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Burger King aims high and low for sales

MIAMI Burger King said Tuesday it would search high and low, literally, for an uptick in sales.

Like many other quick-service chains, including McDonald’s, Wendy’s, Carl’s Jr. and Jack in the Box, the No. 2 burger brand’s menu strategy following a latest-quarter same-store sales dive will be a focus on both value pricing and premium products.

“We will flex premium when we can; we will flex value when we need to,” said Burger King chairman and chief executive, John Chidsey, during a corporate conference call with investors on Tuesday.

Burger King said it planned to have its new flexible batch broiler equipment in all U.S. units by Jan. 31, which will allow it to promote its new, thicker “XT Steakhouse” burger by February. Premium burgers have most recently been launched by McDonald’s and Carl’s Jr. Burger King’s new equipment also will allow the company to feature other premium items such as the bone ribs, which are being tested in several markets now.

Burger King also plans to market value items, such as the currently couponed $1 double cheeseburger. Last month, the chain had gone through negotiations with franchisees on whether an offer of a $1 double cheeseburger would spark enough traffic to cover the margin pressure a low price tag like that could create. Rather than offer the item permanently or for a limited time, Burger King chose to offer coupons for the sandwich.

During its earnings report, Burger King executives offered no guidance into sales for fiscal 2010, which began July 1, saying it “will be a challenge.”

Revenue for the fourth quarter ended June 30 fell 2 percent to $629.9 million. Global same-store sales fell 2.4 percent, and reflected a systemwide drop of 4.5 percent at restaurants in the United States and Canada. The company blamed the slowed U.S. economy, more consumers eating at home and discounting tactics by competing quick-service chains.

The fourth-quarter sales decline had been flagged earlier when Burger King’s largest franchisee, Carrols Restaurant Group Inc., reported a same-store sales decline of 4.7 percent for its BK units. While McDonald’s Corp. has been able to increase sales, other competitors, such as Jack in the Box and CKE Restaurants, have reported sales declines, leading industry observers to speculate that quick-service chains are feeling the heat from economic pressures like rising unemployment just as full-service restaurants have for some time.

Despite the sales slip, parent company Burger King Holdings Inc. posted a 16.4-percent increase in net income, as it was able to improve margins, especially at its U.S.-based restaurants, and book refranchising gains from sales of corporate locations to franchisees.

Fourth-quarter profit totaled $58.9 million, or 43 cents per share, compared to a profit of $50.6 million, or 37 cents per share, in the same quarter a year earlier.

Chidsey said in a statement, “We experienced a difficult operating environment in fiscal 2009 with unprecedented volatile currency markets, significant commodity inflation and 25-year-high unemployment levels.” Sales in Mexico and Germany, both important markets for Burger King, are expected to show improvement “in the back half of the calendar year,” Chidsey said.

The company said margins at its restaurants in the U.S. and Canada improved to 13.5 percent from 12.2 percent in the quarter last year. Executives said lowered prices for utilities had helped improve margins.

For the full fiscal year, Burger King’s profit rose to $200.1 million, or $1.46 per share, from $189.6 million, or $1.38 per share, in fiscal 2008. Latest-year annual revenue rose 3.5 percent to $2.54 billion.

Burger King said it added 115 net new restaurants during the fourth quarter, bringing the year-end worldwide total to 11,925 locations.

Contact Ron Ruggless at [email protected].

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