Restaurant Expansion And Innovative Menu To Drive Q4’16 Earnings For Restaurant Brands International

Restaurant Brands International (NYSE: QSR) is slated to release its fourth quarter and full year earnings on 23rd January, 2017. Although the stock price was seen to be trending lower post its Q3’16 earnings release, since then it has only been on an upward trajectory. This is on account of impressive performance by Restaurant Brands International (RBI) in the third quarter, beating most of its competitors. The company witnessed a rise in both its revenues (+5% y-o-y), supported by the growth seen at Tim Hortons, and earnings per share (+34% y-o-y) due to the continued fiscal discipline practiced by the management of the company. The upcoming quarterly results are expected to keep up with the past results, owing to management’s strong performance. In the following note, we discuss some of the key trends that can be expected to be seen in the upcoming quarterly results.

Key Trends:

• In Q3’16, Tim Hortons saw an 8.4% y-o-y increase in comps in international markets. To further exploit the coffee chain’s potential, RBI announced a master franchise joint venture in Great Britain. The company hopes to see even greater growth come from international markets as it expands its footprint internationally.

• Emphasis on expanding Burger King’s footprint, with new operations across the Middle East, Korea, and accelerated pace of restaurant growth in China. The company hopes that restaurant expansion, alongside product innovation through launches like Bacon King planned for the fourth quarter, will help propel revenue growth.

• After McDonald’s and Wendy’s, Restaurant Brands has announced its commitment towards serving chicken raised without the use of antibiotics at its two chains, Burger King and Tim Hortons. The company expects the changes to be fully implemented in U.S. stores in 2017 and in Canada in 2018. The move can be seen to have come under increasing pressure from consumers and shareholders alike, and may increase the company’s costs in the long term.

• 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.

• The company is shifting focus to a franchisee led development model as it enters into new markets of Cincinnati and Indianapolis and Minneapolis. The model is expected to give a boost to the company’s margins, being investment light and less cost intensive.

• The company announced a joint venture in France to convert Quick Restaurants to Burger King in France. The venture is expected to accelerate development in RBI’s EMEA markets, propelling comps.

• 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.

• The industry-wide slowdown in the restaurant sector continued in the fourth quarter. Restaurants have now posted four consecutive quarters of declining year-over-year sales. This is due to a lesser number of people eating out, and most of the consumer spending going towards big ticket purchases rather than soft goods. The following table gives a gist of the declining comps and traffic in the three months of the fourth quarter.

Have more questions on Restaurant Brands International (NYSE: QSR)? See the links below:

• Why Have We Revised Our Price Estimate Of Restaurant Brands International?
• Restaurant Brands International Reports Another Profitable Quarter, Even As Peers Struggle
• Restaurant Brands International Q3 FY’16 Earnings Preview: Lower Expenses To Be Accretive To Earnings Growth
• Burger King Vs. McDonald’s: Who Is More Leveraged?
• 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

Notes:

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