Burger King Quarter 1 Profit Rises
Burger King Holdings Reports Strong First Quarter Fiscal 2008 Results - Worldwide Comparable Sales and Profitability Momentum Continues
First quarter fiscal 2008 highlights:
• 15th consecutive quarter of worldwide positive comparable sales, 5.9 percent
• 14th consecutive quarter of United States and Canada positive comparable sales, 6.6 percent
• Revenues up 10 percent, to $602 million
• Income from operations up 17 percent, to $96 million
• Diluted earnings per share improve by 17 percent, to $0.35
Burger King Holdings, Inc. posted solid results for the first quarter of fiscal 2008 across all financial metrics. Revenues, income from operations and earnings per share improved substantially over the prior year period. Positive worldwide comparable sales and an intense focus on execution of the company's strategic growth opportunities drove performance.
Worldwide comparable sales were up 5.9 percent, making this the 15th consecutive quarter of positive comparable sales growth. In the United States and Canada, comparable sales were up 6.6 percent, the 14th consecutive quarter of positive comparable sales growth. As a result, the company posted strong first quarter revenues of $602 million, up 10 percent from $546 million in the same quarter last year.
'Our business momentum continues, as evidenced by strong worldwide quarter over quarter growth. Our evolving menu architecture and the worldwide strength of our marketing alliances drove significant revenue increases,' said John Chidsey, chief executive officer. 'Our Tendercrisp(R) chicken sandwich limited time offerings appealed to guests seeking indulgence and the new Spicy Chick'N CrispTM sandwich appealed to guests seeking value menu options across multiple markets.
'In addition, we boosted traffic worldwide by leveraging our Simpsons(TM) and TransformersTM marketing promotions. In the U.S., our tie-in with The Simpsons(TM) Movie drove sales of the Ultimate Double Whopper(R) sandwich. We also continued to promote our BKTM Breakfast Value Menu and Late Night hours, producing the expected improvement in these dayparts. Furthermore, consumers continued to respond favorably to our U.K. brand revitalization efforts. High quality product innovation, including the launch of our BK Fusions(TM) Real Dairy Ice Cream offerings, drove strong sales performance.'
System-wide trailing 12-month average restaurant sales (ARS) reached a record high. The system exceeded the $1.2 million ARS threshold for the first time, reporting a 7 percent increase to $1.22 million compared to $1.14 million for the same period in the prior year. System-wide first quarter fiscal 2008 ARS increased 9 percent to $327,000 compared to $300,000 in the same quarter last year.
Company restaurant margin in the United States and Canada increased 50 basis points over the prior year period. Despite higher commodity costs, robust comparable sales enabled company margins to expand. Company restaurants also benefited from the first full quarter of the flexible batch broiler, realizing the forecasted energy savings.
Income from operations of $96 million improved 17 percent over the $82 million reported in the same quarter last year.
Chidsey said: 'We continue to effectively leverage our highly franchised business model and our G&A, successfully growing our earnings at a much higher pace than our overall revenues.' Diluted earnings per share were up 17 percent to $0.35 compared to diluted earnings per share of $0.30 in the same quarter last year driven by robust top-line and bottom-line expansion.
Uses of Cash
During the first quarter, the company declared and paid a cash dividend of $0.0625 per share, and purchased 252,000 shares through its previously announced share repurchase program. The company also retired an additional $25 million in debt using cash flow generated from operations.
'Our balance sheet continues to offer us the flexibility to return value to shareholders, and maximize returns via strategic initiatives including investing in our restaurant portfolio,' said Ben Wells, chief financial officer. 'We have solidified our capital spending plan for the 2008 fiscal year and expect to continue to ramp up our company restaurant remodeling and rebuilding efforts in the second half of the year.'
Future Growth
The company continued its worldwide restaurant expansion. In the last 12 months, the company and its franchisees opened 440 new Burger King(R) restaurants including 90 in the U.S. and Canada, 260 in the Europe, Middle East, Africa and Asia Pacific segment (EMEA/APAC), and 90 in Latin America. The company increased its net restaurant count by 146 restaurants during that period, bringing the system-wide total to 11,290 on September 30, 2007.
Chidsey said: 'In our U.S. and Canada segment, we anticipate net restaurant growth in fiscal 2008 - the first time in six years. Our pipeline in the U.S. is growing as potential and current franchisees recognize the success of our business model and seek development opportunities. I am even more excited about our international growth plans. Opening restaurants in existing and new strategic markets continues to be a top priority and focus of the entire Burger King(R) team worldwide.'
Chidsey concluded: 'We have multiple growth drivers that fuel results. We powered comparable sales in the first quarter with world class marketing promotions and menu management. In the second quarter, I am excited about our ability to leverage product innovation to drive traffic across all dayparts. Our new Homestyle Melts, out this month, is a product with both breakfast and lunch versions. For Halloween, SuperFans everywhere talked about our King costumes sold via our on-line store and at various retailers, creating even more brand relevance. We are also encouraging family fun at our restaurants with SpongeBob SquarePantsTM and Viva PiñataTM movie tie-ins.
'We are thriving in a challenging economic environment as consumers take advantage of our value and convenience. I am confident in our ability to execute on our strategic growth opportunities and our ability to continue to deliver top of the industry financial performance.'
About Burger King Holdings Inc.
The Burger King(R) system operates more than 11,200 restaurants in all 50 states and 69 countries and U.S. territories worldwide.
Total Revenues
Total revenues increased for the three months ended September 30, 2007, due to positive worldwide comparable sales of 5.9% as well as the opening of 146 new restaurants (net of closures) and the acquisition of 34 franchise restaurants (net of Company-owned restaurants sold, referred to as "refranchisings") during the twelve months ended September 30, 2007. The positive comparable sales were fueled by our strategic initiatives related to operational excellence, marketing and advertising, our continued focus on our BK(TM) Value Menu, the promotion of premium products and further development of our breakfast and late night dayparts. The Simpsons(TM) Movie and The Transformers(TM) Movie promotions increased traffic worldwide. The 34 net acquisitions of franchise restaurants include 17 acquired (net of refranchisings) in the United Kingdom (U.K.). Revenues during the three months ended September 30, 2007 also reflect $15 million of favorable impact from the movement in foreign currency exchange rates, or 27% of the total increase in revenues. The favorable impact on revenues from exchange rates was substantially offset by the unfavorable impact of exchange rates on Company restaurant expenses and selling, general and administrative expenses, resulting in a net favorable impact of $1 million on income from operations for the three months ended September 30, 2007.
U.S. & Canada
Revenues in the U.S. and Canada increased for the three months ended September 30, 2007 compared to the same period in the prior year, driven by positive comparable sales of 6.6% and from the acquisition of 19 franchise restaurants (net of refranchisings) during the twelve months ended September 30, 2007. Positive comparable sales in the U.S. and Canada were driven primarily by the Ultimate Double Whopper(R) sandwich promotional tie-in to The Simpsons(TM) Movie, indulgent products such as the BBQ Bacon Tendercrisp(R) chicken sandwich, and the spicy Chick'N Crisp(TM) sandwich offering on the BK(TM) Value Menu. The number of restaurants in the U.S. and Canada decreased for the trailing twelve months ended September 30, 2007 by 39, reflecting 90 openings offset by the closure of 129 restaurants, most of which were underperforming. The favorable impact on revenues from foreign currency exchange rates in Canada for the three months ended September 30, 2007 was $2 million, or 7% of the increase in total revenues in the U.S. and Canada.
EMEA/APAC
Revenues increased in EMEA/APAC for the three months ended September 30, 2007 compared to the same period in the prior year, driven primarily by 97 new restaurant openings (net of closures) and the acquisition of 15 franchise restaurants (net of refranchisings), most of which were in the U.K., during the twelve months ended September 30, 2007. The increase in revenues was also attributable to positive comparable sales of 4.6% for the three months ended September 30, 2007, reflecting strength in the U.K., Australia, New Zealand and South Korea as a result of our continued focus on operational improvement, marketing and advertising, and fresh and high quality menu items, such as a limited time offer Angus Burger, and the newly introduced BK Fusions(TM) Real Dairy Ice Cream offerings, which drove sales and traffic in the U.K. EMEA/APAC revenues were also favorably impacted by foreign currency exchange rates in the amount of $13 million, or 54% of the increase in total revenues in EMEA/APAC, for the three months ended September 30, 2007.
Latin America
Revenues in Latin America increased for the three months ended September 30, 2007 compared to the same period in the prior year, primarily due to 88 new restaurant openings (net of closures) during the twelve months ended September 30, 2007, representing an 11% increase in restaurant count. Positive comparable sales of 3.8% for the three months ended September 30, 2007 also contributed to the increase in revenues driven by sales of premium products such as the Extreme burger and the BK(TM) Stacker sandwich and successful promotional tie-ins such as The Simpsons(TM) Movie and The Transformers(TM) Movie. The impact from foreign currency exchange rates in Latin America for the three months ended September 30, 2007 was not significant.
Key Revenue Performance Measures
As of September 30,
-----------------------------
Increase/
2007 2006 (Decrease)
------ ----------- ----------
Number of Company restaurants: (Unaudited)
U.S. & Canada 901 882 19
EMEA/APAC 311 296 15
Latin America 77 70 7
------ ----------- ----------
Total 1,289 1,248 41
====== =========== ==========
Number of franchise restaurants:
U.S. & Canada 6,581 6,639 (58)
EMEA/APAC 2,581 2,499 82
Latin America 839 758 81
------ ----------- ----------
Total 10,001 9,896 105
====== =========== ==========
Number of system restaurants:
U.S. & Canada 7,482 7,521 (39)
EMEA/APAC 2,892 2,795 97
Latin America 916 828 88
------ ----------- ----------
Total 11,290 11,144 146
====== =========== ==========
Three Months Ended
September 30,
--------------------
2007 2006
--------- ----------
(in constant
currencies)
Comparable sales growth:
U.S. & Canada 6.6 % 2.6 %
EMEA/APAC 4.6 % 1.1 %
Latin America 3.8 % 6.1 %
Total worldwide 5.9 % 2.4 %
Sales growth:
U.S. & Canada 6.7 % 1.9 %
EMEA/APAC 11.6 % 6.9 %
Latin America 14.4 % 15.7 %
Total worldwide 8.5 % 4.0 %
(In actual
currencies)
Worldwide average restaurant sales (In thousands) $ 327 $ 300
Three Months Ended
September 30,
-------------------------
% Increase/
2007 2006 (Decrease)
------ ------ -----------
Franchise sales: (Dollars in millions) (Unaudited)
U.S. & Canada $2,083 $1,947 7 %
EMEA/APAC 921 773 19 %
Latin America 222 194 14 %
------ ------
Total worldwide $3,226 $2,914 11 %
====== ======
Company Restaurant Margin (Dollars in millions)
Percent of
Revenues
(1) Amount
-----------------------
Three Months Ended September 30, % Increase/
(Decrease)
2007 2006 2007 2006 (1)
----- ----- ----- ----- -----------
Company restaurants: (Unaudited)
U.S. & Canada 15.3% 14.8% $ 44 $ 40 10.2%
EMEA/APAC 14.4% 15.2% $ 20 $ 18 7.7%
Latin America 23.8% 25.3% $ 4 $ 4 0.0%
----- ----- ----- -----
Total 15.3% 15.3% $ 68 $ 62 8.9%
===== ===== ===== =====
(1) Calculated using dollars expressed in hundreds of thousands.
Three Months
Ended
September 30,
--------------
Company restaurant expenses as a
percentage of revenues: (1) 2007 2006
------- ------
Food, paper and product costs 31.1% 30.1%
Payroll and employee benefits 29.7% 29.5%
Occupancy and other operating costs 23.9% 25.1%
------- ------
Total Company restaurant expenses 84.7% 84.7%
(1) Calculated using dollars expressed in the
hundreds of thousands.
Total Company Restaurant Margin
Total Company restaurant margin expressed in dollars increased by $6 million, or 8.9% for the three months ended September 30, 2007 compared to the same period in fiscal 2007, as a result of positive worldwide Company comparable sales and a net increase in the number of Company restaurants. As a percentage of revenues, Company restaurant margin remained flat for the three months ended September 30, 2007, reflecting an increase in food costs in the U.S. and Canada and an increase in labor costs in EMEA offset by a decrease in occupancy and other costs in the U.S. and Canada and EMEA.
U.S. & Canada
Company restaurant margin expressed in dollars increased by $4 million, or 10.2% in the U.S. and Canada for the three months ended September 30, 2007 compared to the same period in fiscal 2007. The increase in margin for the three months reflects positive Company comparable sales for the U.S. and Canada and a net increase in the number of Company restaurants. As a percentage of revenues, Company restaurant margin increased by 0.5 percentage points for the three months ended September 30, 2007 reflecting leverage of fixed costs derived from strong positive comparable sales and the benefits realized from the new flexible batch broilers, including lower utility costs and depreciation, offset by an increase in the cost of beef, chicken and cheese.
EMEA/APAC
Company restaurant margin expressed in dollars increased by $2 million, or 7.7% in EMEA/APAC for the three months ended September 30, 2007 compared to the same period in fiscal 2007, as a result of positive Company comparable sales in EMEA/APAC and a net increase in the number of Company restaurants. Company restaurant margin as a percentage of revenues decreased in EMEA/APAC by 0.8 percentage points for the three months ended September 30, 2007, due to inflationary increases in wages and utilities, and the overall impact on operations from operating under-performing restaurants acquired in the U.K., partially offset by the benefits realized from the closure of under-performing Company restaurants and sales of higher margin products.
Latin America
Company restaurant margin expressed in dollars remained flat in Latin America for the three months ended September 30, 2007 compared to the same period in fiscal 2007, reflecting slightly negative Company comparable sales in Mexico and a net increase of seven Company restaurants during the twelve months ended September 30, 2007. As a percentage of revenues, Company restaurant margin in Latin America decreased by 1.5 percentage points for the three months ended September 30, 2007, reflecting an increase in occupancy and other costs such as utilities, property taxes and maintenance and other costs related to information technology including the implementation of our new point of service (POS) systems in Company restaurants in Mexico. The impact during the three months ended September 30, 2007 from the increase in occupancy and other costs was partially offset by decreases in the cost of food and labor as a percentage of revenues.
Selling, General and Administrative Expenses (Dollars in millions)
Three Months Ended
September 30,
-----------------------
% Increase/
2007 2006 (Decrease)
------ ---- -----------
(Unaudited)
Selling Expenses $23 $19 21 %
General and Administrative Expenses 96 93 3 %
------ ----
Total Selling, General and Administrative
Expenses $119 $112 6 %
====== ====
Selling expenses increased by $4 million for the three months ended September 30, 2007 compared to the same period in the prior year. The increase in selling expenses for the quarter is primarily attributable to sales promotions and advertising expenses generated by higher Company restaurant revenues and the non-recurrence of bad debt recoveries of $2 million recorded in the three months ended September 30, 2006.
General and administrative expenses increased by $3 million to $96 million for the three months ended September 30, 2007, compared to the same period in the prior year. This net increase was primarily driven by an increase in corporate salary fringe benefits and other costs of $3 million. The overall net increase of $3 million also reflects the unfavorable impact of $3 million from the movement in foreign currency exchange rates, mostly in EMEA.
Other Operating (Income) Expense, Net
Other operating (income) expense, net for the three months ended September 30, 2007 was zero, compared to $7 million of income for the same period in the prior year. Other operating income for the three months ended September 30, 2006 includes a gain of $5 million from the sale of our investment in an unconsolidated joint venture.
Income from Operations (by Segment) (Dollars in millions)
Three Months Ended September 30,
---------------------------------
% Increase /
2007 2006 (Decrease)
---------- --------- ------------
(Unaudited)
U.S. & Canada $ 97 $ 87 11 %
EMEA/APAC 20 20 0 %
Latin America 9 8 13 %
Unallocated (30) (33) (9)%
---------- ---------
Total $ 96 $ 82 17 %
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