| Burger King’s sales fall in 4th Q, signaling more pressure for QSRs
By SARAH
E.
LOCKYER
“May might have been the bottom in terms of sales and traffic,” he said. “We think an upcoming national coupon drop could benefit traffic as well as marketing plans around NASCAR in September and $1 sandwiches in October, but competitive and macro pressures persist.” Omohundro expects same-store sales trends to remain negative in the United States and Canada through the first half of Burger King’s fiscal 2010, which started in July, and to become positive in the second half of the fiscal year. John Glass
Morgan Stanley & Co. Glass said Burger King’s outlook, especially for top-line growth, is hazy. After the brand successfully drove traffic with the introduction of new products like the Burger Shots and heavy advertising, the latest-quarter sales trends were not positive. “While the causes of the deceleration are not easy to pinpoint,” Glass said, “it may be due to lack of incremental sales drivers to layer on, increased competitive discounting and macroeconomic factors.” He predicted a slow sales environment until the second half of Burger King’s fiscal year, when the chain will begin to push more premium products made available through the new batch broiler platform expected to be in all U.S. stores by February. Glass said the items, including larger burgers and ribs, could help average-check growth. David Tarantino
Robert W. Baird & Co. Despite the challenging sales landscape for Burger King, Tarantino noted that the company has focused on favorable cost-cutting moves to help drive earnings growth. “We think the potentially favorable commodity outlook, solid cost controls, lower restaurant operating expenses and lower interest expense driven by debt pay-down could support earnings in 2010,” Tarantino said. He estimated a year-to-year change of more than 100 basis points in company restaurant margins by the end of fiscal 2010, which would be the first uptick since the first quarter of the company’s fiscal 2008. Steve West
Stifel, Nicolaus & Co. West noted that Burger King’s outlook is brighter than may be anticipated, helped by a reduction in operating costs and the chain’s remodeling efforts, which already have started to pay dividends. He said there is room for growth when it comes to Burger King’s average unit volumes, which totaled about $1.3 million, and lag segment leader McDonald’s, which boasts an average annual unit volume of $2.2 million. New or remodeled stores with higher sales levels will help Burger King narrow that gap. “The remodeling and rebuilding of older restaurants were margin-neutral for the quarter, as the completed units provide an approximate 15-percent-to-30-percent boost to sales, which essentially funds the program moving forward,” West said. “We are strong believers in this program and the longer-term merits, as one need only look at McDonald’s (and even Sonic and Jack in the Box) success the past few years, which is highly attributable to this same type of remodeling program.” Burger King set a two-year goal to reach an average unit volume of $1.5 million, which West said it could reach earlier than expected.—slockyer@nrn.com Ron Ruggless contributed to this report. | 
