Burger King’s Profitable Franchise Model

Burger King reported another strong quarter with double digit growth in EBITDA and net income, which grew 12.1% and 19.4% respectively in Q2-14 on a year-over-year basis. Reducing its base of company-owned stores to 52 units, from 1,295 in 2011, the company’s 100% franchise model has proven successful and maximized shareholder value. Refranchising benefited the company’s profitability as it expanded its profit margins as well as increasing its cash flow.

Burger King’s EBITDA Margins

Burger King's EBITDA Margins

Source: Technomic’s Financial Dashboard

 

Growing Profitability

While revenues were cut by more than 50% in the past two years due to refranchising, the company’s earnings more than doubled as costs were substantially reduced. Net earnings increased to $233.7 million in 2013 from $88.1 million in 2011. With significantly less stores to manage, the company was able to cut its G&A expenses by 40% in the last two years. As a result, EBITDA margin has substantially increased to 51.3% in 2013 from 21.3% in 2011, and increased to 64.1% in Q2-14 from 53.6% in Q2-13.

Burger King’s Quarterly Dividends

Burger King's Quarterly Dividends

Source: Technomic’s Financial Dashboard

 

Maximizing Shareholder’s Return

The company’s strategy to grow through refranchising has substantially lowered its capital expenditure requirements, allowing it to have more cash to return to shareholders. The company raised its quarterly dividend by 100% in the last two years from $0.04 in Q4-12 to $0.08 in Q3-14.

Burger King continues to implement cost-saving strategies to reduce its G&A expenses and further enhance its profit margins. It also continues to focus on expanding its global store base through refranchising to grow franchise revenues and profits.

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Peter Abouelkhir

Peter Abouelkhir is a financial analyst at Technomic Inc. He manages the company’s proprietary financial database, the Financial Dashboard, which houses financial data for U.S. public restaurant companies. He performs financial analysis on public restaurant companies and prepares quarterly industry reports.

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