Burger King Drives Restaurant Brand International’s Growth In The First Quarter

by Trefis Team
-1.69%
Downside
75.23
Market
73.96
Trefis
QSR
Restaurant Brands International Inc.
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Restaurant Brands International (NYSE: QSR) revealed its plan to improve customer experience and sales at its Tim Horton’s (TH) segment while announcing its first quarter results. The company posted largely upbeat results, which beat consensus expectations on revenue and earnings, with Tim Horton’s being the only sore spot. Burger King (BK) posted an impressive comparable sales growth of 3.8%, higher than the 3.5% growth anticipated, which together with the higher BK restaurant count, led to system-wide sales growth of 11%. The company had in the past laid down its list of priorities for FY 2018, which included improving comps for TH, building momentum behind BK, and accelerating restaurant growth for Popeyes Louisiana Kitchen (PLK). While it has made good progress on the latter two, any meaningful progress in the former is lacking as of now.

We have a $70 price estimate for Restaurant Brands International, which is higher than the current market price. The charts have been made using our new, interactive platform. The various driver assumptions can be modified by clicking here for our interactive dashboard, to gauge their impact on the earnings and price per share metrics.

Key Factors That Will Impact Growth Going Forward

1. “Winning Together” Plan: RBI detailed this plan during the earnings call webcast, through which it intends to improve the performance of TH and drive franchisee profitability. This plan focuses on “restaurant experience, product excellence, and brand communications” and is intended to stave off the negative press it has been receiving in the wake of the company’s issues with a group of dissident franchise owners. Resolving the issues with TH franchisees is critical for RBI’s future growth. Any growth in this segment in the future can be expected to come from international markets. In 2017, the company opened its first Tim Hortons restaurants in each of Asia, Europe, and Latin America, and has plans for additional openings in 2018.

2. Expansion of Burger King: RBI is focused on expanding its Burger King chain and is entering into several franchisee agreements to fulfill this goal. Recently the company announced a financial agreement with private equity giant Bridgepoint to expand in the U.K. This agreement was followed by a master franchise agreement with Nexus Point in Taiwan and another master franchise agreement to expand its presence in the Netherlands. In Q1, the company grew its restaurant count by roughly 6.9% year-on-year, which reflects continued growth from its partners all around the world. Faster growth of the Burger King Chain can become a key driver of revenues for RBI.

3. Implementing Delivery: RBI began testing delivery for BK in the U.S. in the first quarter across several hundred restaurants and numerous markets. This strategy follows from the successful model seen in many of its international markets, including China and Spain. The company is also testing delivery for PLK in the U.S., and currently has several hundred restaurants in various markets across the country that are participating in the test.

4. Prospects of Popeyes Louisiana Kitchen: Revenue growth from this segment can be expected to come from a higher number of its restaurants. In Q1, the company had a net restaurant growth of nearly 7%. The company has also signed a master franchise agreement for expansion in Brazil, which calls for opening 300 restaurants in the country over the next ten years.

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