Expansion efforts boost Tims’ parent Q4 earnings
Restaurant Brands International posts strong U.S. sales, while McDonald’s falters
The parent company of Tim Hortons and Burger King doubled its fourth-quarter earnings and grew sales as the burgeoning fast food giant continued its aggressive global expansion plans.
Notably, both of Restaurant Brands International Inc.’s chains posted strong sales in the U.S. market, where rival McDonald’s recently faltered after a year of gains fuelled by the all-day breakfast.
“We are fortunate that we have two iconic brands and when we look at our priorities it all comes down to driving that,” chief executive Daniel Schwartz said in an interview Monday.
Shares of Restaurant Brands rose 4.48 per cent to close at $70.22 in Toronto.
“We grew the Burger King brand in the U.S., which was a great accomplishment for us. On the Burger King front, we have made significant strides in improving the quality of our restaurants since 2011.”
The company also continued its global expansion efforts, opening 200 Tim Hortons locations worldwide in 2016, compared with 155 a year earlier, and 735 Burger King outlets, compared with 631 in 2015.
And after an inconsistent U.S. market performance for Tim Hortons over the years — as recently as late 2015, the company closed a handful of stores in New York and Maine — executives were pleased with Tim Hortons’ 2016’s U.S. same-store sales, which rose 4.9 per cent.
“It is one of the most exciting brands and we see it growing,” Schwartz said. “Breakfast is the fastest-growing (part of the) day.”
That said, neither Tim Hortons nor Burger King has plans to follow in the footsteps of McDonald’s and offer all-day breakfast, Schwartz said.
And in retrospect, Restaurant Brands might be wise to avoid making a similar move: McDonald’s U.S. same-store sales fell 1.3 in the fourth quarter of 2016 after a year of gains. The breakfast program will debut in Canadian McDonald’s outlets next week.
“All-day breakfast is not necessarily an incremental sale, and you can just end up cannibalizing your business,” particularly if customers eschew higher-priced sandwiches and burgers for McMuffins, said Ken Wong, marketing professor with Queen’s University’s School of Business in Kingston, Ont.
Burger King seems to be reaping the benefits of an unabashed focus on fast-food products, from hotdogs to chicken fries.
The company has not tried to lure in new customers with customizable fare or healthier menu options, as McDonald’s has done, Wong said, and brands tend to do better if they target a specific group of customers rather than trying to offer something for everyone.
“For people who are not looking to read the fine print on nutrition reports, Burger King’s message is more consistent,” Wong said. “They know what they are going to get.”
Using that framework, the company encourages repeat visits by introducing new and limitedtime items. In the fourth quarter, menu innovation at Burger King included the premium-priced Bacon King Burger and BBQ Bacon King, as well as a limited-time side dish, Cheesy Tots, a fried potatoes and cheese snack.
Restaurant Brands reported earnings attributable to common shareholders of US$118.4 million for the period ended Dec. 31, or US50 cents per share, compared with US$51.7 million (US25 cents) in the same period a year ago.
Revenue was US$1.11 billion, up from US$1.06 billion, while systemwide sales rose 2.4 per cent at Tim Hortons and 8.5 per cent at Burger King in constant currency.
Adjusted earning per share were US44 cents, beating average analyst estimates of US42 cents per share, according to Thomson Reuters. That compared with earnings of US32 cents per share in the same period year ago.
Burger King’s same-store sales in the U.S. and Canada rose 1.8 per cent after two negative quarters.
Tim Hortons’ same-store sales in Canada fell 0.2 per cent in the quarter, the first decline after three quarters of positive growth in 2016.
Schwartz attributed the dip to factors including a shift in marketing programs but said the company does not tend to focus on quarterly sales fluctuations. In addition, the sales figure runs up against a particularly strong comparable period a year ago, when Tim Hortons’ same-store sales in Canada surged 6.4 per cent.
“We are here for the long run,” Schwartz said.
In the meantime, analysts say, the big growth driver for the business could be Tim Hortons as it expands into new international markets such as Mexico, Philippines, and the U.K. while extending its footprint in the U.S. markets of Cincinnati, Indianapolis and Minneapolis.
(Tim Hortons) is one of the most exciting brands and we see it growing. Breakfast is the fastest-growing (part of the) day.