Restaurant Brands International FY 2014 Earnings: Improved Sales In The U.S. Drive Top-line Growth

Restaurant Brands International Inc (TSX/NYSE:QSR), the parent company of the two iconic brands: Tim Hortons (THI) and Burger King (NYSE:BKW), released its full year and fourth quarter 2014 fiscal results. Restaurant Brands International is the world’s third largest quick service restaurant company, with combined system-wide sales of around $23 billion and more than 19,000 restaurants in around 100 countries. In the fourth quarter, Tim Hortons and Burger King managed to report strong comparable store sales growth of 4.1% and 3% respectively. Both the brands had a successful quarter in terms of system-wide sales as well, with 7.4% year-over-year (y-o-y), growth for Tim Hortons and 7.7% y-o-y growth for Burger King. The company’s net revenues for the quarter rose 56% y-o-y to $416 million, including the Tim Hortons’ contribution to the revenue stream from the transaction date of December 12, 2014. However, Burger King’s revenues for the quarter alone were $274 million, up merely 3.3% y-o-y. ^[1]

For the fiscal year 2014, both the brands reported positive comparable store sales growth, as Tim Hortons comparable store sales grew 3.1% y-o-y, whereas Burger King comparable store sales grew 2.1% y-o-y. In the fiscal 2014, Tim Hortons’ system-wide sales grew 6.6% y-o-y and Burger King’s system-wide sales grew 6.8% y-o-y. The company’s net revenues for the whole fiscal year 2014 grew 4.4% y-o-y to approximately $1.19 billion, out of which Burger King accounted for $1.05 billion. Tim Hortons’ revenues for the last 3 weeks of December helped the company to outperform last year’s revenue figure. However, the company reported a net loss of $402 million, leading to diluted EPS of -$2.52 for the fiscal 2014.

We are currently in the process of incorporating Tim Hortons operations and revamping the structure for the company. After the release of the report, QSR stock jumped more than 10% from $39 to $43.

See full analysis for Burger King

Strengthening Tim Hortons’ Operations Outside Canada

Known for its coffee and doughnuts, Tim Hortons is a well-known fast food service in Canada with 4,546 system-wide restaurants spread mainly across Canada and the U.S. ^[2] Also, the company has over 70% share of the baked goods market in Canada and more than 75% of the Canadian coffee market, far ahead of Starbucks and McDonald’s. ^[3] The company reported a 7.4% growth in their same store sales in the fourth quarter, with 4.1% growth in Canada and 5.1% growth in the U.S.  However, the fourth quarter was dull in terms of top-line performance by the brand, as it reported a 3% y-o-y decline in the net revenues for the quarter, leading to a flat net revenue growth for the whole fiscal year. Tim Hortons added 186 net new stores in 2014, with a growth rate of 4%. Although Tim Hortons has a strong brand appeal and unmatchable foothold in Canada, it struggled to have a major impact in the U.S. Tim Hortons reported more than $3 billion in net revenues in 2014 at a steady growth rate and is consistent in its margins. However, it has struggled in the U.S., where food giants such as McDonald’s, Yum Brands, Dunkin’ Donuts, and Starbucks have unmatchable dominance.

In Canada, the brands’ main motive is to maintain its dominance and grow further through innovation in menu, marketing, and operations. Tim Hortons Canada plans to focus more on dinner and lunch day parts while keeping the breakfast market share intact on one hand, and to include combo items in the menu to increase the average check. Last year, the brand introduced two new items, Crispy Chicken Sandwich and Dark Roast Coffee, which went down well with the domestic customers, and helped to improve the comparable store sales. During the fourth quarter, Tim Hortons added 64 stores in Canada taking the total Canada net new openings in 2014 to 141.

Tim Hortons has more than 3,700 stores in Canada but only close to 900 in the U.S.  Restaurant Brands International aims at expanding and building Tim Hortons strength outside its home market. As a result, the brand is planning to expand its base in the core and priority markets of the U.S. and to improve the profitability by focusing on growing unit economics.  In the fourth quarter, 15 new Tim Hortons stores were added in the U.S.  Furthermore, the brand has 58 units in the Middle-Eastern countries, too. The brand is missing out on several major markets around the globe and hence, Tim Hortons plans to accelerate its expansion into new high growth markets.

Strong Growth For Burger King

In the fourth quarter, Burger King’s comparable store sales grew 3%, driven by strong growth in all its geographical segments. In Q4, Burger King reported net revenues of $274 million, primarily due to its menu innovation, as well its strategy to introduce fewer, more impactful, menu items.  New items, such as A1 Ultimate Bacon Cheeseburger, the re-launch of Chicken fries, and an extra long BBQ Cheeseburger helped the brand to drive customer traffic and profitability. In the fiscal 2014, Burger King reported 2.1% growth in the comparable store sales, with a system-wide sales growth of nearly 6.8%. With positive comparable store sales in all four quarters of 2014, Burger King has been maintaining its market share in the U.S. restaurant industry. The key factor remained the company’s improved comparable store sales in the domestic market (2.1% in 2014 compared to negative 0.9% in 2013), driven by strong promotional strategies and new menu items both in food and beverages.

In 2014, Burger King opened 705 net new restaurants, taking the total count to 14,372 spread across 100 countries. Moreover, its new developments outside the U.S. crossed 50% last year in December, indicating the success of the brand’s strategy of accelerating expansion world-wide. In 2014, the key highlights were the company’s successful launching of joint ventures in Europe and its entry into India. Burger King’s joint ventures in South Africa and France are off to a good start too, as the customers liked the new menu offerings and popular burger items.

The company expects 2015 to be an even better year in terms of net restaurant growth and revenue growth, as this year, Tim Hortons will contribute to the revenue growth as well.

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1. Restaurant Brands International earnings conference call [↩]
2. Tim Hortons Q3 2014, 10-Q SEC filing [↩]
3. Can Tim Hortons fight off McDonald’s attack? [↩]