Restaurant Brands International Continues Its Revenue Growth Trend, Comps Disappoint In Q1 2017

Restaurant Brands International ( QSR ) declared its Q1 2017 results on April 26 th 2017 and the company beat analysts’ expectations for revenue and EPS (earnings per share). However, flat comps for both Tim Hortons and Burger King and the newly acquired Popeye Louisiana Kitchen were a disappointment. While this was partly due to the impact of leap day in the prior year period (approximately 1 percentage point drag), it indicates that the company was impacted by the overall slowdown in the restaurant industry and strong competition from other quick service restaurants.

Below is a summary of the company’s financial performance:

QSR EN1

Revenue growth was primarily due to the net restaurant growth over the past 12 months, as the company expands its store network. RBI did not report Popeye Louisiana Kitchen’s  (PLK) revenues separately in this quarter since the revenues for the five days in this quarter (post completion of the acquisition on March 27) were not material.

QSR EN2

Burger King witnessed a slowdown in revenue growth in this quarter, due to a weakness in the QSR segment and competition from other players such as McDonald’s. Despite headwinds in the industry McDonald’s reported positive comps in this quarter and it appears that Burger King might be losing customers to this other burger giant.

QSR EN3

The bottom line of RBI in this quarter was impacted due to a 400 basis points increase in general administrative and selling expenses, which was due to the PLK transaction costs. Excluding these transaction costs (which were around $35 million), the company witnessed a moderate 70 basis points increase in these expenses.

Q1 2017 for RBI has been impacted due to headwinds in the QSR business, strong competition from other players, and higher administrative expenses due to the PLK transaction. The company’s management remains strong and with the acquisition now complete, it can focus on expansion of all three segments.

Going Forward:

  • As RBI reports Popeye Louisiana Kitchen’s revenues from Q2 2017, its top line and profitability should see a boost going forward.
  • Expansion of Tim Hortons and Burger King will continue throughout the year. In March 2017, the company opened its first Tim Hortons restaurant in Philippines and is looking to expand this brand to Great Britain and Mexico.
  • Improving the quality of its products and menu innovation remains a goal for RBI. Several innovative products such as steakhouse King Burger, fruit loop shake and the improved Crispy Chicken sandwich are likely to impact the company’s second quarter results positively. These menu innovations should ensure that Burger King is able to develop a competitive edge over other players especially McDonald’s.
  • The company has started beta testing of its mobile order and pay system for Tim Hortons and Burger King and this will be eventually launched for all three segments of the company. This should drive sales going forward.
  • The comparable period for Q1 2016 was one of the strongest quarters for RBI, thus making these results look disappointing. However, the company has a strong outlook for the year and is confident of growing same store sales in the coming quarters.

For more details see our complete analysis for Restaurant Brands International

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