Burger King Holdings, Inc. today reported 2011 first quarter Adjusted EBITDA of $121.1 million compared to $106.2 million in the same quarter of 2010, a 14% improvement driven by reductions in general and administrative expenses following a global restructuring and the implementation of a zero-based budgeting program. The company increased global restaurant count by 50 net new restaurants in the first quarter. As previously disclosed, system-wide comparable sales growth was negative 2.8%, with the U.S. and Canada down 6.0%, EMEA/APAC up 1.7% and Latin America up 4.0%.
The company had a net loss of $6.8 million for the quarter compared to net income of $41.0 million for the same period in the prior year, primarily due to a significant increase in interest expense as a result of debt incurred in connection with the sale of the company to an affiliate of 3G Capital in October 2010; $13.0 million of costs from the sale of the company and global restructuring; a $19.6 million loss on early extinguishment of debt associated with the refinancing of its senior secured debt and negative comparable sales growth. Earlier in the quarter, the company successfully refinanced its senior secured debt to reduce annual cash interest payments by approximately $32 million. Adjusted net income was $19.9 million for the quarter compared to $38.1 million in the same period last year.
The company reported revenues of $552.0 million for the first quarter of 2011, down 8% from the same quarter last year, due to refranchising activity over the past 12 months and negative comparable sales growth. Company restaurant margins declined by 240 bps, as the benefits from a shift in product mix away from lower-margin value menu items, selective price increases and improved labor margins were more than offset by increased commodity costs, increased depreciation and amortization resulting from acquisition accounting and the deleveraging effect of negative comparable sales growth on our fixed costs.
“Continued disciplined expense management allowed us to improve our Adjusted EBITDA and Adjusted EBITDA margin at the fastest pace in 10 quarters, despite negative comparable sales growth in North America and commodity price pressures,” said Daniel Schwartz, chief financial officer. “Our comparable sales growth performance and improvements to our company restaurant margins remain our top priority, particularly in North America, where we are focused on executing on the four priorities of our plan, which include operations, marketing, menu and image.”
As part of its strategy to improve restaurant margins and menu options, the company added new value to its menu with the $1, $2, $3 BK Stacker line and continued its menu innovation with the popular Jalapeño & Cheddar BK Stuffed Steakhouse burger during the first quarter. Additionally, the company launched all new Chicken Tenders at the end of March, supported by a marketing message targeting a broader audience, and also plans to launch a soft serve ice cream offering throughout the Burger King system in the U.S. by this summer, further enhancing menu options.
Shortly after the end of the first quarter, the company announced two significant initiatives: a new reduced cost 20/20 image restaurant remodel program offering financial incentives to franchisees and a third party financing facility available to U.S. franchisees participating in the remodel program to be arranged by Rabobank.
Internationally, the company’s growth strategy remains centered on continuing to grow same store sales and net restaurants. During the first quarter, 52 net new Burger King restaurants were opened in international markets. Comparable sales growth also improved in EMEA/APAC and in Latin America in the first quarter compared to the same quarter last year.
Looking ahead, the company believes its improved operating cost structure and delivering on its four priorities for North America: operations, marketing, menu and image, will position it to improve the financial performance of the company and its franchisees.
Founded in 1954, Burger King is the second largest fast food hamburger chain in the world. The original Home of the Whopper, the Burger King system operates more than 12,300 locations serving over 11 million guests daily in 76 countries and territories worldwide. Approximately 90 percent of Burger King restaurants are owned and operated by independent franchisees, many of them family-owned operations that have been in business for decades. In October 2010, Burger King Corp. was purchased by 3G Capital, a multi-billion dollar, global investment firm focused on long-term value creation, with a particular emphasis on maximizing the potential of brands and businesses.