BKC’s 4Q09 EPS of $0.43 (including a $0.07 benefit from a lower tax rate) beat the street’s $0.33 estimate.  I would say the biggest positive in the quarter was the 130 bp YOY improvement in U.S. and Canada company restaurant margins.  The biggest negative, though somewhat expected following TAST’s 2Q numbers, was the 4.5% decline in system same-store sales in the U.S. and Canada. 


Judging by the stock’s significant move higher today, investors seem comforted by the U.S. margin improvement and the fact that traffic trends in the U.S. have improved each month since May (but are still negative).  Traffic has been helped by the company’s shift in focus to include more value offerings, such as the $1 Whopper.  Even with traffic getting sequentially better in July (as stated by management), I would expect the overall comp number to continue to be weaker than MCD’s U.S. 2.6% same-store sales growth and Wendy’s estimated 2.0% growth.




Q4 Earnings Call Commentary

Current macro backdrop continues to adversely impact results:

-higher unemployment (July's unemployment rate in the U.S. 18 to 39-year-olds is now 12% and even more disconcerting is the 20% unemployment rate among ethnic groups in this age group which represents a disproportionate amount of the heavy user and super fan base)

-more consumers eating at home (out of home eating expenditures which are now at a 28 year low in the U.S. according to the NPD group)


Current comp trends (most of Q&A focused on U.S. traffic trends):

- U.S. comps and sales have improved since May although not to levels with which management is satisfied.  New value promotions will continue to put pressure on average check and it is expected to be flat to down.  Importantly, management stated that the dilution to gross profit margin, from these lower price points, has been lower than initially forecasted.

-Germany and Mexico comps and traffic have improved albeit still at negative levels.

 “I think the Mexican consumer is somewhat more confident…We have seen month over month continued improvement in our sales, and I don't think there is anything we need to do differently there.”

“In Germany I would say, again, a challenging economic environment there. We continue to move more towards affordability, and I would say there is more we can do on that front. I wouldn't say we're as far along as we are in Mexico. We certainly moved in that direction, but I think we can go further, and again I believe we have seen improvement over the last two or three months.”


Comments about Q1 Comp:

“I think we're not going to give you a number obviously on what we think from a comp standpoint for the quarter. You can tell from our comments we're saying the U.S. has gotten better month by month. We talked in our comments about the fact that Mexico and Germany had improved all be it we're still negative, so I think that gives you a sense of roughly how the quarter is looking, but that's all the color we really want to give at this point.”


Fiscal 2010 Outlook:

Management anticipates the current challenging environment will continue into fiscal 2010.  Due to the lack of visibility, the company is not providing specific EPS guidance for the year.


-most difficult to forecast is comps but expected to be soft in 1H10 and improve in the second half if consumer sentiment improves

-250 to 300 net new restaurants (represents a growth rate below long-term guidance due to commercial construction delays) with 80%-90% of net new units outside the U.S.

-U.S. commodities expected to be flat to slightly better (improve in the first half of the year and be up slightly YOY in 2H)

-Commodity costs outside the U.S. will be up a few percentage points YOY

-Capex of approximately $175-$200 million



After experiencing a rapid decline in traffic starting in March, BKC shifted its promotions to focus on satisfying the need for affordability with the $1 whopper junior in the U.S. and affordable combo promotions in Germany and Mexico and throughout many of the company's other international markets.

-also offering local market value promotions in the U.S., such as 2 for $3.50 Whopper® sandwiches and 2 for $3 chicken sandwiches, across many cities. Since implementing these value offerings, the company stated that it has seen a progressive improvement in traffic.


4Q09 commentary:

-U.S. and Canada Company Restaurant Margins: up 130 bps, benefited from 120 basis points improvement in food, paper and product costs, a 100 basis points improvement in occupancy and other operating costs primarily due to the lower accelerated depreciation expense related to the reimaging program incurred this year compared to last year and to a significant decrease in utility expenses partially offset by increases in labor costs.

-EPS increased 16% to $0.43 as compared to $0.37 in the same quarter last year. Currency translation negatively impacted earnings per share by $0.03 within the expected range for the quarter. This quarter's EPS was positively impacted by $0.07 due to a lower than forecasted tax rate of 21.6%, the result of the dissolution of in-active foreign entities. Without this tax benefit EPS would have been $0.36 for the quarter and within the company's previous guidance given in April.



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