Burger King Sales Miss Estimates Amid Fears of Fast-Food Slump

Updated on
  • Profit tops estimates as company keeps costs under control
  • Restaurant Brands signals confidence with $300 million buyback

Restaurant Brands International Inc., the owner of Burger King and Tim Hortons, reported second-quarter sales for both chains that trailed analysts’ estimates, lending credence to speculation that the fast-food industry is entering a slump.

Comparable-store sales at Burger King increased 0.6 percent in the quarter, the Oakville, Ontario-based company said Thursday in a statement. Analysts had estimated a 1.6 percent gain, according to Consensus Metrix. Tim Hortons’ comparable sales rose 2.7 percent, missing analysts’ estimate of a 3.9 percent increase.

Burger King has relied on new food and meal deals to try to draw customers in a fiercely competitive market. The company recently started selling Mac n’ Cheetos, deep-fried sticks of macaroni and cheese encrusted in Cheetos-flavored breading. Earlier this year, Burger King added grilled Oscar Mayer hot dogs to its menu, along with an Egg-normous burrito and Chicken Fries Rings. Total revenue in the quarter was little changed at $1.04 billion, in line with analysts’ $1.05 billion average projection.

Despite the tepid sales, the company managed to increase earnings by limiting expenses, a hallmark of private equity firm 3G Capital, which has managed Burger King since 2010. Second-quarter profit was 41 cents a share, excluding some items. Analysts estimated 35 cents, on average. 

“It’s just a continuation of that same mentality of focusing on controlling costs that’s allowing us to drive bottom-line results,” Chief Financial Officer Josh Kobza said in an interview.

The shares fell 1.4 percent to $44.17 at 9:46 a.m. in New York. The stock had advanced 20 percent this year through Wednesday.

Industry Downturn

Analysts such as Stifel Financial Corp.’s Paul Westra have raised concerns that the restaurant sector is hitting a downturn, a harbinger for a broader economic slump in the U.S. next year. Burger King’s results were particularly weak in the U.S. and Canada, where sales fell 0.8 percent, missing analysts’ prediction of a 1.1 percent gain.

McDonald’s Corp. saw same-store sales gain 1.8 percent in the U.S. in the most recent quarter, compared with 5.4 percent in the prior period.

The emergence of McDonald’s from a prolonged sales slump in recent months, thanks in large part to last year’s introduction of all-day breakfast, has increased pressure on Restaurant Brands to keep Burger King’s prices low. Wendy’s Co. also has had success offering meal deals to value-conscious customers.

Yet Restaurant Brands gave an indication that it isn’t fretting over the industry’s rough patch. The company said in a separate statement that it has approved $300 million in share repurchases over the next five years.

“We try not to get too caught up in the macro headwinds,” Restaurant Brands Chief Executive Officer Daniel Schwartz said in an interview. “We feel confident we have the right strategy in place.”