Burger King Holdings Inc., the world’s No. 2 hamburger restaurant chain, posted a better-then-expected rise of nearly 41 percent in quarterly profit Tuesday as a new, lower-priced menu and an Xbox 360 video game promotion spurred sales in the United States.
The company’s shares rose 3.5 percent.
Net income for the second quarter ended Dec. 31 increased to $38 million, or 28 cents per share, from $27 million, or 24 cents per share, a year earlier.
Wall Street analysts on average had been expecting the newly public company to earn 26 cents per share, according to Reuters Estimates.
Quarterly revenue rose 9 percent to $559 million, driven by new restaurant openings and higher sales at restaurants open at least a year, or same-store sales.
Same-store sales, a closely watched metric of retail and restaurant health, rose 3.7 percent worldwide and 4.4 percent in the United States.
J.P. Morgan analyst John Ivankoe said that while sales exceeded his expectations, Burger King earnings also benefited from a lower tax rate and a drop in food and paper costs.
Chief Executive John Chidsey said the lower-priced “Value Menu” and the promotion with Microsoft Corp.’s Xbox 360 video game console helped drive sales and customer traffic. He said more than 3.2 million Burger King-branded Xbox 360 games were sold at $3.99 each.
Burger King introduced the value menu last year to help it compete against bigger rival McDonald’s Corp.’s Dollar Menu and Wendy’s International Inc.’s Super Value Menu.
Burger King, which went public in May, in the past three years has revitalized sales because of a quirky advertising campaign and new products like the BK Stacker burger and the Value Menu. The company is also working to boost financial performance by paying down debt.
Restaurant margins rose 0.7 percentage point in the quarter, Burger King said, due to lower food costs and higher revenue at company-owned restaurants.
The company, which is aggressively expanding internationally, said it expected net openings to accelerate and closures to diminish during the second half of its fiscal year.
Burger King shares were up 73 cents at $21.48 in morning New York Stock Exchange trade.
The stock trades at about 18 times the analysts’ average 2008 earnings estimate, compared with a multiple of about 15 for McDonald’s shares.
In a research note, Ivankoe said Burger King deserved a higher multiple than many of its fast-food rivals.
“We believe this is warranted,” he said, “given a higher near-term earnings growth rate based on improving fundamentals, a lower tax rate over time, and interest expense leverage.”
Burger King also set a quarterly dividend of 6.25 cents per share, payable March 15 to shareholders of record Feb. 15.
The company said it was on target to meet its financial goals of increasing full-year revenue by 6 percent to 7 percent and adjusted earnings by more than 20 percent.