Burger King quarterly profit slips

By ASHLEY M. HEHER

posted: 27 DAYS 19 HOURS AGO

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CHICAGO -Business slowed at Burger King Corp. for the second straight quarter as the recession hit even fast-food restaurants and their cheap menus.

The nation's No. 2 burger chain, which has about 12,000 restaurants around the world, blamed still-rising unemployment — along with menu markdowns by competitors — for the financial results it announced Thursday, which were worse than expected.

"This is the worst consumer environment we have seen," Chairman and CEO John Chidsey said during a conference call with investors. "Employment continues to worsen and competitive pressures remain fierce, so it could be some time before we see meaningful sustained improvements."

Last year, fast food restaurants were thought to be relative winners in the recession as price-conscious diners swapped more expensive meals at sit-down restaurants for the industry's speedy and cheap fare.

Since then, unemployment has climbed and fast food restaurants have suffered. Their sales fell 3 percent this summer, according to data from The NPD Group, a market research firm. That decline, driven mostly by diners opting to eat at home more, was better than what more expensive eateries experienced, however. Visits fell 4 percent at casual restaurants and 5 percent at mid-market ones.

Burger King executives said sales in locations open at least a year, an important performance measure for restaurants, sagged 3 percent during its fiscal first quarter, which ended Sept. 30. The company said the measure would remain "soft" through the first half its fiscal year as unemployment in the U.S. keeps growing.

The country's unemployment rate rose to 9.8 percent in September and is expected to reach 10.5 percent in 2010, although it's already well past that mark in many states.

Unemployment typically is higher among Burger King's most loyal customers, young men. Without a steady paycheck, diners — especially those who head to restaurants for lunch — are more likely to eat at home.

"When people aren't in jobs, they're just not going to go over to the Burger King across from the office," said Morningstar analyst R.J. Hottovy.

Overall, Burger King's quarterly profit sank 6 percent to $46.6 million, or 34 cents per share. Revenue fell 5 percent to $636.9 million. During the company's fiscal fourth quarter, revenue dipped 2.4 percent, but profit climbed as the burger company cut costs.

Thursday's results were worse than Wall Street forecast. Analysts expected the Miami company — known as much for its sometimes-creepy "King" commercials as its signature Whoppers and "steak burgers" — to earn 37 cents per share on revenue of $652.8 million.

The restaurant company said a drop in costs for its key ingredients boosted its profit but not enough to offset the decline in sales.

Baird analyst David Tarantino called the results "uninspiring" and a "disappointment." But in a note to investors, he said Burger King's $1 double cheeseburger could help results in the future. That offer launched nationwide this month.

Powerhouse McDonald's Corp. also said this month that its sales in restaurants open at least a year could be flat to slightly negative in October. If they are, it would be only the third time in more than six years that McDonald's monthly sales didn't rise.

Burger King shares fell 5 cents to $17.24 in mid-afternoon trading Thursday.

2009-10-29 14:48:21