Restaurant Brands International Earnings Preview: International Expansion Remains Priority

April 24th, 2015 by Trefis Team
BKW: Burger King Worldwide logo
BKW
Burger King Worldwide

Restaurant Brands International Inc (TSX/NYSE:QSR), the parent company of the Canadian multinational fast-casual restaurant chain Tim Hortons and the American burger giant, Burger King (NYSE:BKW), is slated to release its first quarter earnings report for the fiscal 2015 on April 27. [1] This will be the first ever quarterly report with the two brands reporting financial earnings for the entire three months period together. Last year, Burger King and Tim Hortons entered into an agreement under which the two recognized companies joined hands to create the World’s third largest quick service restaurant company. [2] 3G capital, the majority stake holder of Burger King, continues to own majority shares (51%) of the new company.

In the fourth quarter of the fiscal 2014, 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. [3]

Stock of the new company has traded within the range $38 and $44 since January 2015, and is currently trading at $41. We are currently in the process of incorporating Tim Hortons operations and revamping the structure for the company.

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See full analysis for Burger King

Tim Hortons To Provide Strength In Breakfast Battle

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. Tim Hortons reported a 3.1% increase in the comparable store sales in the fiscal year 2014, with a net restaurant growth of 186 stores. On the other hand, Tim Horton’s system-wide sales grew 6.6% in constant currency. However, Restaurant Brands International started accounting for Tim Horton’s contribution from December 12, 2014. Nonetheless, tremendous improvement in the top-line performance of the fast-food brand indicates the growth potential in the coming years.

Quick service restaurants are facing a stiff competition in the breakfast category, with coffee being the major driver. Tim Horton’s versatile food offerings for the breakfast segment might help Burger King compete against the likes of McDonald’s (NYSE:MCD), Dunkin’ Brands (NASDAQ: DNKN), and Starbucks (NASDAQ: SBUX). Tim Hortons has quite a significant brand appeal in the U.S. and Canada, and Burger King’s merger with Tim Hortons might further improve the customer base. According to the company’s data, Tim Hortons has 80% market share in the coffee industry in Canada, serving around 2 billion cups of coffee annually. Tim Hortons might not provide additional boost to the revenue growth for the entire company, but might also help them in penetrating the Canadian market.

Burger King was lagging in the coffee sector in its competition for breakfast market share. However, with the addition of Tim Hortons, the company might be able to attract the early morning coffee lovers. Apart from coffee, Tim Horton’s innovative food offerings might provide additional boost to the net revenue growth.

Focus On International Expansion

Burger King added 412 net new restaurants in the fourth quarter, taking the total Burger King store count to 14, 372. In 2014, the company opened 705 net new restaurants, making it the highest growth period for the company. Burger King opened 352 net new restaurants in Europe, Middle East and Africa (EMEA), 148 net new stores in Latin America, and 235 net new stores in Asian markets. With Burger King stores spread across 100 countries, the brand is trying to target high growth markets, such as India,  South Africa, and France. Burger King announced that it will open 350-400 restaurants throughout that burger loving country.

On the other hand, Restaurant Brands International aims at expanding and building Tim Hortons strength outside its home market. Tim Hortons has more than 3,700 stores in Canada but only close to 900 in the U.S. 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 also plans to accelerate its expansion into new high growth markets.

The company expects 2015 to be a successful year in terms of net restaurant growth and revenue growth, with new menu innovations and other additional features.

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Notes:
  1. Restaurant Brands International, Investors information, Webcast [↩]
  2. World’s third largest quick service restaurant company launched with two iconic and independent brands [↩]
  3. Restaurant Brands International earnings conference call [↩]