Restaurant Brands reports higher sales and profit, driven by Burger King’s U.S. stores

Fast-food giant Restaurant Brands International Inc. QSR-T reported growth in sales and profits in its second quarter, driven by strong performance at its Burger King stores in the U.S. – even as Canadian sales growth slowed considerably at Tim Hortons.

Burger King is four years into a turnaround plan that has involved hundreds of millions of dollars in investment by the company and its franchisees to remodel restaurants, improve the menu and advertise more aggressively in hopes of changing perceptions of the brand. In recent months, it revamped its signature Whopper burger.

The chain’s comparable sales jumped by 8.6 per cent in the quarter ended June 30, compared to the same period a year ago. Comparable sales is an important metric that tracks sales growth excluding the impact of new restaurant openings.

“The Burger King team and our franchisees have accomplished a tremendous amount, but they’d be the first to tell you we aren’t close to finished,” Restaurant Brands executive chair Patrick Doyle said during a conference call on Thursday to discuss the results, noting that many more restaurant locations still need to be updated. “There are still things that we know can be better on our menu,” he added.

Burger King was the only one of Restaurant Brands’ chains to report significant sales growth in the quarter. Overall, the Toronto-based company reported comparable sales growth of 3.8 per cent, as sales were flat at Tim Hortons and Firehouse Subs, and declined by 5.1 per cent at Popeyes.

The 0.1-per-cent comparable sales growth at Tim Hortons in Canada represented a significant slowdown compared to the same time last year, when sales grew by 3.6 per cent.

Burger King enters next phase of turnaround plan with president Tom Curtis leading the way

Tim Hortons is a major contributor to the company’s earnings, representing roughly 40 per cent of its operating profits.

“While we maintained our leadership positions in coffee, breakfast and baked goods, our calendar didn’t drive the growth we’ve come to expect from Tims, and was unable to lap last year’s major platform launches,” chief executive officer Josh Kobza said on the call.

Total revenues for the chain increased, but these were largely tied to higher commodity prices, which pushed up the supply-chain sales the company receives from providing coffee, food and other supplies to its franchisees.

While the recently relaunched cheese melt and bacon melt sandwiches are selling well, other launches did not perform to expectations, Mr. Kobza said. He did not specify which products underperformed, but a major marketing focus for Tims in the quarter was a series of new Tastes of the Globe Timbit flavours, timed to the FIFA World Cup, which included lime cheesecake (for Brazil), crème brûlée (France) and cappuccino (Italy).

However, Mr. Kobza added that he’s optimistic about more recent beverage launches that are driving sales in the current quarter. For example, the chain’s lineup of matcha drinks are a common order in the afternoon – a time of day that is a focus for Tim Hortons to increase its traffic. And the chain has also introduced Soda Swirls, a version of the trendy “dirty soda” beverages that add flavoured syrups and creamy foam (for the palate that deems Coca-Cola not sweet enough).

Restaurant Brands is making progress with rolling out fountain machines to Tims locations that enable these types of beverage launches, Mr. Kobza said.

The fast-food industry has been leaning heavily on novel menu additions to attract inflation-weary customers who have been cutting back on restaurant spending.

Industry players have also been advertising more promotions and value meal deals to cater to price-sensitive customers.

Not all of those efforts have been successful: Competitor McDonald’s Corp. MCD-N this week reported sales growth in its second quarter that missed analysts’ expectations. McDonald’s has been offering more value deals in the U.S. and dropped the price of its value menu in Canada earlier this year.

Restaurant Brands reported its second-quarter revenue grew to US$2.5-billion, up 4.6 per cent compared to the same period a year ago.

Net income attributable to common shareholders more than doubled, to US$507-million or $1.46 per share, compared to $189-million or 58 cents per share in the same quarter last year. However, this year’s earnings included a swing to profit from other operating activities (such as non-recurring projects) compared to a loss related to those activities last year. Excluding that change and other factors, adjusted net income grew to $490-million or $1.07 per share on a diluted basis, compared to $432-million or 94 cents per diluted share in the same period last year.