Burger King net tops Street, shares fall on capex

LOS ANGELES (Reuters) - Burger King Holdings Inc (BKC.N) posted a better-than-expected quarterly profit on Friday, helped by longer store hours, sales of breakfast items, and a popular promotional tie-in with summer blockbuster "Spider-Man 3."

But the company's shares fell more than 4 percent on investor concerns that a planned increase in capital spending this year would limit its ability to buy back stock.

The world's No. 2 hamburger chain behind McDonald's Corp (MCD.N) said fourth-quarter net income was $36 million, or 26 cents per share, compared with a loss of $10 million, or 8 cents per share, a year ago.

Excluding costs related to a lease termination, earnings were 29 cents a share. On that basis, analysts expected 27 cents a share, according to Reuters Estimates.

Miami-based Burger King said revenue rose 11 percent to $590 million, in line with analysts' average estimate.

Same-store sales, a key industry measure that tracks sales at restaurants open at least 12 months, rose 4.4 percent worldwide and 4.8 percent in the United States and Canada.

J.P. Morgan analyst John Ivankoe said in a note to clients that the company's U.S. same-store sales and restaurant margins had exceeded his expectations. Restaurant margins measure the profitability of individual outlets, and have been under pressure at many chains due to rising commodity costs and minimum wage increases.

This year, Burger King said it would increase capital spending to between $120 million and $150 million. That will include an additional $20 million to $30 million of costs for restaurant remodels and another $20 million to $30 million for new company-owned restaurants and investments.

"There is some consternation on the capital spending outlook for next year. That was a little more aggressive than people were expecting," said Jon Fisher, a portfolio manager with Fifth Third Asset Management in Minneapolis. "The reinvestment in the business seems to be a bigger priority than share repurchase."

In a statement, Burger King CFO Ben Wells said the stepped-up investment in its restaurants "is expected to provide significant returns, increasing profitability and enhancing shareholder value."

The company also said its board of directors approved a $100 million share buyback program.

QUIRKY

In recent years, Burger King has revitalized sales at its more than 11,000 restaurants with quirky advertising campaigns and the addition of more higher-priced products such as the Enormous Omelet Sandwich, the Angus Steak Burger, and most recently, the Western Whopper.

The company recently introduced a lower-priced "Value Menu" that has helped it compete with McDonald's Dollar Menu and Wendy's International Inc's (WEN.N) Super Value Menu.

The company also introduced a breakfast version of that menu in February, seeking to challenge McDonald's dominance in the early morning hours. During the quarter, Burger King said it also expanded restaurant hours at many of its U.S. restaurants.

On a conference call with analysts, Burger King Chief Executive John Chidsey said sales during breakfast and late-night hours grew at a faster pace than overall sales.

In addition, he said marketing alliances with "Spider-Man 3," SpongeBob Squarepants and NASCAR helped drive customer traffic to its highest level in 10 years.

The company opened 154 restaurants during the quarter, below its original target of 200 due to permit issues in Germany and the Middle East. It also closed 30 struggling restaurants in the United Kingdom.

For fiscal 2008, Burger King forecast same-store sales growth of 2 percent to 3 percent and said it expects to open 300 restaurants, mostly outside the United States.

Earnings before interest, taxes, depreciation and amortization (EBITDA) are expected to rise between 10 percent and 12 percent.

The company also said it continued to pay down debt as part of its efforts to spruce up its balance sheet.

Burger King shares were down $1.03, or 4.1 percent, at $23.89 in midday trading on the New York Stock Exchange.

(See here -- Reuters' retail and consumer blog)

(Additional reporting by Aarthi Sivaraman in New York)