Restaurant Brands Int'l sees 2023 sales growth across chains

Shares of Restaurant Brands International (QSR) — the parent company of chains Burger King, Tim Hortons, and Popeyes — are sliding Tuesday morning despite posting positive fourth-quarter earnings results. In its quarterly report, the company continued to see system-wide sales grow over 12% for 2023.

TD Cowen Senior Research Analyst Andrew Charles joins Yahoo Finance to discuss the company's position on consumer resilience.

When asked about the consumer landscape in China in relation to restaurants, Charles says:
"In terms of a blanket end, we know the coffee business in China has been one where you're seeing irrational competitors that are lower priced relative to a Starbucks (SBUX), for instance. And because coffee is such a high-margin product — because the competitors are seeing economies of scale from rapid growth as well as from franchising which is also providing cash flow as well for them —the coffee market is probably showing to be the most competitive."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

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RACHELLE AKUFFO: Shares of Restaurant Brands International moving to the downside this morning. That's despite beating on the top and bottom line in the fourth quarter. The company is seeing system-wide sales growth signaling the continued strength of the consumer.

Let's bring in Andrew Charles, TD Cowen senior research analyst, to discuss more. Thank you for joining us this morning. So talk about the reaction that you're seeing in the stock price here and what this means about consumer resilience, this story that we keep continuing to hear in earnings.

ANDREW CHARLES: Absolutely. So good morning. So on the positive, we were very pleased with Burger King US same-store sales of 6.4%. Exceeded investor expectations for round of six or so and the published sell side estimates around a five. Then Tim Hortons Canada, really the big surprise this quarter, 8.7% same-store sales growth.

Expectations were firmly for a five. We're also very pleased with the disclosure around the home market franchisee profitability that surged for BK US and fared very well for both Popeyes as well as for Tim Hortons. The stock reaction you're seeing today, I think, reflects a noisy EBITDA miss that we saw largely due to a three up-- true up, excuse me, for the Tim Hortons supply chain business, combined as well with some headwinds that the Burger King business faced in the Middle East, as well as Western Europe and China.

I'd also point out as well that during the conference call, the company tempered the rate of development for 2024 for net restaurant growth of 4.5% roughly from expectations of 5% before, largely due to China. So two kind of conflicting dynamics today. Very solid performance in the home markets. Some more noise on EBITDA as well as on the outlook for unit growth.

BRAD SMITH: How does that restaurant development also kind of flow through even into the franchisee story for this company?

ANDREW CHARLES: Yeah, absolutely. I mean, think of the unit growth as more of an output for the efforts they're putting into place and the strength you're seeing for the US and Tim Hortons Canada franchisee development. Particularly for Burger King US, it's fewer closures that are being guided to for 2024 versus 2023.

And then the development story here, really an international story. Yes, you have some white space for the big brands in their home markets, particularly for Popeyes. But really, about the unit growth expansion opportunity international where it's very fertile for growth, China was cited though as the key reason for tempering the unit development pace for '24 versus '23.

RACHELLE AKUFFO: And are you getting any indication of how the sands might change going forward? We've already seen sort of slower consumer consumption in China, a leading market that a lot of these companies are still trying to expand when it comes to fast food and fast casual.

ANDREW CHARLES: Yeah, in terms of a blanket answer, we know the coffee business in China has been one where you're seeing irrational competitors that are lower priced relative to a Starbucks, for instance. And because coffee is such a high-margin product, because the competitors are seeing economies of scale from rapid growth as well as from franchising, which is also providing some cash flow as well for them, the coffee market is probably going to be the most competitive.

As it relates to the hamburger and fried chicken market in China, broadly speaking, that's been one where you're seeing more value competition heating up in those markets. Harder just given that the gross margin profile of hamburger and fried chicken not as good as coffee. So the discounts can't be as irrational. But China as a whole is clearly showing signs of slowing. And in the coffee business, in particular, more competition that's really flowing into that.

BRAD SMITH: You know, when we think about these companies, what do they need to show the consumer in terms of menu innovation in order to retain the consumer spend, the appetite and mind share, as we're looking at a consumer that's looking for deals, looking for value, even in all of their purchases, especially within this food-away-from-home category?

ANDREW CHARLES: Yes, I've learned a long time ago that brands are known for what they're known for. So what I mean by that is if you see Popeyes doing an extension with chicken wings that were permanently reintroduced in November, that's been cited as doing very well for them. You know, Burger King right now really leaning in hard to the Whopper.

These are core equities of the business that I would expect to continue to really bear fruit as we're bullish on the outlook for Restaurant Brands going forward. You know, I would say what's really off brand is when you see intensified discounts, when you see menu innovation that really isn't in a brand's lane. That's where I'd say it's a bit more worrisome. We're not seeing any signs of that here though.