Burger King beats estimates, but renovations weigh
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By Lisa BaertleinLOS ANGELES (Reuters) - Burger King Holdings Inc posted better-than-expected earnings and raised its full-year profit forecast on Thursday, but said costs related to restaurant renovation would weigh down margins in the current quarter.Burger King, best known for its Whopper hamburgers, has been sprucing up old outlets and expanding value menu items and business hours in a bid to catch up with rivals.Those efforts have helped the chain post stronger same- store sales growth than big rivals such as McDonald's Corp and Yum Brands Inc ."Same-store sales in the United States killed McDonald's and Yum," said Stifel Nicolaus analyst Steve West, who added the company gave investors a temporary shock when it outlined on its conference call how commodities and remodeling costs will impact short-term profitability."Remodels will start to pay for themselves" in the new fiscal year starting in July, said West, who has a buy on Burger King shares.The world's second-largest hamburger chain on Thursday said net income rose to $41 million, or 30 cents per share, in the third quarter ended on March 31 from $34 million, or 25 cents per share, a year earlier.Analysts, on average, had been expecting it to earn 27 cents per share, according to Reuters Estimates.Total margins declined from a year earlier, as lower margins in the United States and Canada more than offset gains from other markets.Revenue rose 10 percent to $594 million from $539 million. Sales at established stores open at least 12 months were up 5.8 percent worldwide. Same-store sales were up 5.4 percent in the United States and Canada.McDonald's and Yum each posted U.S. same-store sales growth of about 3 percent the March quarter.In the United States, Burger King said the "Whopper Freakout" media campaign, marking the 50th anniversary of its best-known burger, helped boost results. It also said it promoted its Spicy Chick'n Crisp sandwich and Whopper Jr. sandwich value menu offerings.Its premium menu offerings, like the Three Pepper Angus Burger and limited time offers, such as the Chorizo Angus, contributed "significantly" to sales in Europe, the Middle East, Africa and Asia Pacific, it said.Executives said April was off to a very good start and they were happy with how business was shaping up in the current fiscal fourth quarter.The company plans to begin expanding hours and rolling out price increases, which should help offset rising costs for meat and other items.At the same time, remodeling project costs and resulting lost sales from temporarily closed units will negatively affect restaurant margins.Looking ahead, the company expects fiscal year earnings per share growth of "20 percent plus" year-over-year. Previously, it forecast year-over-year earnings per share growth in excess of 15 percent for the 2008 fiscal year ending in June.It forecast full-year earnings per share of $1.33 to $1.35.Burger King shares were down 9 cents at $27.81 in afternoon trading on the New York Stock Exchange.(Additional reporting by Nicole Maestri; Editing by Dave Zimmerman and Derek Caney)
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