Burger King's Q4 Gets Mixed Reviews

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Burger King's profits rose in its fiscal fourth quarter, despite a 2% decline in worldwide comparable sales to $630 million.

Net earnings were $58.9 million or 43 cents per share, versus 37 cents in last year's fourth quarter, outperforming analysts' forecasts of 33 cents.

However, analysts' reactions were mixed, based on Burger King's declining to forecast earnings for the current fiscal year and acknowledgement that the consumer environment is likely to remain challenging for some time, as well as the recently soft sales performance at competitors including CKE Restaurants and Jack in the Box and Burger King's own largest franchisee, Carroll's Restaurant Group.

Burger King said it expects sales to continue to be soft in the first half of its current fiscal year but improve in the second half, assuming the economy continues to recover.

The company attributed the Q4 decline in comparable sales to higher unemployment, more consumers eating at home and heavy discounting by other restaurant chains.

In the U.S., the chain's focus on value -- including Q4 marketing of the $1 Whopper Jr. -- now competing with McDonald's $1, one-cheese-slice double cheeseburger, as well as local-market promotions such as two for $3.50 Whopper sandwiches and two for $3 chicken sandwiches -- helped drive traffic. Nevertheless, comparable company sales in the U.S. and Canada declined by 3.2% in the quarter. However, North American company restaurant margins improved by 130 basis points to 13.5%, versus 12.2% for the same period last year.

Negative worldwide comparable sales were partially offset by a sales gain of 2.5% in the EMEA/APAC region, and Burger King stressed that it continues to expand and diversify its international portfolio of restaurants.

Worldwide, the company posted restaurant margins of 12.5% in Q4 and 12.6% for the full fiscal '09 year that ended in June -- a decrease of 60 and 170 basis points, respectively, over the same periods in the prior year. That was in line with management's previous guidance.

Chairman/CEO John Chidsey emphasized that Burger King has now had six consecutive years of positive comparable sales growth, and that the company achieved record revenues, generated strong cash flow from operations and increased net restaurant count by 360 in the just-completed fiscal year, making it the strongest development year in nearly a decade.

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