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Is Restaurant Brands (QSR) Poised for a Turnaround in 2021?

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Restaurant Brands International Inc. QSR is likely to benefit from digital efforts, re-imaging initiatives and menu innovation. Also, the company’s increased focus on the loyalty program bodes well. However, dismal comps at Tim Hortons and Burger King as well as decline in traffic due to coronavirus pose concerns. So far this year, shares of the company have fallen 4.7% against the Zacks Retail – Restaurants industry’s growth of 13.7%.

Let us delve deeper into factors highlighting why investors should hold on to the stock for the time being.

Factors Driving Growth

Restaurant Brands is investing in technology-driven initiatives like digital ordering to boost sales. The company’s app and digital platforms are allowing it to offer services more effectively and efficiently. During the third quarter, digital sales in the United States represented 8% of total sales at Burger King and 15% of total sales at Popeyes. At Tim Hortons in Canada, digital sales represented 20% of total sales during the quarter.



Also, the company’s loyalty program, Tim's Rewards, is gaining popularity. During the third quarter, the company rolled out personalized tailored offers with respect to Tims Rewards program. Notably, the initiative witnessed high level of engagement, thereby adding approximately 1% to comparable sales in the quarter. Meanwhile, the company rolled out additional signage and provided special training to its team members to highlight the benefits of registration and make the process simple and easy. It also activated delivery directly through the Tims mobile app. The company is focusing on digital as well as other valuable tools to drive digital adoption and guest registration as well as the Tim's Rewards Program.

Restaurant Brands also continues to focus on comprehensive training, improved restaurant operations, reimaging efforts and attractive menu options to enhance overall guest satisfaction and drive comps.

Notably, the company is taking up initiatives to remodel its restaurants to a more modern decor. The company intends to revolutionize the drive-through experience at Burger King and Tim Hortons through the rollout of outdoor digital menu boards on an expedited basis. So far, the company has been witnessing solid sales across 800 upgraded Tim Hortons’ drive-thrus locations across the United States and Canada. Also, 1,500 Burger King drive-thrus locations were upgraded across the United States. Overall, the company plans to install outdoor digital menu board technology at more than 10,000 drive-thrus in the United States and Canada.

Coming to menu innovation, the company made solid progress with regard to its core products during the third quarter of 2020. This includes The Whopper from Burger King along with English muffins and biscuits from Tim Hortons. It also relaunched its Oreo Iced Capp. Restaurant Brands also witnessed positive reaction to its new crispy chicken and roast beef sandwich line-up.

Concerns

Although Restaurant Brands has reopened majority of its restaurants, it is likely to witness dismal traffic due to social-distancing protocols. Owing to a rise in COVID-19 cases in different parts of Canada, municipal governments have re-imposed restrictions, thereby temporarily closing dining rooms in Ontario in early October.

Due to the pandemic, comparable store sales at both Tim Hortons and Burger King declined sharply during the third quarter of 2020. Comps at Tim Hortons fell 12.5% compared with a 1.4% fall in the prior-year quarter. The decline was primarily due to lower system-wide sales. Sales were also negatively impacted by forex movements on a reported basis. Moreover, comps at Burger King declined 7% against growth of 4.8% in the prior-year quarter.

Zacks Rank & Key Picks

Restaurant Brands currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the same space include Jack in the Box Inc. JACK, Ruth's Hospitality Group, Inc. RUTH and FAT Brands Inc. FAT. Jack in the Box sport a Zacks Rank #1, while Ruth's Hospitality and FAT Brands carries a Zacks Rank #2.

Jack in the Box has a three-five year earnings per share growth rate of 10.6%.

Ruth's Hospitality and FAT Brands’ earnings for 2021 are expected to surge 264.6% and 127%, respectively.

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