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Burger King: Economy Dents Comp Sales, but Profits Jump

The Exchange

Burger King's (BKW) first quarter was a mixed one on the headline numbers, but factoring in its business restructuring and its sales-day counts helped put the results in a better light.

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Burger King restaurant: Credit AP
The Miami-based hamburger seller said Friday that it earned $35.8 million, or 10 cents a share, in the first quarter, up from $14.3 million and 4 cents a share last year. Adjusted earnings were 17 cents a share, as analysts expected. Operating expenses were down sharply, by $260.5 million, as fewer restaurants were company owned, which boosted profitability.

Revenue, at $327.7 million, fell 42.5% from last year, though that's a direct result of the company selling some of the stores it owned to franchisees through a program that's still ongoing. The top line exceeded estimates of about $305 million, according to FactSet. (The full results for the quarter can be found here.)

Burger King's same-store sales, the measure that compares sales at stores open for around a year, fell 1.4%. This was partly because the same quarter in 2012 had an extra day from the leap year, but comparables in North America were down a full 3%. Still, systemwide sales globally were up 1.1%, when currency rates were held at constant levels. For comps, a slightly worse decline of 1.5% had been foreseen, though that projection is based on only two available analyst estimates.

While the company pinned some of the U.S. and Canada weakness in same-store sales on a strong year-ago quarter, Burger King acknowledged that "a challenging macroeconomic environment and heightened competitive activity" dented results. McDonald's (MCD) notably has made similar comments with regard to its sales. McDonald's has about two-and-a-half times as many locations as Burger King's 13,001 stores, and it also had a negative comp in the first quarter, including the worst U.S. period it has seen in years.

Fast food as a category remains an enormous market across the globe; the McDonald's brand alone had sales of $88 billion in 2012 and the Burger King system recorded $15.8 billion. But the story the chains repeatedly tell is one of price and product competition, along with the need for healthier and more-diverse menu offerings. One example of this approach is the new egg white McMuffin at McDonald's.

With many national and regional economies continuing to demonstrate sluggish or no growth, the restaurants are doing everything in their power to get consumers to choose their brand over the Wendy's (WEN) or Taco Bell down the street. This is to say nothing of a Chipotle (CMG) or Panera (PNRA), whose appeal relies heavily on their social positions and perception as purveyors of higher-quality fare.

For Burger King, March was better for North American same-store sales, turning positive after it "took a more balanced approach to value and premium offerings." That, too, speaks to a recurring theme in fast food. Shops aim to entice you with cheaper eats in the hope that, while there and looking at the menu, you'll decide to spend more on a pricier item.

At Burger King the value side in the quarter included a promotion for Whopper Jrs., at $1.29. The more expensive elements had limited sandwiches such as chipotle chicken. The company also debuted a turkey burger.

Burger King returned to the public market in the middle of last year following a short time away. The IPO continued a regularly evolving ownership structure for the chain. Since it completed its offering, shares have gained 20.3%.

Recently they were up 1.6% at $18.35.

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