After seven straight quarters of declining same-store sales amid menu challenges and competitive pressure, Restaurant Brands-owned Tim Hortons finally appears to be turning the corner.
Global same-store sales for Tim Hortons — which operates nearly 5,100 restaurants, primarily in Canada and was purchased by Restaurant Brands (QSR) for $11.4 billion in 2014 — grew 27.6% in the second quarter. The coffee and donut chain had the best sales performance within a Restaurant Brands portfolio that also includes Burger King and Popeyes.
“We’ve invested quite a bit in food quality and beverage quality. We’ve launched fresh cracked eggs. We’ve also launched our cold brew, our quenchers and our new ring-filled donuts,” said Jose Cil, CEO of Restaurant Brands on Yahoo Finance. Live, referring to the burgeoning turnaround. The company also sees an influx of digital ordering in the chain thanks to a new loyalty program.
Cil added: “We are seeing improvements in breakfast and beverage share, which gives us confidence that we are on the right track to get the business back on track in a growth trajectory.”
As a sign of that confidence in the brand’s prospects, Cil told analysts on a conference call that Tim Hortons will open 200 locations in China this year. The company will also add digital menu boards for the drive-thru at all Tim Hortons Canadian locations by the end of the year.
“A key part of our positive statement was an undervalued rebound in Tim Hortons Canada’s core businesses, based on sustainable, long-term drivers that should translate into equity gains and better cash flow prospects for Restaurant Brands,” said Wells Fargo analyst Jon. Tower.
Tower reiterated his buy recommendation for Restaurant Brands and raised its price target from $90 to $94.
Meanwhile, global same-store sales for the second quarter at Burger King increased 18.2%. Global sales of the same Popeyes store fell 0.3%.
Here’s how Restaurant Brands performed compared to Wall Street’s estimates for the second quarter.
Net sales: $1.44 Billion vs $1.37 Billion
Adjusted Operating Profit: $577 million vs. $526.2 million
Adjusted Diluted WPA: 77 cents versus 61 cents
Restaurant brands shares are up 12% year-to-date, underperforming the 17% gain of the S&P 500.
Other analysts were positive about what they saw in Restaurant Brands’ second quarter, most notably Tim Hortons.
“[There is] light at the end of the tunnel for Tim’s,” said Jefferies analyst Alexander Slagle. “Daytime initiatives [are] begins to pay off, with breakfast gaining market share (including coffee) driven by the success of product innovation (quality of ingredients, fresh cracked eggs, beverages) and lunch day portion returns to pre-C[OVID]19 volumes, aided by traction in the Craveables platform.”
Slagle reiterated his Hold rating on Restaurant Brands stock, but raised its price target from $70 to $74.