Burger King’s net income fell 83 per cent in the third quarter as the world’s second biggest hamburger chain sold off more of its restaurants to franchisees as part of a turnaround push.
In the Asia Pacific region, the sales figure fell by 2.2 per cent as weak performances at Hungry Jack’s in Australia as well as Korea dragged down results.
The private investment firm that owns a majority stake in the fast food chain, 3G Capital, has been working to put the shine back in Burger King’s crown since purchasing it in 2010.
In addition to unveiling its biggest ever menu expansion and a celebrity studded ad campaign earlier this year, the firm has been shifting to an entirely franchisee-owned model to cut down on overhead costs and boost profit margins.
3G’s turnaround push comes amid a time of intensifying competition in the US, with Taco Bell’s introduction of popular new menu items such as its Cantina bowls and Wendy’s looking to transform into a higher-end burger chain.
And although McDonald’s is seeing growth slow after years of dominating its rivals, the Oak Brook, Illinois-based chain has vowed to intensify its focus on its Dollar Menu and value message to boost results in the challenging economy.
Additionally, traditional fast-food chains are increasingly competing with a newer breed of chains, such as Panera Bread Co and Chipotle Mexican Grill Inc, which offer higher-quality food for a little more money.
Burger King, which until recently had focused on courting junk food loving younger men, has new offerings that are helping bring in more women and customers who are 55 and older, without eating into its core offerings of Whoppers and fries.
Steve Wiborg, president of North American operations, noted that the Miami-based chain that has more than 12,600 locations worldwide is benefiting from new menu lines, such as fruit smoothies, coffee frappes and specialty salads.
“That’s all new business for us,” Wiborg said.
For the quarter, Burger King said global revenue at stores open at least a year rose 1.4 per cent. In the US and Canada, the figure rose 1.6 per cent as barbecue-themed menu items for the summer drove sales.
CEO, Bernardo Hees, said sales at restaurants open at least a year are showing signs of picking up again for the fourth quarter. The sales figure is a key metric because it strips out the impact of newly opened and closed locations.
For the three months ended September 30, net income fell to $US6.6 million ($A6.4 million), or 2 cents per share. That compares with $US38.8 million, or 11 cents per share, last year. Net income excluding one-items totalled 17 cents per share. Analysts expected 15 cents per share, according to FactSet.
Revenue fell 26 per cent to $US451.1 million, but was above the $US439.7 million Wall Street expected.
Much of the revenue decrease came from Burger King selling restaurants to franchisees, which means the company no longer includes sales from those stores on its books. As of September 30, Burger King said 95 per cent of its restaurants were owned by franchisees; the goal is to eventually reach 100 per cent.
Organic revenue, which excludes the impact of re-franchising and exchange rates, was flat.