Yahoo Finance Tim Hortons franchise profitability improves as sales remain strong
Strong sales at Tim Hortons continue to fuel better-than-expected results at its parent company Restaurant Brands International and franchise profitability improved 27 per cent annually, a year after executives vowed to increase it.
Restaurant Brands International (QSR)(QSR.TO) – which operates the Tim Hortons, Burger King, Popeyes and Firehouse Subs brands – reported a surge in profit in the fourth quarter of the year. Net income totalled US$726 million, or $1.60 per diluted share, up from US$336 million, or 74 cents per diluted share, last year. RBI reports its financial results in U.S. dollars. The increase was primarily driven by a greater income tax benefit and increased income from operations.
Total sales at RBI hit $1.82 billion, up from $1.69 billion last year, fuelled by strong sales at Tim Hortons, as beverage offerings and a partnership with Baileys helped drive traffic in the quarter. Chief executive Joshua Kobza said hot, cold and specialty beverages have gained traction with customers, while a collaboration with Baileys was one of the company's most successful partnerships.
The results led to an improvement in franchise profitability at Tim Hortons, with earnings before interest, taxes, depreciation, and amortization (EBITDA) reaching an average of $280,000 per location in 2023, up from $220,000 last year.
The improvement is part of RBI's turnaround plan focused on boosting franchise profitability. This time last year RBI named Kobza as its new CEO, shortly after it appointed industry veteran Patrick Doyle to the role of executive chairman. Doyle, who spearheaded a turnaround at Domino's Pizza as CEO of the chain from 2010 to 2018, committed to improving franchise profitability across RBI's businesses. Tim Hortons franchise profitability had fallen from 2018, when EBITDA was an average of $320,000 per location, and led to tensions with some franchisees.
"While these results are really impressive, especially in just one year, we need to continue demonstrating a growth path this year and in future years," Doyle said on a conference call with analysts on Tuesday.
"There's a lot of opportunity for our franchisees still ahead of us."
Burger King's EBITDA improved from $140,000 in 2022 to $205,000 in 2023, Popeyes was up from $210,000 in 2022 to $245,000 in 2023, and Firehouse Subs improved from $80,000 last year to $110,000 in 2023.
Shares of RBI closed the trading day on the Toronto Stock Exchange at $101.46 per share, a decline of 4 per cent compared to Monday's close. While the fourth quarter results were better than expected, the company said it saw softening performance in China and in some markets in western Europe, and that the conflict in the Middle East will weigh on comparable sales and traffic at some international locations.
RBI had previously expected net restaurant growth in China to increase by at least five per cent between 2023 and 2024.
"A key factor to delivering this level of growth was our expectation that our development in China would accelerate in 2024 off of 2023 levels," Kobza said.
"We now believe that outlook is less certain and have updated our outlook to reflect a lower level of net unit additions in China this year."
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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