Miami / FL. (bk) Burger King Worldwide Inc. reported financial results for the second quarter ended June 30, 2013. BKW Chief Executive Officer, Daniel Schwartz commented, «Strength in EMEA and APAC helped drive a return to positive comparable sales in the second quarter. We continued to accelerate international growth with 125 net restaurant openings, primarily in China, Türkiye, Russia and Brazil, which could not have been possible without the solid execution of our experienced joint venture and master franchisee partners on the ground. Additionally, we successfully re-franchised 305 restaurants, nearly completing our transformation to a fully-franchised business model. This model is designed to efficiently leverage the strength of the BURGER KING® brand while maximizing value for franchisees and shareholders. We believe that our proven strategy, world-class employees and high-performance culture will allow us to continue to generate sustainable, long-term growth».
Second Quarter 2013 Highlights:
- Global comparable sales increased 0,6 percent and system-wide sales increased 2,8 percent in constant currency
- Adjusted Diluted EPS increased 20,4 percent to 0,21 USD
- Adjusted Ebitda increased 2,7 percent on an organic basis to 162,5 million USD
- Adjusted Ebitda margin increased 2’640bps to 58,4 percent driven by 305 net re-franchising
- Net restaurant growth of 125, a 78,6 percent increase from the prior year
- Announced a cash dividend of 0,06 USD per share for the third quarter
Consolidated Financial Highlights:
Global comparable sales increased 0,6 percent in the second quarter, a sequential improvement from a (1,4 percent) decline in the first quarter. This was driven by positive comparable sales growth in Europe, Middle East and Africa (EMEA) and Asia Pacific (APAC), partially offset by negative comparable sales growth in the U.S. and Canada and Latin America and the Caribbean (LAC). System-wide sales growth of 2,8 percent was attributable to 522 net restaurant openings for the trailing twelve month period (TTM) as well as positive comparable sales growth in EMEA and APAC. The majority of second quarter net restaurant growth occurred in China, Türkiye, Russia and Brazil where we have strong joint venture and master franchisee partners to help build our new restaurant pipeline.
Reported revenues of 278,3 million USD declined (48,5 percent) from the prior year as we continue our global re-franchising initiative. Excluding the impact of re-franchising and currency movements, revenue increased 1,2 percent year-over-year, improving sequentially from a (2,1 percent) organic decline in the first quarter. The second quarter improvement was due to net restaurant growth and positive comparable sales growth in EMEA and APAC.
Adjusted Ebitda of 162,5 million USD grew 2,7 percent from the prior year on an organic basis, excluding the impact of re-franchising and currency movements. On a reported basis, Adjusted Ebitda margins expanded to 58,4 percent from 32,0 percent in the prior year. This was largely due to the global re-franchising of company-owned restaurants and disciplined cost management that resulted in a 5,0 million USD year-over-year decrease in management general and administrative expense.
Adjusted Net Income and Adjusted Diluted EPS increased 21,4 percent and 20,4 percent, respectively, compared to the prior year, primarily due to lower depreciation expense as a result of our global re-franchising initiative and lower interest costs as a result of last year´s refinancing.
Operational and Segment Highlights
U.S. and Canada comparable sales growth declined (0,5 percent) in the quarter due to a challenging macroeconomic environment, heightened competitive activity and a strong prior year comparison as we lapped the largest expansion of menu items in the brand´s history. Value-focused promotions, particularly the 1,29 USD ‘Whopper Jr’ and 50-cent cone specials, along with limited time premium offerings, such as the Summer BBQ menu, helped drive traffic in the quarter. As part of our global re-franchising strategy, we re-franchised 94 company-owned restaurants in Canada, thus achieving our target business model in the region. Lastly, we remain on track to have 40 percent of U.S. and Canada system units upgraded to a modern image by 2015. We are encouraged that franchisees continue to sign up to complete remodels, reflecting the attractive sales uplifts that they have experienced from the initiative.
EMEA continued to perform well in the second quarter with comparable sales up 2,9 percent, the tenth consecutive quarter of comparable sales growth in the region. This was driven by our «Trial Weeks» value promotion and Steakhouse Gold premium burger offering in Germany and by strong performance in the under-penetrated Russian market. Spain and the UK proved resilient against challenging macroeconomic headwinds partly due to couponing initiatives in Spain and the «King of the Day» promotion in the UK. EMEA system-wide sales growth of 7,1 percent reflects the impact of 249 TTM net new restaurant openings in the region, primarily in Russia and Türkiye.
LAC comparable sales declined (2,2 percent) in the second quarter primarily due to relatively flat sales in Brazil and under-performance in Puerto Rico and Mexico. Comparable sales in Brazil were relatively flat due to a challenging prior year comparison and protests that prompted temporary store closures. In Puerto Rico, value promotions such as the «Two USD Sandwich» and «3,99 USD Daily Deal» partially offset competitive pressures. Finally, in Mexico, while comparable sales growth struggled, we have begun to realign the menu and promotional strategy to drive traffic in the second half. With the previously-announced sale of our Mexican company-owned restaurants, we successfully completed our re-franchising initiative in LAC. LAC system-wide sales growth of 5,3 percent reflects the positive impact of 169 TTM net new restaurant openings.
APAC continued its strong performance with comparable sales increasing 3,9 percent. This was partly due to the successful «Stunner» and «Penny Pincher» promotions in Australia, which continues to perform exceptionally well. APAC system-wide sales growth was 7,4 percent as a result of 156 TTM net new restaurant openings. The majority of new restaurant growth occurred in China where we recently made significant updates to our menu offering and promotional strategy to improve competitiveness in the market. We were also excited to announce our expansion into Pakistan, the world´s sixth most populous country, with the signing of a 5-year master franchise and development agreement.
Following the re-franchising of 305 restaurants during the quarter, we are on track to complete our global re-franchising initiative by year-end 2013. We continue to believe that a fully-franchised model allows us to focus on leveraging our global brand to improve the profitability of the Burger King system globally.