Tag Archives: Restaurant Brands International Inc

Business

Burger King $400 million plan to revive U.S. sales with remodels, advertising

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CASCAIS, PORTUGAL – Burger King signs are seen at the local fast food restaurant.

Horacio Villalobos | Corbis News | Getty Images

Burger King on Friday said it plans to spend $400 million over the next two years on advertising and renovating its restaurants as part of a broader strategy to revive lagging U.S. sales.

The Restaurant Brands International chain unveiled a turnaround plan for its U.S. business in Las Vegas at its annual franchisee convention. The investments are expected to weigh on its adjusted earnings per share for 2022 and 2023 by 10 to 12 cents annually. The company expects the investments to start paying off by 2025.

Wall Street analysts surveyed by Refinitiv expect earnings per share of $3.24 in 2023.

In the second quarter, Burger King reported flat U.S. same-store sales growth, trailing behind rivals McDonald’s and Wendy’s. The burger chain has been reporting lackluster U.S. sales over the last year, causing concern for Restaurant Brands CEO Jose Cil. In his tenure as chief executive, Cil has also spearheaded efforts to revive Canadian demand for Tim Hortons, Burger King’s sister chain.

A year ago, Cil also tapped former Domino’s Pizza executive Tom Curtis as the new president for Burger King’s U.S. and Canadian restaurants. Early changes to Burger King included slimming its menu to speed up drive-thru times and cutting down its paper coupons to push customers to use its mobile app.

Freshening up

Now Burger King is preparing to make even bolder changes. It’s planning to spend $200 million to fund remodels of roughly 800 locations. Another $50 million will go toward upgrading about 3,000 restaurants with technology, kitchen equipment and building enhancements. The company has more than 7,000 Burger King locations in the U.S.

Historically, remodeled restaurants see an average sales increase of 12% in their first year and outperform older locations over time, according to Burger King. The company is hoping that being more selective and strategic with its projects will produce even stronger sales growth, although it could take longer to see results.

“We might see remodels start to hit the market mid-2023 and going forward. It should really be a gradual ramp of the business over the course of the couple of years,” Cil told CNBC.

Burger King will also increase its U.S. advertising fund’s budget by 30% by investing $120 million over the next two years. Those investments will start in the fourth quarter.

“We expect that to start having an impact on sales over the next quarter,” Cil said.

An additional $30 million will be spent through 2024 on improving its mobile app, exceeding the digital fees that franchisees pay to the company for the technology.

Burger King’s menu will also get a facelift. The company said it’s built a multi-year blueprint for menu improvements, which include developing new Whopper flavors, betting on its Royal Chicken Crispy sandwich and investing in more employee training.

Franchisee impact

The strategy has received support from franchisees operating 93% of its U.S. restaurants, according to Burger King. Operators will be chipping in their own money alongside the company for remodels and advertising.

Curtis and his team put together a group of franchisees, representing a range of regions and experience, to come up with the strategy over the last three to six months.

“There were many long nights and plane rides,” Curtis said.

In addition to the money they get from Burger King, franchisees making upgrades to their restaurants are expected to make comparable investments to fund the projects.

The company is also changing its incentive structure to encourage operators to make more extensive remodels, which can be costly and typically require a location to be temporarily shuttered. In the past, Burger King operators who remodeled their restaurants received discounts on their advertising and royalty fees for up to seven years.

The new program will give franchisees cash once the project is completed, and let them choose how much of a discount they get on the royalties they pay to the company.

If profitability targets are met, however, Burger King franchisees will have to pay higher fees toward the advertising fund.

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Business

Restaurant Brands International (QSR) Q1 2022 earnings

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In this photo illustration, a Burger King Whopper hamburger is displayed on April 05, 2022 in San Anselmo, California. A federal lawsuit has been filed and is seeking class-action status alleging that fast food burger chain Burger King is misleading customers with imagery that portrays its food, including the Whopper burger, as being much larger than what is actually being served to customers. 

Justin Sullivan | Getty Images

Restaurant Brands International on Tuesday reported quarterly earnings and revenue that beat analysts’ expectations, fueled by strong same-store sales growth from Burger King’s overseas restaurants.

The burger chain’s international same-store sales soared 20.1% in the quarter, but in its home market they were flat as the chain embarks on a turnaround to rejuvenate demand. Worldwide, Burger King saw its same-store sales climb 10.3% in the quarter.

Burger King is Restaurant Brands’ only chain to have restaurants in Russia, through a joint venture where it owns a 15% stake. The company has previously said it’s looking to divest its interest in the joint venture, and said Tuesday the decision to suspend all corporate support to those locations had a “measurable, but not material” impact on its results this quarter.

Burger King’s Russian restaurants accounted for just 0.6% of the company’s total revenue last year. Those locations dragged down its adjusted earnings before interest, taxes, depreciation and amortization by about $12 million during the first quarter. Rival McDonald’s, on the other hand, reported $127 million in charges related to its Russian business for the first quarter.

Here’s what Restaurant Brands reported for the quarter, compared with what Wall Street was expecting based on a survey of analysts by Refinitiv:

  • Earnings per share: 64 cents adjusted vs. 63 cents expected
  • Revenue: $1.45 billion vs. $1.41 billion expected

Restaurant Brands reported first-quarter net income of $270 million, or 59 cents per share, down from $271 million, or 58 cents per share, a year earlier.

Excluding items, the company earned 64 cents per share, topping the 63 cents per share expected by analysts surveyed by Refinitiv.

Net sales rose 15.2% to $1.45 billion during the period, beating expectations of $1.41 billion.

This marked the first full quarter that Restaurant Brands’ acquisition of Firehouse Subs was included in its revenue. The sandwich chain saw same-store sales growth of 4.2% in the quarter. In the U.S., its same-store sales rose 4.5%.

The company’s Tim Hortons chain reported same-store sales growth of 8.4% for the quarter, which includes double-digit gains in Canada. The coffee chain has taken longer than Restaurant Brands’ other eateries to bounce back from the pandemic because of its home market’s Covid restrictions. A year ago, its same-store sales shrank by 2.3%.

Popeyes Louisiana Kitchen was once again the only chain in Restaurant Brands’ portfolio to report same-store sales declines. Worldwide, same-store sales shrank by 3%. However, the fried chicken chain also reported net restaurant growth of 7.9%. Only locations that have been open at least 13 months are included in its same-store sales metrics.

CEO Jose Cil said in a statement that home-market digital sales reached their highest levels ever during the first quarter. The company does not disclose how much of its system-wide sales come from digital channels, although its digital sales reached $10 billion in 2021.

Read the full earnings report here.

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Business

Stock futures are lower after big market reversal to start May

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U.S. stock futures moved lower Monday night after the major averages staged a big reversal to start the month.

Dow Jones Industrial Average futures fell 59 points, or 0.2%. S&P 500 and Nasdaq 100 futures dipped 0.2% and 0.3%, respectively.

Earlier in the day, the major averages posted a wild up-and-down session with the Nasdaq Composite rising 1.63% in a late-day comeback, despite falling as much as 1.07% earlier in the day. The S&P 500 rose 0.57% after hitting a new 2022 low earlier in the session.

Meanwhile, the Dow Jones Industrial Average gained 84 points, or 0.26%. At its session lows, the Dow was down more than 400 points.

Those moves come on the back of a brutal month in April for stocks. April was the worst month since March 2020 for the Dow and S&P 500. It was the worst month for the Nasdaq since 2008.

The benchmark 10-year Treasury yield also climbed to a new milestone on Monday. The bond yield hit 3.01% during the session, its highest point since December 2018.

“I think it’s really hard to try to pick bottoms in the market or pick tops in the market,” Tim Lesko, director and senior wealth advisor at Mariner Wealth Advisors, said Monday on CNBC’s “Closing Bell.” “I think what we’re seeing is that in the long run, we’ve got a very high allocation to stocks, people are starting to rebalance and there’s some competition for stock now in the marketplace.”

Wall Street is largely expecting interest rates to be raised 50 basis points at the Federal Reserve meeting this week. Some investors believe expectations of aggressive monetary tightening from the central bank are already priced into markets.

“With financial conditionings tightening as they are, we think the Fed is going to be slightly more dovish than the market is expecting,” Eric Johnston, head of equity derivatives and cross asset products at Cantor Fitzgerald, said Monday on CNBC’s “Closing Bell.”

The Federal Open Market Committee will issue a statement at 2 p.m. ET on Wednesday. Fed Chair Jerome Powell is expected to hold a press conference at 2:30 p.m.

A number of consumer-oriented companies are still reporting earnings this week. Shares of Avis Budget jumped more than 6% during extended trading after the car company surpassed earnings expectations on the top and bottom lines. Pent-up travel demand spurred investors to rent cars from Avis Budget despite higher prices.

Chegg’s stock price tumbled nearly 30% during extended trade after the textbook company issued weak guidance for the full year despite exceeding earnings expectations.

Restaurant Brands International, Pfizer and Paramount Global are set to report earnings before the bell on Tuesday. Airbnb, AMD, Lyft and Starbucks are expected to report earnings after the bell the same day.

Traders will also watch for the latest reading of the Job Openings and Labor Turnover (JOLTS) data that is expected at 10 a.m. ET on Tuesday. A report on auto sales for April is also expected on Tuesday.

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Business

Higher restaurant wages whack profits—some warn more pain is still ahead

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Employees prepare orders for customers at a Chipotle Mexican Grill restaurant in Hollywood, California.

Patrick T. Fallon | Bloomberg | Getty Images

Customers are returning to restaurants in droves, but workers haven’t, putting even more pressure on fast-food chains to retain market share and protect profits while navigating a tight labor market.

Restaurant executives have painted a bleak picture of staffing challenges to investors on their earnings calls in the last two weeks. CEOs like Domino’s Pizza’s Ritch Allison, Chipotle Mexican Grill’s Brian Niccol and McDonald’s Chris Kempczinski shared details on how eateries have shortened hours, restricted ordering methods and lost out on sales because they can’t find enough workers. Some chains have been hit harder by the labor crunch, like Restaurant Brands International’s Popeyes, which saw about 40% of its dining rooms closed due to understaffing.

“This is kind of where we’re separating the wheat from the chaff,” said Neuberger Berman analyst Kevin McCarthy.

Raising wages is one popular approach to staffing problems, although it isn’t a perfect solution. McDonald’s wages at its franchised restaurants have risen roughly 10% so far this year as part of an effort to attract workers. Higher labor costs have led to increased menu prices, which are up about 6% from a year ago, according to McDonald’s executives.

Starbucks plans to spend roughly $1 billion in fiscal 2021 and 2022 on improving benefits for its baristas, including two planned wage hikes. The decision reduced its earnings forecast for fiscal 2022, disappointing investors and shaving off $8 billion in market cap. But McCarthy thinks more companies should take a page from the company’s playbook and invest in their employees.

“The stock is down, but I think they’re a winner out of this. Great move on their part, long-term definitely the right decision,” he said.

McCarthy said he’s been assuming that restaurant companies are losing roughly 5 points of traffic due to understaffing.

Looking ahead to the rest of 2021 and into 2022, most publicly traded restaurants said they expect the problem to persist for at least several more quarters. Texas Roadhouse CEO Gerald Morgan told analysts on Thursday that there are “a little bit” more people in the applicant pool, but he still thinks there’s a long way to go before the company has enough employees to meet demand.

Mark Kalinowski, founder of Kalinowski Equity Research, said executives for privately held restaurant companies are more pessimistic about the timeline for the labor market’s recovery.

“Typically when you have high-level people at private companies saying this is going to get worse, it usually is,” Kalinowski said.

He has lowered estimates for Starbucks’ fiscal 2022 results and Domino’s U.S. same-store sales growth next quarter after the companies’ latest earnings reports.

“Not every company is going to necessarily see a change in the sales forecast, but the margin side of things, you got to pay closer attention to, particularly for concepts that have 100% company-owned locations in the U.S. or are significantly company stores,” Kalinowski said.

Kalinowski said he’s favoring stocks with a higher concentration of franchised restaurants. McDonald’s, for example, only operates 5% of its U.S. locations, while the rest are run by franchisees.

More restaurant earnings are still ahead. Outback Steakhouse owner Bloomin’ Brands, Wingstop and Applebee’s owner Dine Brands and IHOP parent Dine Brands are among the companies expected to report their latest results next week. Some analysts, like Wedbush Securities’ Nick Setyan, have tweaked their estimates, given the earnings reports from peer companies.

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Business

PepsiCo, Generac, Tempur Sealy, others

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Check out the companies making headlines before the bell:

PepsiCo (PEP) – The beverage and snack giant beat estimates by a penny with adjusted quarterly earnings of $1.47 per share, and revenue was above estimates as well. The company said it expects to see organic revenue and adjusted profit growth this year, and also announced a 5% dividend increase.

Generac (GNRC) – Generac shares rose 3% in pre-market trading after the maker of backup generators beat estimates on the top and bottom lines for its latest quarter, and said it expected net sales growth of 25 to 30 percent this year.

Restaurant Brands (QSR) – The parent of Popeyes, Burger King and Tim Hortons missed estimates by 12 cents with adjusted quarterly earnings of 53 cents per share, while revenue was slightly above forecasts. Shares fell about 2% pre-market as comparable restaurant sales fell more than expected.

Tempur Sealy (TPX) – Shares of the mattress maker surged 12% pre-market after it beat forecasts by 15 cents with adjusted quarterly earnings of 67 cents per share. Revenue beat estimates as well, and Tempur Sealy said it expected 2021 sales growth of 15% to 20%.

LabCorp (LH) – The medical-laboratory operator reported adjusted quarterly earnings of $10.56 per share, well above the $8.11 consensus estimate, and revenue was above forecasts as well. Its results were boosted by Covid-19 testing, and shares were up 3.6% pre-market.

Molson Coors (TAP) – The beer brewer’s shares were down 4.5 % pre-market as it reported adjusted quarterly earnings of 40 cents per share, well below the 77-cent consensus estimate. Its results were hurt by ongoing Covid-19 restrictions for restaurants and bars.

Kraft Heinz (KHC) – Kraft Heinz shares rose 1.7% pre-market, as it beat estimates on the top and bottom lines for its latest quarter, and also announced the sale of its Planters snacks business to Hormel (HRL) for $3.35 billion in cash.

Uber Technologies (UBER) – Uber reported a quarterly loss of 54 cents per share, 2 cents less than anticipated, with revenue slightly below estimates. Uber’s results were helped by an expansion in its food delivery business as well as cost reductions. Uber shares were down 3.8% pre-market.

Bumble (BMBL) – Bumble makes its Wall Street debut today after pricing its initial public offering at $43 per share, above the already raised expected range of $37 to $39 per share. The dating service raised $2.2 billion in the IPO, giving it an overall value of more than $7 billion.

Sonos (SONO) – Sonos shares jumped 17% in pre-market trading, after the maker of high-end smart speakers beat estimates on both the top and bottom lines in its latest quarter. Sonos was helped by stronger margins as no promotions were held during the quarter. It also raised its full-year revenue guidance.

iRobot (IRBT) – iRobot earned an adjusted 84 cents per share for the fourth quarter, well above the consensus estimate of 84 cents, with revenue also comfortably topping Wall Street predictions. The maker of the Roomba robotic vacuum cleaner also gave strong full-year revenue and profit guidance. Shares rose 7.3% in pre-market trading.

Zillow Group (ZG) – Zillow beat estimates by 14 cents with adjusted quarterly earnings of 41 cents per share, with the operator of real estate websites also scoring a revenue beat. It also gave upbeat revenue guidance, and announced the acquisition of online home-viewing-scheduling platform ShowingTime.com for $500 million in cash. Zillow shares rose 12% in pre-market trading.

Zynga (ZNGA) – Zynga CEO Frank Gibeau told Barron’s that the mobile game developer is open to an acquisition offer, although it is not actively looking to sell the company. Zynga also reported a 61% jump in the key metric of net bookings during its latest quarter, more than analysts had anticipated.

XPO Logistics (XPO) – XPO earned an adjusted $1.19 per share for the fourth quarter, well above the 67-cent consensus estimate. The logistics company also saw revenue above forecasts and gave strong full-year earnings guidance. XPO is benefiting from a pandemic-induced acceleration in shipping activity due to an explosion in online shopping.

Merck (MRK) – Merck is in talks with both governments and other drugmakers to help produce already approved Covid-19 vaccines. The drugmaker did not specify which governments or other companies were involved in those talks.

Pinterest (PINS) – Pinterest was approached by Microsoft (MSFT) about a possible takeover in recent months, according to people brief on the matter who spoke to the Financial Times. However, the report added that negotiations about a buyout of the image-sharing company were not currently active.

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