Burger King 2Q profit up 13 percent, revenue rises

By EMILY FREDRIX

posted: 5 DAYS 9 HOURS AGO

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NEW YORK -It was a move criticized by its franchisees, but Burger King Corp. said its $1 double cheeseburger promotion worked by luring in cost-conscious diners.

The nation's No. 2 hamburger chain said its second-quarter profit rose 13 percent and it plans more promotions to keep weathering the weak economy.

The company's franchisees fought against the double cheeseburger promotion when it was announced this fall, saying they would lose money on the deal. But the company said the six-month promotion spurred traffic and boosted lunch and dinner sales.

"We are committed to making the right, sometimes difficult decisions that benefit the brand as a whole and propels this business forward," CEO John Chidsey told investors on a conference call Thursday. He added he hoped to work more with franchisees to develop "mutually beneficial solutions."

The promotional boost was a highlight for the Miami-based company's quarter, but overall the fast-food chain said Thursday that high unemployment continued to drag down performance around the world. Sales at stores open at least a year fell.

The weak economy has people cutting back on their spending, which has hurt the restaurant industry. Chidsey said diners have a "desire for extreme affordability" so the company will add to these promotions, especially as he expects the sluggish job environment to last for the next year.

Promotions boost store traffic, but they can also hurt profits. But that wasn't the case this quarter as price hikes on other menu items padded margins, noted Bernstein Research senior analyst Sara H. Senatore.

"Food costs and utility expenses were down, while labor costs were somewhat flat," she added in a note to clients.

Shares rose 75 cents, or 4.3 percent, to $18.25 in afternoon trading Thursday.

Sales at restaurants open at least a year fell 2 percent in the three months that ended Dec. 31, compared with a gain of 2.9 percent in the same quarter last year. The figure is a key measurement because it measures growth at existing establishments rather than including new ones.

In the U.S. and Canada, the figure fell 3.3 percent as the economy continued to hurt performance. Sales were also hurt in Germany and the Netherlands, but improved in Australia, Korea, Britain and Spain.

Despite the drops, revenue rose 2 percent to $645.4 million, which the company said was helped by the addition of 95 restaurants and an additional $22.8 million due to currency translation. A fluctuating U.S. dollar can help or hurt sales overseas when they are translated back to U.S. currency.

Overall, Burger King earned $50.2 million, or 37 cents per share in the quarter. A year earlier, the company earned $44.3 million, or 33 cents per share.

The results were better than Wall Street forecasts. Analysts expected Burger King to earn 34 cents per share on revenue of $634.8 million.

The company's franchisees sued Burger King in November over the $1 double cheeseburger. The National Franchise Association, a group that represents more than 80 percent of Burger King's U.S. franchise owners, said it faced at least a 10-cent loss on the deal and argued Burger King can't set maximum menu prices.

Messages left with the association were not immediately returned Thursday.

2010-02-04 15:12:55