Burger King Worldwide on Friday reported strong first-quarter earnings growth, despite tough competition and a challenging economic environment that led to a decline in year-over-year comparable global sales.
The Miami-based chain posted net income of $35.8 million, or 17 cents in adjusted per share earnings, up 49 percent, compared to the first quarter of 2012.
“In spite of the slightly negative same store sales, we were still able to generate significant 49 percent earnings per share growth, which speaks to the strength and resilience of our franchise business model,” said Daniel Schwartz, Burger King’s chief operating officer, in an interview.
The nation’s second largest hamburger chain’s comparable global sales growth fell 1.4 percent in the quarter, due to the impact of leap day and negative comparable sales growth in the U.S. and Canada, and Latin America and the Caribbean. That was partially offset by positive growth in Europe, the Middle East and Africa and Asia Pacific, the company said.
“It was a challenging quarter from a sales perspective, because of softer consumer spending in the U.S., and we felt that we had an unbalanced value offering as compared to some of our competitors,” said Joshua Kobza, Burger King’s chief financial officer. But the company saw improvement in March, after introducing a $1.29 Whopper Jr., two for $5 sandwiches and “king deals,” which offer a $5 combo meal each day, which “rebalanced” the company’s value offerings, he said.
Overall, first-quarter revenue fell 42.5 percent to $327.7 million, compared to $569.9 million in the prior year, reflecting global refranchising transactions and negative comparable sales growth, partially offset by net restaurant growth and favorable foreign exchange impact.
The investment firm 3G Capital bought Burger King in October 2012, and has since focused on transforming the brand, including aggressively expanding internationally, while improving the restaurants’ image and menus in North America.
Burger King now has 13,000 locations, about 97 percent of which are franchises.
Schwartz said the company has been opening new restaurants at a rapid pace, and has completed its refranchising strategy in three of its four markets worldwide, including the United States and Canada, Latin America and the Asia-Pacific region. Burger King expects to complete its refranchising in Europe — Spain and Germany — next year, said Schwartz, a partner at 3G, who will become Burger King’s chief executive by July 1, when Chief Executive Bernardo Hees leaves to take the helm at H.J. Heinz Co., which 3G is buying with Warren Buffett’s Berkshire Hathaway.
“Last year we grew restaurants at about triple the usual pace,” Schwartz said. “And we have put the right structure and partnerships in place in key emerging markets around the world to further accelerate the pace of our restaurant growth this year.”