Burger King 'clearly a focus' for Restaurant Brands: Analyst

Shares of Restaurant Brands International (QSR) moved lower in early trading on Friday after posting its third quarter results. Earlier this year, Burger King, one of the company's brands, leaned in on the fan-favorite Whopper and renovations of its locations, in an attempt to catch up to rival fast-food chains. Though sales did improve in the third quarter, it still fell short of analyst estimates. Popeyes was the only Restaurant Brands International chain that beat third-quarter sales estimates.

Guggenheim Securities Senior Analyst Gregory Francfort joins Yahoo Finance to discuss the future of restaurants and innovation within fast-food. When it comes to Restaurant Brands, Francfort says the company is trying to get Burger King "in a better place." "It has been the weak spot in Restaurant Brands' earnings and P&L. It's clearly a focus for the company going forward."

When it comes to the chicken wars, Francfort states: "You're seeing Chick-Fil-A and Raising Canes, they are putting up the strongest AUVs in the restaurant industry, in the fast food space, but in terms of what's public, we saw results from Wing Stop over the past week where they're putting up 15% same store sales... I think in terms of innovation, I think it's a lot of companies continuing to deliver a really good value to the customer, and you're seeing good value in chicken, and these companies are leaning in there. "

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Video Transcript

BRAD SMITH: Restaurant brands taking a hit from disappointing same store sales from Burger King. The burger chain has been trying to make a comeback in the US after lagging its rivals for years. The biggest part of the turnaround plan was leaning into the Whopper and renovating its restaurants.

There was one bright spot in the report, though. Fried chicken is still king. Popeyes was the only chain to beat expectations for same store sales growth. You might remember Popeyes recently overtook KFC as the number two chicken chain in the US. So chicken or burgers, where should the company focus its future?

Let's bring in Gregory Francfort, who is the Guggenheim Securities senior analyst, to discuss this. Let's start there. Where should they focus their future?

GREGORY FRANCFORT: I think you make a great point on chicken. Chicken has been the brightest spot for the restaurant industry. If you look at Restaurant Brands earnings, you see what's going on. Popeyes is only 11% of profitability in the quarter. But it's growing units 11% globally. The entire business is growing forward. So they're clearly making a bet. They're clearly driving chicken. And as a category, it's clearly been the place to be.

AKIKO FUJITA: I'm getting hungry just thinking about all these brands right now. I will say. But let's talk about the main drivers, as you see it. What are the levers that you think they can pull?

GREGORY FRANCFORT: They brought in a new chairman, Patrick Doyle, who used to be-- if you remember the CEO of Domino's pizza executed a big turnaround there. One of his lieutenants at Domino's Tom Curtis is turning around the Burger King US business. And so they're putting $400 million of capital into Burger King US, into the 7,000 stores here, which, I think, is a commitment and an emphasis on trying to get that business in a better place.

It has been the weak spot in Restaurant Brands' earnings and P&L. And it's clearly a focus for the company going forward.

BRAD SMITH: And so as you think about where we've seen the chicken sandwich wars transpire over the years and continue to hold some ground, it seems like there has been a bit of, perhaps, a new re-ignition of innovation. How do companies innovate or reiterate on top of what they had already put out there? Is there a clear answer? Have we heard a clear way forward from companies?

GREGORY FRANCFORT: I think it's a good point. I think you're seeing strength actually in the private companies. You're seeing Chick-Fil-A and Raising Cane's. They are putting up these strongest AUVs in the restaurant industry in the fast food space.

But in terms of what's public, we saw results from Wingstop over the past week, where they're putting up 15% same store sales. You saw upside clearly in Popeyes. I think in terms of innovation, I think it's a lot of companies continuing to deliver a really good value to the customer. And you're seeing good value in chicken. And these companies are leaning in there.

AKIKO FUJITA: Greg, when you think about where the consumer is today, we've talked a lot about, yes, they are still spending, but they're starting to pull back in many ways. What tailwind does this current economic environment provide to a name like, Restaurant Brands?

GREGORY FRANCFORT: I think one of the things that we've been thinking about is as you've seen an increase in interest rates, an increase in cap rates, you've seen consumers lean into lower ticket, affordable ways to get an experience. And restaurants provide that.

And so restaurant spending has actually held in pretty well here the last couple months and couple quarters. And we would expect that to continue in the near term. So I think that's one area of the economy that it's actually not really slowing materially. Restaurants have held. And I think, OK.