Burger King Holdings, Inc. Reports Third Quarter Fiscal 2010 Results
'During the quarter, we added 37 net new restaurants, invested in our U.S. and Canada reimaging program, continued the deployment of new restaurant equipment, increased company restaurant margins in the U.S. and Canada, and developed innovative products that support both ends of our barbell menu strategy.'
Burger King Holdings, Inc. (NYSE:BKC) today reported results for the third quarter of fiscal 2010. Key highlights of the company’s third quarter results include:
Worldwide comparable sales were negative 3.7 percent compared to positive 1.0 percent in the same period last year;
- U.S. and Canada comparable sales were negative 6.1 percent compared to positive 1.6 percent in the same quarter last year;
- Worldwide company restaurant margins were 11.3 percent compared to 11.7 percent in the same quarter last year;
- U.S. and Canada company restaurant margins improved 20 basis points to 12.9 percent compared to 12.7 percent in the same period last year;
- Income before income taxes was up 6 percent at $67.0 million compared to $63.0 million in the same quarter last year; and
- Diluted earnings per share were $0.30, compared to diluted earnings per share of $0.34 in the same quarter last year. During the quarter, diluted earnings per share included a $0.02 negative impact resulting from a higher effective tax rate. Last year’s diluted earnings per share included a $0.05 benefit resulting from a lower effective tax rate.
“While we continue to operate in a very challenging macroeconomic environment, we remain committed and focused on the success and growth of our brand by effectively managing our business for the long term,” said Chairman and Chief Executive Officer John Chidsey. “During the quarter, we added 37 net new restaurants, invested in our U.S. and Canada reimaging program, continued the deployment of new restaurant equipment, increased company restaurant margins in the U.S. and Canada, and developed innovative products that support both ends of our barbell menu strategy.
“Even though the quarter’s results were negatively impacted by severe U.S. weather conditions in January and February, I am encouraged by our overall performance in March including positive U.S. traffic and sequential quarterly improvement in average check. Average check in the U.S. was helped by the national launch of our premium Steakhouse XTTM burger line that continues to receive favorable consumer response,” Chidsey added.
Worldwide revenues for the third quarter of fiscal 2010 were down 1 percent at $596.9 million, compared to $599.9 million in the same quarter last year. Revenues were adversely impacted by negative worldwide comparable sales, partially offset by favorable currency translation of $19.5 million and strong net restaurant growth of 305 units during the past 12 months.
Third quarter worldwide comparable sales were negative 3.7 percent compared to positive 1.0 percent in the same period last year. The company posted positive comparable sales of 1.1 percent in its EMEA/APAC business segment compared to negative 0.6 percent in the same period last year. Strong performance in Spain, Australia, Korea and Turkey more than offset negative comparable sales in Germany and the U.K.
Third quarter comparable sales in the U.S. and Canada segment were negative 6.1 percent compared to positive 1.6 percent in the prior year period. Comparable sales in the segment were negative 2.0 percent in March, a 6.2 percentage point improvement over the reported January and February period comparable sales of negative 8.2 percent. As previously stated, the company believes, based on its analysis, inclement weather negatively impacted comparable sales in January and February by approximately 3.0 percentage points. Additionally, the segment realized positive traffic in March as the impact of weather became less significant.
During the quarter, U.S. marketing efforts focused on the company’s barbell menu strategy with a continued emphasis on value including the $1 ¼ lb. Double Cheeseburger promotion. On the indulgent end, the company completed the national roll-out of the Steakhouse XTTM burger line, which includes three builds, at the end of February. The casual-dining quality Steakhouse XTTM burger, which highlights the brand’s signature flame-broiled taste, is among the first of many product introductions coming off the company’s proprietary flexible broiler.
Marketing initiatives during the third quarter included a U.S. campaign with NASCAR® Sprint Cup Series driver Tony Stewart and the semi-annual winter mail coupon drop to 77 million households. Additionally, the U.S. and Canada featured Superfamily promotions such as Hoodwinked TooTM, The Spectacular SpidermanTM and Polly PocketTM, which were also leveraged across many international markets.
During the quarter, the EMEA/APAC business segment continued to implement the company’s barbell menu strategy with a combination of value and indulgent offerings. Promotions aimed at satisfying guests seeking value included the Stunner DealsTM program, King DealsTM and the Chili Cheese Burger LTO. These offerings were balanced with higher margin indulgent products including the Chicken TenderCrisp® sandwich, Whopper® sandwich promotions and various LTOs. Similarly, marketing efforts in the Latin America segment included promotions aimed at driving traffic and average check such as the Come Como ReyTM (Eat Like a King), BKTM Ofertas (King Deals) and Whopper® sandwich LTOs.
The company opened 37 net new restaurants in the third quarter of its 2010 fiscal year and completed the acquisition of 35 restaurants in Singapore in early March as previously announced. Trailing 12-month net restaurant count increased 305 over the prior 12-month period, representing a net restaurant growth rate of 2.6 percent. During this period, the company posted positive net restaurant growth across all business segments with 89 percent of the restaurants opened outside of the U.S. and Canada. For the 2010 full fiscal year, the company is on target to open 250 to 300 net new restaurants as previously guided.
During the quarter, the company posted worldwide company restaurant margins (CRM) of 11.3 percent, a 40 basis point decrease compared to the same period last year. The decrease was primarily driven by increased occupancy and other operating costs largely due to the deleveraging effect of negative comparable sales on fixed costs. However, worldwide CRM benefited from lower food, paper and product costs across all reporting segments. CRM in the U.S. and Canada segment increased 20 basis points compared to the same period last year aided by the meaningful comparable sales improvement in March and by decreased labor expenses primarily resulting from variable labor control enhancements in the U.S. Lower CRM in EMEA/APAC and Latin America segments as compared to the same period last year more than offset the improvement realized in the U.S. and Canada.
During the third quarter, the company realized $4.5 million of other income as compared to the prior year’s other income of $1.3 million. The increase in other income was primarily the result of gains realized on the sale of restaurant properties and cash flow hedging activities.
General and administrative (G&A) expenses increased by $3 million compared to the same period last year. Currency translation negatively impacted G&A by $3.1 million. Net of currency translation, G&A was unchanged compared to the same quarter last year.
Income before income taxes for the third quarter of fiscal 2010 was up 6 percent at $67.0 million, compared to $63.0 million in the same period last year. However, diluted earnings per share were down 12 percent at $0.30, including a $0.01 favorable impact due to currency translation, compared to diluted earnings per share of $0.34 in the same quarter last year. The decrease in diluted earnings per share was driven by an effective tax rate of 38.8% compared to an effective tax rate of 25.2% in the same period last year that included a $0.05 benefit from the resolution of tax audits. This quarter’s effective tax rate, which negatively impacted diluted earnings per share by $0.02, was primarily as a result of the current mix of income from multiple tax jurisdictions and currency fluctuations.
Looking ahead
The company’s fiscal 2010 fourth quarter marketing calendar includes promotional movie tie-ins with summer releases of expected blockbusters Iron Man 2 and The Twilight Saga: Eclipse. Superfamily promotions will include Marmaduke and SpongeBob SquarePantsTM. Featured products during the quarter will flex both ends of the company’s barbell menu strategy. Value offerings will include the BK® Breakfast Muffin and Buck Double. Indulgent products, aimed at driving higher check, will include the newly added BKTM Breakfast Bowl and products engineered to be cooked on the flexible broiler including fall-off-the-bone BKTM Fire-Grilled Ribs, scheduled to launch at the end of May.
“The U.S. economy is showing mixed signs of improvement with recent reports on improved retail spending and consumer confidence. However, high levels of unemployment and underemployment will remain our industry’s biggest headwind,” Chidsey said. “So we will continue to manage the brand for the future, well-positioning us as the economy continues to recover.
“In the near term, we are excited about our product line-up that includes a balance of value and premium products that take full advantage of our game-changing broiler. And we are looking forward to the launch of our enhanced breakfast platform this fall, led by this summer’s roll-out of Seattle’s Best Coffee®.
“We remain on-track in both our net new restaurant openings and on our restaurant reimaging initiative. We continue to find new ways to run even more efficient restaurants and control our overhead spending. Overall, I am pleased with our global momentum and confident in our ability to keep moving the brand forward,” Chidsey concluded.
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Burger King Holdings, Inc. and Subsidiaries |
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Condensed Consolidated Statements of Income |
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(Dollars and shares in millions, except for per share data) |
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| Increase / (Decrease) | ||||||||||||||
| Three Months Ended March 31, | 2010 | 2009 | $ | % | ||||||||||
| Revenues: | ||||||||||||||
| Company restaurant revenues | $ | 439.2 | $ | 448.8 | $ | (9.6 | ) | (2)% | ||||||
| Franchise revenues | 129.9 | 124.9 | 5.0 | 4% | ||||||||||
| Property revenues | 27.8 | 26.2 | 1.6 | 6% | ||||||||||
| Total revenues | 596.9 | 599.9 | (3.0 | ) | (1)% | |||||||||
| Company restaurant expenses | 389.5 | 396.5 | (7.0 | ) | (2)% | |||||||||
| Selling, general and administrative expenses (1) | 117.8 | 115.7 | 2.1 | 2% | ||||||||||
| Property expenses | 15.2 | 13.4 | 1.8 | 13% | ||||||||||
| Other operating (income) expense, net (1) | (4.5 | ) | (1.3 | ) | (3.2 | ) | NM | |||||||
| Total operating costs and expenses | 518.0 | 524.3 | (6.3 | ) | (1)% | |||||||||
| Income from operations | 78.9 | 75.6 | 3.3 | 4% | ||||||||||
| Interest expense | 12.2 | 13.0 | (0.8 | ) | (6)% | |||||||||
| Interest income | (0.3 | ) | (0.4 | ) | 0.1 | (25)% | ||||||||
| Interest expense, net | 11.9 | 12.6 | (0.7 | ) | (6)% | |||||||||
| Income before income taxes | 67.0 | 63.0 | 4.0 | 6% | ||||||||||
| Income tax expense | 26.0 | 15.9 | 10.1 | 64% | ||||||||||
| Net income | $ | 41.0 | $ | 47.1 | $ | (6.1 | ) | (13)% | ||||||
| Earnings per share - basic | $ | 0.30 | $ | 0.35 | $ | (0.05 | ) | (14)% | ||||||
| Earnings per share - diluted | $ | 0.30 | $ | 0.34 | $ | (0.04 | ) | (12)% | ||||||
| Weighted average shares - basic | 135.3 | 134.6 | ||||||||||||
| Weighted average shares - diluted | 137.2 | 136.7 | ||||||||||||
| NM - Not meaningful | ||||||||||||||
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(1) Certain prior year amounts have been reclassified from other operating (income) expense, net to general and administrative expenses. These reclassifications had no impact on the company's results of operations. |
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| Increase / (Decrease) | |||||||||||||
| Nine Months Ended March 31, | 2010 | 2009 | $ | % | |||||||||
| Revenues: | |||||||||||||
| Company restaurant revenues | $ | 1,385.2 | $ | 1,418.9 | $ | (33.7 | ) | (2)% | |||||
| Franchise revenues | 408.9 | 404.5 | 4.4 | 1% | |||||||||
| Property revenues | 85.1 | 84.1 | 1.0 | 1% | |||||||||
| Total revenues | 1,879.2 | 1,907.5 | (28.3 | ) | (1)% | ||||||||
| Company restaurant expenses | 1,209.1 | 1,239.6 | (30.5 | ) | (2)% | ||||||||
| Selling, general and administrative expenses (1) | 374.7 | 366.2 | 8.5 | 2% | |||||||||
| Property expenses | 44.7 | 42.1 | 2.6 | 6% | |||||||||
| Other operating (income) expense, net (1) | 0.6 | 7.9 | (7.3 | ) | NM | ||||||||
| Total operating costs and expenses | 1,629.1 | 1,655.8 | (26.7 | ) | (2)% | ||||||||
| Income from operations | 250.1 | 251.7 | (1.6 | ) | (1)% | ||||||||
| Interest expense | 37.4 | 44.2 |
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(6.8 | ) | (15)% | |||||||
| Interest income | (0.8 | ) | (2.2 | ) | 1.4 | (64)% | |||||||
| Interest expense, net | 36.6 | 42.0 | (5.4 | ) | (13)% | ||||||||
| Income before income taxes | 213.5 | 209.7 | 3.8 | 2% | |||||||||
| Income tax expense | 75.7 | 68.5 | 7.2 | ||||||||||
