Restaurant Brands International Q3 FY’16 Earnings Preview: Lower Expenses To Be Accretive To Earnings Growth
Key Trends:
- Emphasis on restaurant expansion, with new operations in six countries across the Middle East, and accelerated pace of restaurant growth in China. Further, anticipated acceleration in restaurant growth of the Tim Hortons chain in the U.S to compete with the omnipresent Starbucks. The expansion strategy will be accretive to the company’s revenues in the long term.
- Strong margins expected for Tim Hortons as it converts more Variable Interest Entities (VIEs) to normal franchisee model and grows its higher margin retail business.
- Continued focus on store re-imaging initiative of the U.S. and Canadian stores, by providing incentives in the form of royalty and advertising fund relief, to accelerate the pace of remodeling. The main aim of re-imaging is to drive sales by reviving the brand. According to management, the remodels cost about $300K per unit and drive a 10%-14% sales lift.
- Innovative menu items like Mac n’ Cheetos, Oscar Mayer hot dogs, Egg-normous burritos, and Chicken Fries Rings at BK, are likely to drive sales higher in the quarter.
- Focus on cutting superfluous costs, under the new management, to result in a decrease in operating expenses. Further, the approval of a $300 million share repurchase program, last quarter, over the next five years, is likely to support the bottom-line by giving earnings an impetus.
- An industry-wide slowdown due to a fewer number of people eating out. This is being speculated to happen due to grocery prices lagging behind menu prices, discouraging people from eating out. The trend is confirmed by September same store sales and traffic data, showing a decline of 1.1% and 3.5%, respectively. The high costs of labor and healthcare further worsens the situation for the restaurant industry, by causing people to substitute spending on eating out on more basic necessities of healthcare.
Have more questions on Restaurant Brands International (NYSE: QSR)? See the links below:
- Can Tim Hortons Challenge Starbucks’ And Dunkin’ Brands’ Duopoly In The U.S.?
- Why Have We Revised Our Price Estimate Of Restaurant Brand International Upwards To $42 Per Share?
- Restaurant Brands International Stays Confident Amid Tepid Q2’16 Sales And Fears Of Restaurant Industry Slump
- Restaurant Brands International Q2 FY’16 Earnings Preview: Emphasis On Expansion To Be The Growth Strategy
- Franchised Restaurants To Contribute More Revenues Than That Of Company-Operated Restaurants For Restaurant Brands International By The Next 3 Years
- How Has Restaurant Brands International’s Revenue And EBITDA Composition Changed Over 2011-2015?
- By What Percentage Have Restaurant Brands International’s Revenues And EBITDA Grown Over The Last Five Years?
- Where Will Restaurant Brands International’s Revenue And EBITDA Growth Come From Over The Next Three Years?
- Restaurant Brands International Q1 FY’16 Earnings Preview: Breakfast Market To Drive Comp Sales
- What Is Restaurant Brands International’s Revenue & EBITDA Breakdown? (Updated After Q1 2016)
- What’s Restaurant Brands International’s Fundamental Value Based On Expected 2016 Results?
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Restaurant Brands International
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