Tim Hortons no longer the problem child for parent RBI, amid higher traffic, price increases

Tim Hortons sales surged in the first quarter of the year thanks to higher traffic and price increases. (Getty Images) (Koshiro Kiyota via Getty Images)

Tim Hortons sales surged in the first quarter of the year thanks to higher traffic and price increases, fuelling a growth in sales and profit at parent company Restaurant Brands International (QSR)(QSR.TO).

RBI, which also operates the Burger King, Popeyes and Firehouse Subs brands and reports its sales in U.S. dollars, says total sales rose to $1.59 billion in the three-month period ended March 31. That's up from $1.45 billion during the same quarter last year, and above analysts' expectation of $1.56 billion. The company also reported a net profit of $277 million, or 61 cents per diluted share, up from $270 million last year, or 59 cents per diluted share.

Comparable sales at Tim Hortons, a key metric in the retail industry that excludes recently opened locations, surged 16 per cent, the most among RBI's brands. Chief executive officer Joshua Kobza, who stepped into the role on March 1, says the growth at Tim Hortons was driven largely by higher traffic "which benefited from improving mobility, thoughtful calendar initiatives and strength in our core offerings."

"These results were further aided by enhanced restaurant operations and pricing," Kobza said on a conference call with analysts on Tuesday. The company noted in a press release that increases in commodity prices were passed along to franchisees.

"Our new and improved food offerings, including loaded bowls and wraps, are also helping strengthen our position for growth in the $10 billion P.M. food market," Kobza said.

The strength at Tim Hortons comes after a multi-year, back-to-basics turnaround plan that has since shifted focus to growing its business in the lunch and dinner categories.

Now, RBI has set its sights on improving operations and sales at Burger King. Late last year, the company appointed industry veteran Patrick Doyle to the role of executive chairman, after he spearheaded a turnaround as CEO at Domino's Pizza between 2010 and 2018.

Since arriving at RBI, Doyle has made improving franchise profitability a key focus. While franchise profitability has fallen at both Tim Hortons and Popeyes, Burger King's earnings before interest, taxes, depreciation and amortization (EBITDA) are below both brands. Tim Hortons franchisees saw EBITDA reach an average of $220,000 per location (down from $320,000 in 2018), while Popeyes was $210,000 (down from $230,000) and Burger King's was $140,000 (down from $180,000).

'Reclaim the Flame'

In the United States, Burger King has struggled with bankruptcies by two big franchisees. The company closed a net of 124 locations in the first quarter, and Kobza says it expects to shut between 300 and 400 more restaurants this year.

"There will always be a minority who aren't dedicated, enthusiastic operators and that's okay. We'll work with them to leave the system and move on to do something else," Doyle said.

"There simply is no room for franchisees who are not willing or able to work hard to operate restaurants that are better than the system average over the long term."

RBI says it will spend $400 million on a "Reclaim the Flame" plan aimed at turning around accelerating sales growth and franchisee profitability at Burger King. The company plans to spend $150 million on advertising and digital investments, and another $250 million in remodels and relocations and adding new restaurant technology and kitchen equipment. So far, RBI has spent $20 million on advertising and $25 million on remodels.

While there are concerns about a broader consumer slowdown, executives say RBI's brands are well positioned for any macroeconomic environment.

"Tim's is 40 per cent of our earnings and, if anything, there is still a tailwind from increased mobility year-over-year in Canada," Doyle said.

"That business generating really nice traffic growth (that) we feel pretty darn optimistic about because you're continuing to have more mobility year-over-year in Canada."

With files from Reuters

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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