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Restaurant Brands International Is Showing Signs of Recovery

By Pearl Wang – Jul 26, 2020 at 5:06PM

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As restaurants reopen in the U.S., the Burger King parent may be a good pick in the sector.

Restaurant Brands International (QSR -2.23%), owner of popular fast-food brands Burger King, Popeyes, and Tim Hortons, is recovering following a contraction due to COVID-19-related shutdowns.

Burger King's comparable sales trends have improved dramatically, thanks to good drive-thru performance. The consumer discretionary company's popular brands should continue to do well as the economy opens up in the U.S. More broadly, quick-service restaurants that offer value pricing and contactless dining should benefit as consumers grapple with uncertainties around the economy and COVID-19.

Impossible Whopper

Image source: Burger King.

Sales recover at Burger King restaurants in the U.S.

According to management, most U.S. Burger King restaurants are now open, and sales trends have improved from earlier this year. By late June, comparable sales were about flat year over year, compared to a mid-30s percentage decrease during the height of the coronavirus-related closures in mid-March. Drive-thru is performing well, while many dining rooms are still closed in North America.

Drive-thru business will likely continue to drive a revenue recovery for Burger King, as some states have reversed parts of their plans to reopen. For example: California just announced a re-closing of indoor service at restaurants and bars. Additionally, some people are still hesitant to dine in, while others find the new mask and social-distancing requirements in restaurants unappealing. These groups are likely to substitute takeout for dine-in services.

Popeyes continues to demonstrate sales growth

Popeyes Louisiana Kitchen achieved impressive sales growth "in the very high 20s" during the week ending June 29, Restaurant Brands International's CEO Jose Cil said in a press release late last month. This was particularly impressive because Popeyes was posting solid sales at this time last year, even prior to the national launch of its massively-popular chicken sandwich. Popeyes launched the new chicken sandwich in Canada this June, with strong initial demand. The chicken sandwich was first introduced in the U.S. on Aug. 12, 2019 and sold out in many restaurants.

The popular chicken sandwich helped drive traffic to Popeyes stores even months following the initial launch in 2019. Visits to Popeyes in January and February of 2020 were up 63.5% and 56.1% compared to a year ago, according to Placer.ai. Even with COVID-19 shutdowns, traffic to Popeyes restaurants increased by 6.9% in March and 2.6% in April of this year. The popularity of this chicken sandwich will likely continue to drive traffic to the restaurant chain.

Fast food will likely perform well during the recession

Quick-service restaurants weren't hit as hard by the COVID-19 crisis as sit-down restaurants. They are also recovering more quickly to pre-shutdown levels. On April 13, traffic at fast-food restaurants was down 51.5% from pre-shutdown levels; on June 1, it bounced back to down 26.2% from pre-shutdown levels. On the other hand, U.S. dine-in traffic fell nearly 80% from pre-pandemic levels as of April 13.

Fast-food restaurants offer inexpensive, low-contact experiences, which will likely be popular with consumers who are nervous about the coronavirus or their finances. This trend is likely to continue in the near future, as many states make frequent updates to their policies about handling the reopening of businesses and public facilities. Restaurant Brands International, with its popular value-priced offerings, is well positioned in this type of environment.

Pearl Wang has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Restaurant Brands International Inc. Stock Quote
Restaurant Brands International Inc.
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