Burger King Kicks Off FY 10 with Slow Start
Fast food retailer Burger King reported
decreased consolidated revenues, operating income, net income and comparable store sales for the first quarter of its fiscal year 2010 (ended September 30, 2009). Selected financial highlights and analysis follow.
Burger King Sees Quarterly Decreases in Many Areas
Burger King cited the challenging macroeconomic environment as a significant cause of the 5% decline in consolidated Q1 revenues, which dropped from $673.5 million to $636.9 million. The retailer also said foreign currency translation was responsible for $20.9 million of the loss, a 3% decline on its own.
Quarterly consolidated operating income declined 8%, from $89.9 million to $83 million. Consolidated net income dropped 6%, from $49.8 million to $46.6 million. Comparable store sales declined on a worldwide basis and in each individual market where Burger King operates. Worldwide comparable store sales declined 2.9%, and U.S. and Canadian and Latin American comparable store sales both declined 4.6%. In the Europe, Middle East, Africa/Asia Pacific (EMEA/APAC) market, comparable store sales bucked the trend with 1% growth.
Burger King attributed the decline in worldwide comparable store sales to declines in traffic driven by continued adverse macroeconomic conditions, including unemployment and underemployment levels that were especially high among its targeted demographic, more customers eating at home, heavy discounting by other restaurant chains and the H1N1 flu pandemic in Latin America. Negative worldwide comparable sales were partially offset by positive results in the EMEA/APAC business segment, driven by strong performance in the U.K., Australia, New Zealand and Korea.
Quarterly Margin Provides Consolation
In addition to improved comparable store sales in the EMEA/APAC market, Burger King also reported a higher consolidated gross margin for Q1 fiscal 2010. Consolidated gross margin grew from 12.6% to 13%, which Burger King attributed to lower food, paper and product costs.
Competitive Comparison with McDonald’s
Burger King’s chief rival McDonald’s also saw its
consolidated revenues decline due to the impact of foreign currency during its Q3 fiscal 2009 (which corresponds to Burger King’s Q1 fiscal 2010 in the actual calendar year), but otherwise reported superior financial results. Quarterly revenues dropped 2% as a result of currency translation. However, while foreign currency dampened increases in operating and net income, they still each rose 6% during the quarter. Consolidated comparable store sales grew 3.8%, and U.S. comparable store sales grew 2.5%.
Burger King Still Expects a Solid Fiscal Year
Burger King reaffirmed some positive guidance figures for fiscal year 2010. The retailer expects average annual worldwide comparable sales growth of 2-3%, average annual net restaurant growth of 3-4%, and average annual revenue growth of 6-7%. Burger King anticipates opening 250-300 net new restaurants during fiscal 2010, below previously issued long-term guidance due to ongoing economic pressures. The retailer expects 90% of new store growth to occur outside the U.S. and Canada.
In the first quarter, Burger King 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. Burger King operates close to 12,000 company-owned and franchised restaurants globally.
