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Blog
Burger King Now on Defensive
May 28, 2009
Barclays Capital's Jeff Bernstein lowered FY09 earnings estimates for Burger King Holdings (BKC) this morning, to $1.38, two cents below his initial estimate. He dropped them a nickel, to $1.45, for FY10. He did so after an analyst meeting with the chain's management, in Miami.
Bernstein's reason for his action is interesting and perhaps testament to how difficult it is to make money in the current environment, particularly when your competition includes McDonald's. It wasn't so long ago, by the way, that BK CEO John Chidsey was telling investors new premium sandwiches were driving margins.
Here's Bernstein's take:
|
While we have historically viewed BKC as being on the offensive in terms of leadership around new products and promotions, it appears management is forced to play defense in order to protect market share. While such efforts appear to fall short of the burger wars seen almost a decade ago (i.e. discounting premium sandwiches for $1) -- with all players supposedly more sophisticated in terms of pricing and product development and therefore less likely to include such premium products in discounting efforts -- we believe this value push will pressure near-term margin and average check, while tempering expectations for BKC differentiation with premium products using their enhanced broiler capabilities. We are therefore lowering our estimates and price target to reflect such near-term concerns. [boldface added] |
Posted by David Farkas on May 28, 2009 | Comments (2)
Reader Comments
at 5/28/2009 12:18:13 PM, Bologna commented:
Premium sandwiches are killing BKC's margins in this economic environment. No one who is out of a job can walk into BK and afford to spend $20 for a small family of husband, wife and child (were talking fast food here).
They need to get back to their roots. Cheap Whoppers, at competitive prices. Right now, quantity over quality should be the motto in these times. After the recession, the management can think about being a "Premium" fast food restaurant.
at 6/17/2009 5:48:30 PM, Earl Flynn commented:
I do not see improved quality, only higher prices and a lot of fat calories. Mr. Chidsey is not a "restaurant guy" but a corner office executive with a keen eye on his bottom line and his compensation. There is no comparison between Mr. Chidsey and a experienced restaurant guy like the McDonalds CEO. The "over-sexed" commercials, extended late night hours, and expensive discounts are hurting franchisees.
The restaurants must get cleaner, the operational execution better, and the service faster. That is what McDonald's did and John needs to do!