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What’s the Deal With Restaurant Brands International?

By Motley Fool Staff – May 3, 2019 at 11:42AM

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When the best news from its quarter is that Burger King’s comps were up 2%, the fast food chain operator may have some work to do.

Restaurant Brands International (QSR 0.29%) may not own any of the leaders in its fast food niches, but Burger King, Popeyes, and Tim Hortons are all respectable players in their respective spaces. Unfortunately for Restaurant Brands shareholders, they haven't been making much headway on the growth front. That's especially true for coffee-and-pastries chain Tim Hortons, where same-store sales continued their trend lower last quarter.

In this segment of the Market Foolery podcast, host Chris Hill and senior analyst Abi Malin consider the various factors dragging on the company as a whole, as well as Tim Hortons in particular, plus one thing it's doing far better than rival Starbucks.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on April 29, 2019.

Chris Hill: Let's move on to Restaurant Brands International, which is the parent company of Burger King, Popeyes, and Tim Hortons. First quarter, I mean, it wasn't terrible, but it certainly wasn't great. Burger King's same-store sales were just over 2%. That was the highlight. [laughs] I mean, if that was the low, I'd think that was OK. What's going on with this company right now?

Abi Malin: The really interesting story here is with Tim Hortons. Their same-store sales declined 0.6%, which is a continued decline. I would say it's a really moderated decline. It's not falling off a cliff. But it's definitely a negative trend. Management is talking a lot that they've opened their first three Tim Hortons in China. We've seen Starbucks really look at China for growth for coffee for the past three to five years. We've also seen Luckin Coffee, a Chinese coffee company, file their S-1 to go public later this year. So it's really a hotbed for coffee, I would say. So the decline -- although, again, they just opened three stores, it's not necessarily indicative that it's going to fail. I just think it's maybe not the trend you want to see as you expand in a hot space.

Hill: One of the things I saw from the conference call was, someone on the leadership team, I think it was the CEO, talking about weather being a factor in Canada. Because overwhelmingly, that's where Tim Hortons is located. I think he even said something to the effect of, "I hate to use weather as an excuse, but..." And that's always fair to me, when it comes to restaurants. It's not cars. It's not like, "You didn't buy a car last week because the weather was bad, you're probably going to go buy it next week." Whereas those are just lost sales for any restaurant chain.

Malin: Right. You're not out and about, you're not stopping by, especially with coffee. It's really a convenience factor, location based.

Hill: Right. If the weather's bad, I'm not going back next week and buying double the amount of coffee. One thing I think that'll be interesting to watch with Tim Hortons was a stat I saw that half of their transactions involve their loyalty program. All I could think, as a Starbucks shareholder, was what are you doing with your loyalty program that it's going that well? That's impressive, that they are doing that. I don't know if they are particularly great at their loyalty program and Starbucks is particularly terrible at theirs. But if that's something that they can sustain as they continue to open locations around the world, that bodes well for QSR.

Malin: I would agree with that, yes.

Abi Malin has no position in any of the stocks mentioned. Chris Hill has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool has the following options: short October 2019 $82 calls on Restaurant Brands International. The Motley Fool has a disclosure policy.

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