectations that our current marketing strategy will give us a distinct competitive advantage by focusing on flame-broiled taste, quality and size at affordable prices; our belief and expectations that our barbell strategy of value menu offerings and indulgent menu items will drive our business; our ability to continue to execute on the four pillars of our True North plan of growing the brand, running great restaurants, investing wisely and focusing on our people; our belief and expectations that by managing the brand for the long-term, we will be able to strategically position the company for the future when we return to a more normal consumer environment; our expectations regarding worldwide comparable sales, the worldwide blended royalty rate, general and administrative expenses, capital expenditures, our effective tax rate and the currency translation impact on earnings per share for the 2010 fiscal year; and other expectations regarding our future financial and operational results. These forward-looking statements are only predictions based on our current expectations and projections about future events. Important factors could cause our actual results, level of activity, performance or achievements to differ materially from those expressed or implied by these forward-looking statements.
These factors include those risk factors set forth in filings with the Securities and Exchange Commission, including our annual and quarterly reports, and the following:
• Economic or other business conditions that may affect the desire or ability of our customers to purchase our products such as inflationary pressures, higher unemployment rates, increases in gas prices, declines in median income growth, consumer confidence and consumer discretionary spending and changes in consumer preferences, and the impact of negative sales and traffic on our business, including the risk that we will be required to incur non-cash impairment or other charges that reduce our earnings;
• Risks arising from the significant and rapid fluctuations in the currency exchange markets and the decisions and positions that we take to hedge such volatility;
• Our ability to compete domestically and internationally in an intensely competitive industry;
• Our ability to successfully implement our international growth strategy and risks related to our international operations;
• Our ability and the ability of our franchisees to manage increases in operating costs, including health care expense if Congress passes employer mandated health care, if we or our franchisees choose not to pass, or cannot pass, these increased costs on to our guests;
• Our relationship with, and the success of, our franchisees;
• The effectiveness of our marketing and advertising programs and franchisee support of these programs;
• Risks related to franchisee financial distress due to issues arising with their Burger King(r) restaurants or losses from other businesses, which could result in, among other things, restaurant closures, delayed or reduced payments to us of royalties and rents and increased exposure to third parties, such as landlords;
• The ability of our franchisees to refinance their business or to obtain new financing for development, restaurant remodels and equipment initiatives on acceptable terms or at all, and the strength of the financial institutions that have historically provided financing to franchisees;
• Risks related to disruptions and catastrophic events, including disruption in the financial markets, war, terrorism and other international conflicts, public health issues such as the H1N1 flu pandemic, and natural disasters, and the impact of such events on our operating results;
• Risks related to food safety, including foodborne illness and food tampering, and the safety of toys and other promotional items available in our restaurants;
• Risks related to the loss of any of our major distributors, particularly in those international markets where we have a single distributor, and interruptions in the supply of necessary products to us;
• Our ability to execute on our reimaging program in the U.S. and Canada to increase sales and profitability;
• Our ability to implement our growth strategy and strategic initiatives given restrictions imposed by our senior credit facility;
• Risks related to the ability of counterparties to our secured credit facility, interest rate swaps and foreign currency forward contracts to fulfill their commitments and/or obligations;
• Risks related to interruptions or security breaches of our computer systems and risks related to the lack of integration of our worldwide technology systems;
• Our ability to continue to extend our hours of operation, at least in the U.S. and Canada, to capture a larger share of both the breakfast and late night dayparts;
• Changes in consumer perceptions of dietary health and food safety and negative publicity relating to our products;
• Our ability to retain or replace executive officers and key members of management with qualified personnel;
• Our ability to utilize foreign tax credits to offset our U.S. income taxes due to continuing losses in the U.K. and other factors and risks related to the impact of changes in statutory tax rates in foreign jurisdictions on our deferred taxes and effective tax rate;
• Our ability to realize our expected tax benefits from the realignment of our European and Asian businesses;
• Our ability to manage changing labor conditions in the U.S. and internationally;
• Adverse legal judgments, settlements or pressure tactics; and
• Adverse legislation or regulation.
These risks are not exhaustive and may not include factors which could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We do not undertake any responsibility to update any of these forward-looking statements to conform our prior statements to actual results or revised expectations.
