RBI earnings: Tim Hortons sales slump as parent company beats expectations

Sales at Tim Hortons fell in the first quarter of the year, its parent company said Friday, as COVID-19 lockdowns continued to disrupt morning routines and keep customers at home.

"There's no doubt that the biggest factor affecting our performance at Tims is the continued lockdown of a large majority of the country, significantly affecting mobility," Restaurant Brands International (QSR)(QSR.TO) chief executive Jose Cil said on a conference call with analysts on Friday after the release of first-quarter financial results.

"Americans are experiencing a very different path out of COVID-19 than Canadians today. Canada continues to face strict lockdowns in much of the country with mobility severely restricted."

The disparity when it comes to the COVID-19 recovery can be seen in RBI's financial results for the three-month period ending March 31, which surpassed analyst expectations on the strength of its two other brands, Burger King and Popeyes.

Comparable sales – a key metric in retail that measures sales growth without accounting for new store openings – were up 0.7 per cent in the quarter at Burger King compared to a year earlier, while Popeyes saw 1.5 per cent year-over-year growth. Tim Hortons, meanwhile, experienced a 2.3 per cent decline in comparable sales. When comparing the results to 2019 before the pandemic struck and substantially disrupted the company's operations, comparable sales were flat at Burger King, up 30 per cent at Popeyes and down 14 per cent at Tim Hortons.

Still, the company believes the sales performance will improve as restrictions are eased. Duncan Fulton, RBI's chief corporate officer, said in an interview that Tim Hortons would have experienced positive sales growth in the quarter had it not been for lockdowns, particularly in Ontario, where half of the company's restaurants are located.

"We're clearly seeing that when Canadians are permitted to have more normal routines, they're coming back to Tim Hortons," Cil said on the conference call, noting that comparable sales in rural and suburban areas were flat to slightly positive during the first quarter.

Tim Hortons is in the midst of a back-to-basics strategy that was first launched last year focused on coffee, doughnuts and breakfast. Over the last year, the chain has installed fresh brewer technology that is intended to improve the consistency of its coffee, relaunched its dark roast coffee blend, and recently changed its breakfast sandwiches to feature freshly cracked eggs.

"The momentum in our menu innovations, as well as our strong pipeline of new innovations planned for the back half of the year, and well into 2022, gives us a lot of confidence that our back-to-basics plan is working as we intended," Cil said.

The company will commit $80 million towards marketing Tim Hortons in Canada, which Cil said will "bring more firepower" and "be able to get the message out to Canadians in the coming quarters."

Fulton said that advertising boost will help promote the product improvements at Tim Hortons that have been implemented over the last year.

"We think that the growth opportunity in Canada is not just for this year but for multiple years. As the economy reopens, as new routines get established, we think the growth opportunity is substantial," he said.

RBI, which reports financial results in U.S. dollars, said total sales hit $1.26 billion in the three-month period ending March 31, up from $1.23 billion in the same time last year. Adjusted net income for the company hit $257 million, or 55 cents per diluted share, up from $227 million, or 48 cents per diluted share last year. Analysts on average had expected an adjusted profit of 50 cents per share and $1.25 billion in revenue, according to financial data firm Refinitiv.

System-wide sales growth at Tim Hortons fell 4.9 per cent, compared to a 9.9 per cent decline last year. Total sales at the coffee and doughnut chain increased from $699 million last year to $710 million, as the company opened 62 additional locations.

With files from the Canadian Press

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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