Restaurant Brands International Q1 2015 Earnings: Focus On International Expansion Of Both Brands

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 first quarter earnings report for the fiscal 2015 on April 27. In the first quarter, Tim Hortons and Burger King managed to report positive global comparable store sales growth of 5.3% and 4.6% respectively. Moreover, system-wide sales grew 8.1% year-over-year (y-o-y) for Tim Hortons and 9.6% y-o-y for Burger King, in constant currency. The company’s net revenues for the quarter reached $932 million, compared to $240.9 million in the same period last year, primarily due to additional revenues from Tim Hortons brand. ^[1] The adjusted effective tax rate for the company was just below 23%, which was lower than the previous year.

The strong financial performance by both the brands in their respective major markets led to an 18% y-o-y increase in the company’s adjusted EBITDA to $355 million, compared to previous year’s pro-forma figures. The company has provided preliminary pro-forma figures, which reflects the financial performance of the company in comparison to prior year’s figures, as if the merger between Tim Hortons and Burger King happened at the start of 2014. ^[2]

We are currently in the process of incorporating Tim Hortons operations and revamping the structure for the company. Restaurant Brands International’s stock (QSR) is currently trading at $41.

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Menu Innovation & New Restaurant Development Drives Tim Hortons’ Revenue Growth

Tim Hortons’ comparable store sales grew 4.9% in Canada and 8.9% in the U.S. Tim Hortons’ global comparable sales growth of 5.3% was primarily driven by strong coffee sales and new innovative menu items, such as Dark Roast coffee and the Crispy Chicken Sandwich, in both the U.S. and Canadian markets. Moreover, the cold beverages and breakfast menu in the U.S. provided additional boost to the revenues.

The company opened net 68 stores, out of which there were 53 Tim Hortons stores and 15 Burger King restaurants. This represents 5% net restaurant growth on a trailing twelve month basis. Out of the 53 Tim Hortons restaurants, 44 were opened in Canada, whereas 23 Burger King restaurants were opened in the Asian region. Tim Hortons now has 3,773 restaurants in Canada, where the company plans to introduce new premium products and strengthen its lunch daypart. Moreover, Tim Hortons is trying to attract more customers by increasing the combo penetration in its domestic market. Apart from menu innovations and new product offerings, the Canadian brand plans to expand further into core urban areas.

In the U.S., Tim Hortons owns 892 restaurants in nearly 18 states, and plans to expand further into core and profitable markets, and thereby improving the top-line growth in the segment. There are 59 Tim Hortons store locations in the Middle East and the company is missing out on several major markets around the globe, and hence, the company plans to accelerate the expansion in high growth markets in the coming years.

Burger King To Focus On International Expansion

Burger King reported global comparable store sales of 4.6%, primarily driven by strong revenue growth in the U.S. and Canada. This led to a system-wide sales growth of 9.6% y-o-y to $4 billion in the first quarter. Innovative menu additions and other value meal offerings helped the company in driving sales through all dayparts. Spicy BLT Whopper, Bacon Cheddar Tendercrisp, and Croissan’wich Sandwich are some of the most profitable menu items that are well received by the customers in the U.S. and Canada. At the end of March, Burger King brought back the customer favorite, the Chicken Fries, and expects this move to drive the customer count, especially in the breakfast daypart. Burger King’s comparable store sales grew 6.9% in the U.S. and Canada region, whereas it grew 1.7% in Asian markets. However, comparable sales grew just 0.7% in Europe, Middle East and Africa (EMEA) region, where the strong performance in Russia, the U.K., and Spain was offset by sluggish growth in Germany.

Apart from new restaurant openings, Burger King managed to remodel 40% of its stores, and expects the re-imaged stores to provide a sales boost of 10-14%.  With Burger King stores spread across 100 countries, the brand is trying to target high growth markets, such as India, South Africa, Russia, and France. Burger King announced that it will open 350-400 restaurants in France in the coming few years.

The merger of Tim Hortons with Burger King has strengthened the company’s market share in the breakfast market, and has also boosted the top-line performance, with a lot of growth opportunities lined up in the fiscal 2015.

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1. Restaurant Brands International, Earnings call webcast [↩]
2. Unaudited pro-forma 2014 condensed consolidated financial information, 8-K Q1 2015 [↩]