After a long period of struggle, the situation may finally look more upbeat for Restaurant Brands International (QSR 1.43%), or RBI, the parent company of Tim Hortons, Burger King, and Popeyes Louisiana Kitchen. The fast-food restaurant chain operator has been in the news lately because of a promotional partnership with singer Justin Bieber, who is boosting a variety of Tim Horton "Timbits" doughnut hole pastries dubbed "Timbiebs."
However, while an endorsement from Justin Bieber might give RBI a temporary boost, the company also has several initiatives underway that should lead to more lasting upside. Here's a look at three of them and why they're bullish for the company's future growth.
1. Tim Hortons has positive traction
Back in March 2020, I identified Tim Hortons as RBI's weak link with shrinking total brand sales and comparable sales (comps), even before the full impact of COVID-19 became clear. Today, however, RBI has managed a remarkable turnaround for its subsidiary with Tim Hortons now one of the main drivers of both revenue growth and rising earnings before interest, taxes, depreciation, and amortization (EBITDA), according to the company's third-quarter earnings report.
During the quarter, Tim Hortons' system-wide sales growth totaled 11.1%. Comps increased 8.9% with location count up 4.1% year over year. Research firm Evercore ISI cited "important foundational improvement at the brand [...] including loyalty, digital marketing, food innovation, and coffee improvements" as the source of Tim Hortons' bullish sales trends.
The brand also shook hands on a potentially important international partnership in late November. Tim Hortons International Limited, also known as Tims China or THIL, is a privately-held joint venture launched by RBI and private-equity firm Cartesian Capital Group. Tims China just partnered with 20 million-member food retailer Metro China and is in the process of opening its Tims Go coffee shops at Metro China locations. This will give the enterprise more exposure in popular, high-traffic retail venues. With 335 outlets currently operational in the vast Chinese market, Tims China plans "to strategically open Tims Go coffee shops in METRO China stores across 60 cities, growing our brand, revenue, and margins," CEO Yongchen Lu said in a statement.
Tims China is also planning to go public through a special purpose acquisition company (SPAC) merger, which could be strongly beneficial to RBI given its stake in the joint venture. Tims China has signed a contract with Silver Crest Acquisition Corporation for this deal, and it will trade under the ticker "THCH" on the Nasdaq.
2. Burger King is strengthening its position
RBI's Burger King segment also saw significant year-over-year revenue and comps growth in the third quarter, though comps in its biggest market, the U.S., fell 1.6%. This held back the 16.2% international sales growth it recorded from making a bigger impact on RBI's top and bottom lines.
During the earnings call, CEO José Cil said "the underperformance of value offerings and [...] our intentional shift away from paper coupons" caused the U.S. sales decline. He also cited competing restaurants' discount offers as a negative factor but added RBI is working to achieve "sustainable long-term sales through our digital platforms and by maximizing media firepower" for its Burger King brand.
Burger King is also acting to boost its drive-thru sales, an important area of competition with a pandemic-related shift in customer preference for drive-thru lanes. RBI's CEO confirmed at a Dec. 1 conference that Burger King's drive-thru times are slower than some major rival restaurants, and the company plans to reduce its drive-thru menu to streamline choices. He remarked, "Given the volume increases in drive-thru, it's a really easy win in terms of driving additional volume in our business," according to a CNBC report. Flipping the burger brand back to positive sales in the U.S. through this relatively simple change could help RBI achieve even better results.
3. RBI is making some savvy acquisitions
Restaurant Brands International appears to be reinvesting its successful gains this year into further expansion through acquisitions. It announced a buyout of sandwich chain Firehouse Subs on Nov. 15 for $1 billion. The target's 1,200 locations expand RBI's menu offerings in a fresh direction with an estimated $1.1 billion in 2021 system-wide sales. Firehouse comps are up roughly 20% year to date on a two-year basis. RBI expects the acquisition to be "immediately accretive" to its bottom line.
RBI may also be one of a trio of large quick-service restaurant companies angling to place a bid on Wagas, as reported by Bloomberg. Wagas is a bakery and health food company in China with all the attendant profit possibilities of an enormous single-country market. The Chinese company appears to be seeking about $1 billion for its acquisition while currently generating approximately $188 million in annual sales. At this point, the possible bid has not been confirmed by RBI, but a successful deal would help it accelerate any progress in China.
With various avenues of expansion underway, RBI is starting to look like a juicy investment among restaurant stocks.