UPDATE 5-Burger King profit misses Street view, sales weak

* Q1 EPS 34 cents vs. Street view of 37 cents

* Worldwide same-store sales fall 2.9 pct

* CEO encouraged by early data from $1 double cheeseburger

* BK shares close up 1 cent amid broad gains for stocks (Adds analyst and CEO comments, updates stock action)

By Lisa Baertlein and Ben Klayman

LOS ANGELES/CHICAGO, Oct 29 (Reuters) - Burger King Holdings Inc (BKC.N) posted weaker-than-expected quarterly results on Thursday as it loses ground to larger rival McDonald's Corp (MCD.N).

Burger King said its results were hurt by the weak economy, the strong dollar, high unemployment and significant discounting as restaurants battle for consumers who are eating out less.

Worldwide same-store sales fell 2.9 percent, a slightly steeper decline than analysts' expectation of a 2.5 percent drop, Bernstein Research analyst Sara Senatore wrote in a client note.

Earlier this month, McDonald's said third-quarter global sales at established restaurants rose 3.8 percent and said it had been grabbing market share from competitors.

U.S. same-restaurant sales were up 2.5 percent during the third quarter, but McDonald's cautioned that U.S. same-restaurant sales for October could be "flat to slightly negative."

Fast-food chains generally have outperformed rivals during the current economic downturn, but their results are getting weaker as U.S. unemployment flirts with 10 percent -- the highest level in nearly three decades.

Burger King Chief Executive John Chidsey told Reuters that the fast-food restaurant industry is grappling with the toughest market in 28 years.

He added that it is difficult to take an accurate measure of market share changes and said that McDonald's same-restaurant sales would be flat to negative if price increases were stripped out.

"All of us are traffic challenged," he said.

THE $1 WAR

Discounting is also rampant in the quick-service sector, spurred on by falling prices for food like cheese and meat.

Burger King, which has lagged on that front, this month announced the nationwide debut of its $1 double cheeseburger.

Analysts were hoping that the company would forecast better traffic trends because of the new $1 burger, but executives said they did not yet have enough data to predict an impact.

"The early indications are certainly encouraging," Chidsey said.

Carrols Restaurant Group (TAST.O), Burger King's largest franchisee, recently told investors that the new $1 double cheese burger boosted traffic at its units, Wells Fargo analyst Jeff Omohundro said.

Based on comments from both companies, Omohundro said the nationwide launch could benefit traffic in the fiscal second and third quarters.

Burger King's net income was $46.6 million, or 34 cents a share, for the fiscal first quarter ended Sept. 30 and included a 2-cent hit from currency translation. A year ago, the chain reported net profit of $49.8 million, or 36 cents a share.

Analysts, on average, had forecast earnings of 37 cents a share, according to Thomson Reuters I/B/E/S.

Total revenue fell 5 percent to $636.9 million, below the $652.8 million analysts had expected.

The company also has been introducing premium sandwiches and a new fast broiler cooker allowing it to expand its menu with dishes like ribs and thick burgers.

Shares of Burger King closed up 1 cent to $17.30 on Thursday, a day of broad gains for stocks buoyed by data showing stronger-than-expected economic growth. McDonald's added 50 cents, or 0.9 percent, to finish at $59.14. (Editing by Gerald E. McCormick, Dave Zimmerman, Tim Dobbyn)