CEO John Chidsey called Burger King's 2% domestic comparable-sales growth for the quarter "in line" with the marketer's business plan, despite a 0.8% decline in U.S. systemwide sales for the final fiscal-2006 quarter, ended June 30. "We're climbing some really high mountains ... in comp sales," said Mr. Chidsey, insisting that the marketer needs only 2% to 3% growth in same-store sales to drive 20% net-income growth.
But Bear Stearns analyst Joe Buckley told Reuters the fact that Burger King's same-store sales gains have been at 2.3% or less in the past five quarters "raises concerns about how much traction the turnaround effort has."
The chain reported a $9 million net loss on fees paid to management and private-equity sponsors related to its public offering.
During the call, Mr. Chidsey said traffic trends for the chain were positive and improving, but he didn't break out how traffic, mix and pricing contributed to the same-store sales figures. Instead he focused on other measures, such as the addition of 250 to 300 units this year after a four-year period of closings, the record pace of new-product development, and average unit sales volumes that improved to $1.13 million.
He credited Burger King's marketing campaigns, operations improvements, strategic alliances, premium products, value menu and extended hours launched this year for driving the top-line sales growth. He also said the Whopper is the No. 1 line of branded burgers in the U.S.
Mr. Chidsey announced several marketing partnerships for this year, including an already-reported partnership with Microsoft's Xbox for a Burger King-branded game over the holidays; the second year of a National Football League sponsorship; and the chain's first full season as a Nascar sponsor. Burger King also inked deals to tie in with Sony Pictures' "Spider-Man 3" next May and Nickelodeon's "SpongeBob SquarePants" in March. To attract more families with children, a global "Spider-Man 3" promotion will include a scratch-and-win game.
Burger King is continuing to work with franchisees to add an hour to the beginning and end of each day to tap the breakfast and late-night dayparts. Mr. Chidsey said about half of the gap in average store volumes between Burger King and McDonald's is from breakfast. Late-night has been growing faster than the overall menu as the number of franchisees extending their hours has doubled since last summer.
Burger King also saw weakness hurt comparable sales in other regions, including Latin America and the U.K. Mr. Chidsey said the marketer performed a "deep dive" analysis with its ad agency, Crispin Porter & Bogusky, Miami, to address the sales slump in the U.K. market.