Corrected: Burger King sees weak demand, unemployment weighs

By Lisa Baertlein and Martinne Geller

LOS ANGELES/NEW YORK (Reuters) - Burger King Holdings Inc , the No. 2 U.S. hamburger chain, forecast weak demand for its new fiscal year amid a struggling economy and said it was unsure how costs for key ingredients like beef would impact the company.

Burger King did not issue an earnings forecast for fiscal 2011 but said on Tuesday that high U.S. unemployment and government austerity programs in several European countries would weigh on same-restaurant sales.

The company, which competes with McDonald's Corp , said it expected commodity costs in the United States to be flat in fiscal 2011, although prices of wheat and beef were uncertain.

"What they did tell us is that demand isn't great and what they know about costs so far is that some of the line items are going up," Bernstein Research analyst Sara Senatore told Reuters.

Senatore said those two factors together point more to "flattish" year-over-year earnings versus analysts' current call for growth.

Burger King is more vulnerable to a weak job market than market leader McDonald's and No. 3 hamburger chain Wendy's because young males account for a larger share of its customers. That group has suffered massive job losses in industries like construction and manufacturing.

All-important sales at established restaurants will be under pressure in coming months as Burger King will not have the sales-boosting $1 double cheeseburger offering, which went national in October 2009, but was ended in Spring 2010.

Executives said they hoped to get boosts from the autumn launch of an expanded breakfast menu and advertising around its Buck Double, XT and Whopper hamburgers.

The Buck Double is a hamburger with two patties and one slice of cheese and the XT refers to its bigger, higher-priced Steakhouse XT burger lines.

Telsey Advisory Group analyst Peter Saleh said same-store sales and commodity cost comparisons should get easier in the second half of fiscal 2011 because the Burger King $1 double cheeseburger promotion is no longer a factor and as the price for beef declines from a year ago.

Beef prices started coming down about a month ago and "if we see beef continue to trend down, it's going to be a positive for them," said Saleh, who added that wheat prices -- which have soared this summer on concerns over a drought in Russia -- is not a significant commodity for Burger King.

Nevertheless, Saleh said, "the more uncertain portion is the sales portion."

Shares in Burger King were up 1.56 percent at $16.88 amid broader market losses due to weak housing data. Some analysts linked the rise to short covering.

As of Monday's close, Burger King's shares were down almost 12 percent year-to-date, while shares in McDonald's were up almost 17 percent during the same period.

PROFIT DOWN, REVENUE SLIPS

Burger King, known as the "home of the Whopper", said net income fell to $49 million, or 36 cents a share, in the fourth quarter ended June 30 from $58.9 million, or 44 cents a share, a year earlier.

Analysts on average were expecting earnings of 34 cents per share, according to Thomson Reuters I/B/E/S.

Burger King said foreign currency exchange rates reduced fourth-quarter earnings by 1 cent per share.

Revenue slipped 1 percent to $623 million, missing analysts' expectations of $635 million.

Worldwide sales at restaurants open at least 13 months were down 0.7 percent, versus the 0.8 percent fall analysts expected. That included a 1.5 percent drop in the United States and Canada, which also was slightly better than the 1.7 percent drop targeted by Wall Street.

McDonald's global same-restaurant sales were up 4.8 percent for the June quarter, while Wendy's reported a 1.7 percent fall in systemwide sales at established North America restaurants.

McDonald's has been outpacing rivals with help from a more diverse menu, greater dependence on high-margin breakfast sales and a broader customer mix that includes women, children and senior citizens.

Burger King expects to add between 225 and 275 new stores in fiscal 2011, with more than 90 percent of the net restaurant growth to take place outside of the United States and Canada.

Burger King said that within the next three to five years, it expects to sell up to half its company-owned restaurants to franchisees, a move that Baird analyst David Tarantino said should reduce volatility in its operating results.

Until it refinances its debt, Burger King must make quarterly payments of $21.9 million. In light of the maturity schedule, the company is evaluating refinancing options.

(Additional reporting by Phil Wahba and Lisa Baertlein; editing by John Wallace, Dave Zimmerman, Lisa Von Ahn and Bernard Orr)