Hottest Earnings Growth

Sudden spikes in profits, as represented by the hottest earnings growth group, frequently occur when non-recurring items are included in year-end accounting reconciliations, and such is the case for Burger King. Earnings jumped $121 million, or more than 448%, in 2007, in part because the company did not have to lay out $73 million in one-time fees as it had the year before. Burger King has also been enjoying lower sales, general and administrative (SGA) expenses, while comparable-store sales have been strong.

Burger King’s fiscal year runs through the end of June, thus 2008 figures had not been released at press time. It is a safe bet the company won’t post another triple-digit earnings increase, but the gain should be solid just the same. Through the nine months ended March 31, BK’s income was running 24.1 percent ahead of the previous year, driven by strong system-wide comparable sales (which have persisted for 17 consecutive quarters) and continued growth in the number of restaurants in operation. Though it is a publicly-held company, BK is controlled by private equity funds, including TPG Capital (formerly known as Texas Pacific Group), Goldman Sachs Funds and Bain Capital Partners.

1-800-Flowers, another retailer whose fiscal year ends around July 1, increased its earnings by implementing strong cost controls. In addition, there were not the expenses associated with relocating corporate headquarters as there were in 2006. Brookstone, the gadget retailer controlled by a consortium of private equity groups, boosted its profits in part by shedding its Gardeners Eden operations and reaping some tax benefits along the way.

RadioShack’s earnings improvement came as a result of the restructuring it undertook in 2006. This included closing or relocating hundreds of stores, consolidating distribution centers, updating inventory and implementing a program to reduce overhead expenses. The effort had a double-barreled effect on 2007 earnings by depressing income in 2006 and increasing profitability last year to triple what it had been the prior year.