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Burger King profit slumps 83% amid revamp, re-franchising

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Burger King Worldwide Inc., one of the country’s largest hamburger chains, said its net income tanked 83% in its third quarter, the first time the brand has reported earnings since returning to public trading.

The fast food company was one of very few releasing quarterly financial data as Hurricane Sandy shut down Wall Street. Pfizer Inc., Thomson Reuters Corp. and NRG Energy Inc. delayed their results as the storm approached. Online brokerage TD Ameritrade, however, said it would push up its earnings announcement to Monday afternoon from Tuesday morning due to the storm.

Burger King is in the midst of a refresh, rolling out a massive menu update this spring full of salads, snack wraps, frappes and real-fruit smoothies and hiring celebrities such as David Beckham and Jay Leno to stump for the brand. This year, the chain also promised to switch to only cage-free eggs and pork.

And instead of targeting its Whoppers to young men, its historical consumer base, Burger King said it is pushing to attract more women and older customers. The brand is also trying to perk up the look of its restaurants.

The company is also heavily re-franchising, selling its eateries to entrepreneurs in order to stabilize its balance sheet and shield itself from commodity cost swings. Currently 95% of Burger King restaurants are owned by franchisees.

“We believe this approach will enable us to close the sales per restaurant gap to peers and improve the attractiveness of our brand to current and prospective franchisees,” said Chief Executive Bernardo Hees in a conference call with analysts. “There is no silver bullet. It's not just about marketing or a new product.”

But the turnaround effort is costly. And heavy competition from similar concepts may have taken a toll. Hees also noted a “challenging global economic environment.”

Burger King’s profit swung down to $6.6 million, or 2 cents a share, in the three months ended Sept. 30. During the third quarter last year, the chain’s net income was $38.8 million, or 11 cents a share.

Adjusted earnings, however, came in at 17 cents a share when excluding one-time items, beating analyst expectations. Burger King also outperformed Wall Street’s forecasts with its revenue figure, even though it slipped 26% to $451.1 million.

Same-store sales worldwide got a 1.4% boost, rising 1.6% in North America due to the popularity of summer barbecue and chicken options. The company’s stock was up 26 cents, or 1.8%, to $14.95 on Friday.

Burger King returned to the New York Stock Exchange in June, after being taken private in 2010 by 3G Capital Management. The private equity firm is now Burger King’s largest shareholder, with a 71% stake.

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Copyright © 2014, Los Angeles Times
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