BKC: GLANCE AT THE 4QFY10 MENU

Burger King is scheduled to release earnings tomorrow pre-open, here is a look at guidance and key focus points.

 

I continue to hold my view that trends at MCD are impeding its fellow mature hamburger chains from posting better-than-expected results.  Commodity prices, (beef, pork, and wheat in particular) are trending higher and this will make it difficult to maintain margins in the second half of calendar 2010. 

 

Burger King introduced a new premium product, Fire-Grilled Ribs, to major markets in May.  Despite my initial skepticism, reports indicate that sales of the product have been going well.  Also, the higher price point must be assuaging the painful squeeze franchisees endured during the $1 Double Cheeseburger promotion. 

 

SAME-STORE SALES

  • Per StreetAccount, the Street is anticipating a US & Canada system comparable store sales number of -1.7% which would imply a sequential slowing of two-year average trends of 85 bps
  • To maintain or sequentially improve two-year average US & Canada system comparable store sales trends, BKC will need to print a number of 0% or better

GUIDANCE

  • As it relates to fourth quarter fiscal 2010 worldwide system comparable sales, the company expects worldwide system comparable sales to improve sequentially compared to the reported third quarter fiscal 2010 worldwide system comparable sales of negative 3.7 percent.
  • April traffic in the U.S. continues to be positive while comp sales, albeit negative, have been slightly better than March.  “Cautiously optimistic” outlook for sales in the rest of the quarter.
  • Over the “long term”, average annual worldwide comparable sales growth of 2 to 3%.
  • Over the “long term”, average annual revenue growth of 6 to 7%.
  • No EPS guidance due to continued consumer uncertainties.
  • U.S. food costs are expected to increase 4% in the fourth quarter versus last year, primarily driven by an increase in beef prices offset by a decrease in contracted chicken costs and other commodity decreases.
  • The company is on track in both net new restaurant openings and on restaurant reimaging initiatives.  The guidance at the start of the fiscal year was for net restaurant growth, over the “long term”, of 3 to 4%.
  • In June, management took down the net restaurant growth number for FY10 from 150 to 300 to 230 to 250 due to exiting the Israeli market

OTHER COMMENTARY

  • Food costs increased during the 3QFY10 quarter due primarily to a 9% jump in beef costs

 

Howard Penney

Managing Director


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