Burger King profit falls, 2009 forecast is cut

NEW YORK -- Burger King Holdings bkc said Thursday that its profit dropped 10% in its fiscal second quarter as foreign currencies yielded fewer dollars. The nation's No. 2 hamburger chain also cut its full-year earnings forecast.

Burger King, based in Miami, missed analysts' profit expectations by 4 cents a share mainly because of the effect of the stronger dollar.

Companies with global operations translate sales and franchise revenue from foreign currencies into dollars. That can boost revenue and profit when the dollar is weaker but hurt results when the U.S. currency is stronger because foreign sales then translate into fewer dollars.

Chief Executive John Chidsey said on a conference call with investors that the exchange rate hit "was more than we forecast or could have anticipated."

The company said translating foreign currencies into dollars hurt profit by 5 cents per share in the quarter, which ended Dec. 31. The company earned $44 million, or 33 cents a share, compared with $49 million, or 36 cents a year earlier.

The stronger dollar has affected a number of restaurant chains with big businesses overseas. Both McDonald's and Yum Brands, which operates KFC, Pizza Hut and Taco Bell, have said exchange rates hurt their most recent results.

Burger King chopped its profit guidance for the year because of the dollar's strength.

The company now expects to earn between $1.44 and $1.49 per share in 2009, down from $1.54 to $1.59 per share. Analysts expect $1.52 per share. The new estimate assumes currency rates will strip 10 cents a share out of profit during the year.

Costs for food, particularly beef, also rose from a year earlier. Beef costs jumped 13%, Chief Financial Officer Ben Wells said.

Although currency rates and higher food costs have cut into profit, sales have kept growing despite the deepening recession — or perhaps because of it.

Revenue rose 3% to $634 million from $613 million, though that number was shy of Wall Street's estimates due partly to foreign-currency translations. Same-store sales, or sales at locations open at least a year, rose 2.9% worldwide and 1.9% in the U.S. and Canada.

Burger King said its U.S. same-store sales bump also stemmed from raising prices on certain menu items and its mix of value products and those that are a bit pricier, like the company's new Steakhouse XT extra thick burger.

Like others in its fast-food cohort, Burger King may be benefiting from consumers cutting back on eating in pricier restaurants.

Chidsey said Burger King will be promoting a new offering called BK Burger Shots — snack-sized burgers priced at $1.39 for two and $4.09 for six. It added the mini burgers to its menu Wednesday.

"We think it's going to be a great play on premium and novelty and innovation," Chidsey said.

McDonald's, leader in the fast-food category, said last week that its same-store sales in the U.S. rose 5% in its fourth quarter.

Burger King said it still expects to open between 350 and 400 restaurants during the year.

The company also said it will keep adding restaurants to the list of locations open 24 hours — a key strategy for the chain to grab market share when teens and young adults are likely to look for a snack.