Restaurant Brands (QSR) Benefits from Comps & Unit Growth

Restaurant Brands International Inc. QSR is gaining from robust comparable sales, unit growth, solid performance of Tim Hortons and focus on its loyalty program. Its Burger King plans to invest $400 million over two years. The company also shared the details of its “Reclaim the Flame” plan. However, high costs continue to hurt the company. Let’s delve deeper.

Growth Drivers

Solid comparable sales performance is aiding the company. During the second quarter of 2022, comps in Tim Hortons (Canada) and Burger King (international business) reflected growth of 12.2% and 10%, respectively, on a year-over-year basis. The upside was primarily driven by solid promotions for its core platform and a rise in delivery and digital sales.

Restaurant Brands is focusing on expanding its presence in existing markets as well as entering new markets. Currently, it has more than 29,000 restaurants worldwide. During second-quarter 2021, the company opened its 400th Burger King store in France in association with its master franchisee, Groupe Bertrand.

Restaurant Brands also continues to evaluate opportunities to speed up the international development of all three brands by establishing master franchisees with exclusive development rights and joint ventures with new and existing franchisees. The company is very optimistic about growth opportunities in 2022 and remains on track to grow its restaurant base toward its long-term goal of 40,000 locations.

Moreover, the company is optimistic about the major expansion opportunity that lies ahead for the brand in the United States. It continues to focus on Popeyes’ development pipeline to drive growth. The company stated that it anticipates openings in India, the United Kingdom, Saudi Arabia, Romania and France, coupled with further expansion in Mexico, the United States and Canada.

Restaurant Brands, which shares the space with Cracker Barrel Old Country Store, Inc. CBRL, Darden Restaurants, Inc. DRI and Dave & Buster's Entertainment, Inc. PLAY, continues to focus on Tim Hortons’ positioning in Canada through the enhancement of core platforms, product innovation and by leveraging technology. The company has rolled out its new fresh brewers across 90% of its locations in Canada.

During second-quarter 2022, revenues in Tim Hortons totaled $968 million, up 16.5% from the prior-year quarter. Going forward, the company intends to focus on improving the quality of its offerings and expand into high-growth food and beverage categories (with reduced penetrated day parts) to drive growth.

Restaurant Brands’ loyalty program, Tim's Rewards, has been gaining popularity. The company announced that following a rapid ramp-up phase, nearly half of the customers pay through Tim's Rewards. It is presently testing a loyalty program in Canada across different markets as high loyalty card adoption rates have been witnessed in these test markets. During the second quarter of 2022, the company’s in-store loyalty sales increased double digits year over year.

Concerns

The rise in labor and commodity costs continues to hurt the company. The industry players expect to witness higher costs due to labor and supply chain shortages for quite some time. The company has been witnessing labor challenges in a handful of markets. At the end of second-quarter 2022, total costs of sales came in at $584 million, up from $467 million reported in the prior-year quarter.

A Brief Review of the Other Stocks

Cracker Barrel: The company has been benefiting from menu innovation, marketing strategies, seasonal promotions and cost-cutting efforts. Increased focus on the off-premise business model also bodes well. For fiscal 2022, the company plans to drive off-premise sales through awareness building, advertising and partnerships with third-party delivery companies. Further, it expects to attract new customers and drive sustained growth in its off-premise business through its virtual brand, Chicken and Biscuits.

Darden: The company is gaining from business model enhancements and menu simplifications. This and a focus on technological enhancements in online ordering, the introduction of To Go capacity management, and the Curbside I'm Here notification bode well. Even though capacity restrictions continue to ease, off-premise sales remained strong during first-quarter fiscal 2023. In first-quarter fiscal 2023, off-premise sales contributed more than 24% to total sales at Olive Garden, 14% at LongHorn and 13% at Cheddar's Scratch Kitchen.

Dave & Buster's: The company is benefiting from a higher mix of amusements and a leaner operating model. It expects the momentum to continue on the back of its strategic initiatives, including a new menu, optimized marketing and technology investments.

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