Monday morning, fast food hamburger restaurants operator Burger King Holdings Inc. (BKC) reported a 23% increase in net income for the first quarter, boosted by 10% growth in revenues, positive worldwide comparable sales, the opening of new restaurants and acquisitions. Worldwide comparable store sales for the quarter increased 5.9%, helped by the company's marketing and advertising initiatives, continued focus on its BK Value Menu, the promotion of premium products and further development of its breakfast and late night dayparts. In addition, movie promotions increased traffic worldwide. Separately, Burger King said that private equity funds controlled by TPG Capital, Bain Capital Partners and the Goldman Sachs Funds intend to initially offer 23 million shares of the company's common stock in an underwritten offering.
First Quarter Results
The Miami, Florida-based company's net income for the first quarter increased 23% to $49 million from $40 million in the previous-year quarter. Earnings per share for the quarter climbed 17% to $0.35 from $0.30 a year ago. On average, nine analysts polled by First Call/Thomson Financial expected earnings of $0.33 per share for the latest quarter.
Burger King's total revenues for the quarter grew 10% to $602 million from $546 million in the prior-year quarter. Wall Street analysts consensus revenue estimate came in at $597.05 million.
The company attributed the increase in revenues to positive worldwide comparable sales of 5.9%, the opening of 146 new restaurants, net of closures, and the acquisition of 34 franchise restaurants during the twelve months ended September 30, 2007. Revenues for the latest quarter also reflect a favorable impact of $15 million from the movement in foreign currency exchange rates.
Commenting on the results, John Chidsey, chief executive officer of Burger King said, 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. Company restaurant revenues increased 9% to $441 million from $405 million last year. Franchise revenues were $131 million, up 16% from $113 million a year ago. Property revenues increased 7% to $30 million from $28 million in the similar period of last year.
Company restaurant expenses for the quarter were recorded at $373 million, up 9% from $343 million in the previous-year quarter. Selling, general and administrative expenses increased 6% to $119 million from $112 million in the year-ago period. Selling expenses increased on 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 year-ago quarter. General and administrative expenses increased on higher corporate salary fringe benefits and other costs of $3 million.
Burger King's total income from operations climbed 17% to $96 million from $82 million in the year-ago quarter.
Worldwide comparable store sales for the quarter increased 5.9%, which was the 15th consecutive quarter of positive comparable sales. The company said that the positive comparable sales was helped by its strategic initiatives related to operational excellence, marketing and advertising, the company's continued focus on its BK Value Menu, the promotion of premium products and further development of its breakfast and late night dayparts. In addition, movie promotions increased traffic worldwide.
System-wide trailing 12-month average restaurant sales or ARS exceeded the $1.2 million ARS threshold for the first time. System-wide ARS increased 9% to $327 thousand in the quarter from $300 thousand a year earlier.
Total company restaurant margin expressed in dollars increased by 8.9% for the quarter from the previous-year quarter as a result of positive worldwide company comparable sales and a net increase in the number of company restaurants. The company noted that despite higher commodity costs, robust comparable sales enabled company margins to expand.
During the first quarter, Burger King declared and paid a cash dividend of $0.0625 per share, and purchased 252 thousand shares through its previously announced share repurchase program. The company also retired an additional $25 million in debt using cash flow generated from operations.
U.S. & Canada
Revenues in the U.S. and Canada increased 8% to $392 million from $362 million a year ago, 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. However, the number of restaurants in the U.S. and Canada decreased for the twelve trailing months ended September 30, 2007 by 39, reflecting 90 openings offset by the closure of 129 restaurants.
Burger King noted that positive comparable sales in the U.S. and Canada were driven primarily by the Ultimate Double Whopper sandwich promotional tie-in to The Simpsons Movie, indulgent products such as the BBQ Bacon Tendercrisp chicken sandwich, and the spicy Chick'N Crisp sandwich offering on the BK Value Menu.
Company restaurant margin expressed in dollars climbed 10.2% in the quarter from the prior-year period, reflecting positive company comparable sales for the US and Canada, and a net increase in the number of company restaurants.
EMEA/APAC
Revenues for the region increased 15% to $183 million from $159 million in the prior-year quarter, driven primarily by the opening of 97 new restaurants and the acquisition of 15 franchise restaurants, net of refranchisings, most of which were in the U.K. In addition, positive comparable sales of 4.6%, which reflects strength in the U.K, Australia, New Zealand and South Korea, also contributed to the increase in revenues.
The company noted that a limited time offer Angus Burger and the newly introduced BK Fusions Real Dairy Ice Cream offerings drove sales and traffic in the U.K.
Company restaurant margin expressed in dollars increased 7.7% in the quarter from the similar period of last year, as a result of positive company comparable sales in EMEA/APAC and a net increase in the number of company restaurants.
Latin America
Revenues in Latin America increased 8% to $27 million from $25 million in the similar period of last year, primarily due to 88 new restaurant openings, net of closures, during the twelve months ended September 30, 2007, representing an increase of 11% in restaurant count. In addition, positive comparable sales of 3.8% also contributed to the increase in revenues driven by sales of premium products such as the Extreme burger and the BK Stacker Sandwich and successful promotional tie-ins such as The Simpsons and The Transformers Movies.
Company restaurant margin expressed in dollars remained flat in Latin America for the quarter from the comparable period of the previous year, reflecting slightly negative company comparable sales in Mexico and a net increase of seven company restaurants during the twelve months ended September 30, 2007.
In the last twelve months, Burger King opened 440 new restaurants, including 90 in the US and Canada, 260 in the Europe, Middle East, Africa and Asia Pacific or EMEA/APAC segment 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 as on September 30, 2007.
Outlook
Looking ahead, the company said that it anticipates net restaurant growth in fiscal year 2008 - the first time in six years.
Secondary Offering
Separately, Burger King announced that private equity funds controlled by TPG Capital, Bain Capital partners and the Goldman Sachs Funds intend to initially offer 23 million shares of the company's common stock in an underwritten offering. The private equity funds also intend to grant the underwriters an option to purchase up to an additional 3.45 million shares to cover over-allotments. The company said that it would not sell any shares in the offering.
Burger King noted that the selling stockholders own about 79 million shares of its common stock, or approximately 58% of its outstanding shares. Following the completion of the anticipated offering, the selling stockholders will own approximately 41% of the company's common stock or approximately 38% if the underwriters exercise the over-allotment in full.
The company noted that Goldman, Sachs & Co. (GS), J.P. Morgan Securities Inc. (JPM) and Morgan Stanley & Co. Inc. (MS) will act as joint book-running managers for the offering.
Peer Performance
Among Burger King's peers, Oak Brook, Illinois-based McDonald's Corp. (MCD) said last month that its net income for the third quarter climbed 27% to $1.071 billion from $843.3 million in the prior-year quarter, helped by strong revenues and comparable store sales in all regions. Earnings per share increased 31% to $0.89 from last year's $0.68. The latest quarter's results include income from discontinued operations of $67.5 million or $0.06 per share from the August 2007 sale of Boston Market, in comparison with income from discontinued operations of $1.6 million last year. The company's revenues for the period rose 7% to $5.90 billion from $5.50 billion in the comparable quarter a year ago.
Dublin, Ohio-based Wendy's International Inc. (WEN) reported a 57% decline in net income for the third quarter despite an increase in sales. The company's net income for the quarter was $29.9 million or $0.34 per share, compared to net income of $69.2 million or $0.58 per share in the same period last year. Income from continuing operations for the quarter increased to $28.8 million or $0.33 per share from $23.7 million or $0.20 per share in the same quarter of last year. Sales for the quarter increased to $554.8 million in the third quarter from $556.7 million in the third quarter of 2006, as a result of positive average same-store sales.
Stock Movements
In Monday's regular trading session, BKC is currently trading at $26.79, down $0.94 or 3.39% on a volume of 185,770 shares. In the 52-week period, the stock has been trading in a range of $17.42-$27.73.
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