The negative impact of avian flu and the horse meat scandal, along with the stringent economic conditions, has taken its toll on nearly every fast-food retailer, but the quarterly results of Burger King Worldwide Inc (NYSE:BKW) indicate that it somehow managed to dodge the problems. Even though Burger King’s revenue dipped significantly, the company managed to increase its net profit and beat the consensus estimates.
How did Burger King Worldwide Inc (NYSE:BKW) manage to steer clear of the roadblocks? Continue reading to find out.
Blast from the past
Burger King Worldwide Inc (NYSE:BKW)’s revenue came in at $278.3 million, signifying a drastic plunge of 48.5% year-over-year. The severe dip in the top-line was primarily because of the company’s international re-franchising initiatives and negative currency translations. The lower comparable store sales also affected the revenue but Burger King still managed to marginally beat the consensus estimate of $278.0 million.
Even though the drop in the revenue was drastic, Burger King Worldwide Inc (NYSE:BKW) managed to keep its shareholders happy by posting a profit of $62.9 million, an increase of 20.1% year-over-year. The adjusted earnings per share increased $0.14 to $0.21 per share, comfortably beating the consensus estimate of $0.19. This increase in the net profit was primarily driven by reduced expenses. The operating cost dropped 65% as the company paid a smaller amount for wages, food, and rent.
Burger King Worldwide Inc (NYSE:BKW) has more or less completed its transformation to a fully-franchised model as 99% of the 13,000 restaurants are now owned by independent franchisees. Burger King re-franchised around 305 restaurants in the previous quarter and is expected to finish the re-franchising initiative by 2013. The expansion in the franchisee network internationally helped Burger King to reduce its overheads phenomenally.
The increase in the earnings was admirable but, can Burger King maintain its success and perform even better in the future? Let’s find out.
How does the future look?
Burger King is on track to complete its global re-franchising initiative and the transformation to a fully-franchised model is expected to be completed by the end of 2013 as the company is looking to further reduce its expenditure.
The re-imagining of around 600 restaurants in 2012 augmented 10% to 15% to Burger King’s sales. Therefore, Burger King is looking to re-image 40% of its restaurants in Canada and U.S.A. within the next two years.
To tackle stringent economic conditions, Burger King will continue to alter its menu card and endorse more economical options in countries where the sales went downhill. The company is also planning also set-up numerous restaurants around the globe to expand its franchisee network and boost its margins.
Lastly, Burger King will also be expanding in Pakistan as the company is looking to make the most out of the high population of the country. The development is gathering steady pace as Burger King is looking to cover this territory as soon as possible.
After looking at all these plans, it is hard to think of a reason why Burger King will not perform better in the future but, the presence of international heavyweights can potentially have a negative effect on the company’s sales. Which are those companies? Let me tell you one by one.
McDonald’s Corporation (NYSE:MCD)
McDonald’s Corporation (NYSE:MCD) is perhaps the biggest fast-food retailer in the world and is a much bigger corporation than Burger King. The company shared its quarterly results last month affirming an increase in both revenue and earnings. McDonald’s revenue surged 2.43% to $7.1 billion while the earnings increased 3.7% to $1.4 billion. The diminished sales in Europe and Asia-Pacific region prevented the company from satisfying the consensus estimates.