On August 2 Restaurant Brands International Inc. (TSX:QSR)(NYSE:QSR) released its second-quarter earnings for 2017. In February, it added the Popeyes Louisiana chain to its quick-serve restaurants for $1.8 billion. The company has also been caught in a bitter internal conflict with Tim Hortons franchisees over sweeping changes that have been initiated by management to improve processes.
Revenue in Q2 was reported at $1.13 billion — up from $1.04 billion in 2016. Quarterly sales growth saw a decrease of 0.8% at Tim Hortons and growth of 3.9% at Burger King — up from a 0.1% decline reported in the previous quarter.
Tim Hortons reported revenues of $772.3 million — up 1.6% from the second quarter of 2016 as it posted system-wide sales growth. System-wide sales increased 2.6%, a decline from the 4.8% increase in Q2 2016 and the 3.3% in Q1 2017. The aforementioned 0.8% decline in quarterly sales growth comes after a decrease of 0.1% in the first quarter.
Burger King saw revenues reach $293.7 million — an increase of 4.7% from Q2 2016, again, owing to system-wide sales growth. System-wide sales were up 10.6%, demonstrating impressive growth from the 5.9% increase in the same period the previous year and the 6.2% growth in Q1 2017.
Though the report represented a disappointment for Tim Hortons, Popeyes posted the worst numbers of the group. Total revenue was reported at $66.7 million. System-wide sales grew 3.3% — down from the 6.5% posted in Q2 2016. Quarterly sales declined 2.7% — down from 0.2% the previous quarter and growth of 0.7% in the second quarter of 2016.
Restaurant Brands International announced that it had entered a joint venture agreement to bring the Tim Hortons brand to Spain this year.
CEO Daniel Schwartz praised the efforts of company franchisees over the course of the report. The report also noted the growth of adjusted EBITDA to $531 million — up 9% versus the results of the previous year. Daniel Schwartz made note of the 2.6% system-wide sales growth of 2.6%, which he attributed largely to accelerated net restaurant growth of 4.3%. He also pointed to “softness” in lunch and baked goods products that led to the 0.8% drop in sales.
Restaurant Brands International stock has seen growth of 30% in 2017 and 33% year over year. Shares rose after second-quarter earnings broke, even with some analysts commenting on the mixed results from the respective chains. The company will hope to ease tensions with Tim Hortons franchisees as the chain now attempts to break a two-quarter losing streak for sales growth. The further decline at Popeyes was ultimately mitigated by very strong growth at Burger King.
After impressive gains in 2017, I would label the stock a hold as we enter the final months of 2017. Investors should be waiting eagerly for third-quarter earnings after a drop in sales in two straight quarters for Tim Hortons and Popeyes. The company also announced price increases, which will now come into effect at Tim Hortons, so keep an eye on the response of customers.
