Burger King's Earnings Beat Expectations, but Sales Decline Again

Unfortunately, it was more of the same for Burger King (BKC) in the last quarter: Though the fast-food chain reported earnings per share of 37 cents -- above the Thomson Reuters estimate of 34 cents per share -- the company's same-store sales declined 2%, their third consecutive quarterly decline. A year ago, the company earned 33 cents per share.Burger King also posted quarterly revenue of $645.4 million, beating the Thomson Reuters First Call revenue estimate of $637.8 million.

The company said its net restaurant count increased by 95 in the last quarter, with 90% of those internationally-based, including its 12,000th restaurant, located in Beijing. Over the past 12 months, the company's total number of restaurants rose by 321.

In its report, Burger King termed the the last quarter "a challenging operating and consumer environment." Was it ever: The most telling statistic in the earnings report was the 3.3% same-store sales decline in its U.S./Canada market.

Business Analysis

Overall, it was another disappointing quarter for Burger King, with the key stats being the 2.0% worldwide same-store sales decline, and the 3.3% sales decline in the U.S./Canada market, where BKC has 7,500 restaurants. Even after one takes into account the sales-reducing impact of the recession, Burger King is not showing signs that it will be able to competitively position itself amid a shrinking fast-food market.

Simply, the fast-food market has too many similar-quality chains, and those chains that cannot carve out niches based on meal uniqueness, value, service or ambiance will likely continue to lose market share. Some may not survive. Unless Burger King can identify some tactics that reverse its current negative traffic trends and demonstrate why adults should prefer its restaurants over other hamburger and fast food chains, concern about operating fundamentals will persist and its outlook will remain cloudy. Under those circumstances, it's hard to see institutional investors swooping in to propel its stock higher.
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