Why Burger King’s operating expenses are declining

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Operating expense components

Burger King’s (BKW) improvement in operating margins was aided by a reduction in operating expenses as a percentage of sales. Operating expenses include company operating expenses, other operating expenses, selling, general, and administrative (SG&A) expenses, and franchise and property expenses.

Quarterly Operating Expense 2014-09-01

Operating expenses

Burger King reported operating expenses of $110 million, down 24% from the $145 million from a year ago.

In the chart above, you can see that the company’s restaurant expenses were $16 million, down 66% compared to $108 million last year. SG&A also declined 24% from $61.5 million to $47 million over the same period.

Franchise property expenses declined 3%, from $36.7 million to $35.7 million.

Other operating expenses increased to $11.3 million from $0.3 million. These expenses were affected by a loss in the disposal of assets, restaurant closures, and refranchising. This was somewhat mitigated by gains in foreign exchange.

Investing in ETFs can help you minimize risk from a downside in a single stock. The Consumer Discretionary Select Sector SPDR Fund (XLY) includes restaurant chains like McDonald’s (MCD), Chipotle Mexican Grill (CMG), and Yum! Brands (YUM).

Huge impact

The reduction in company-operated restaurants significantly improved operating margins due to the reduction in company restaurant expenses, which included food and paper costs, payroll and employee benefits, and occupancy and other costs.

Let’s now see how net margins performed over this period.

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