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Restaurant Brands (QSR) Banks on Menu Innovation, Comps Soft

Zacks Equity Research
·5-min read

Restaurant Brands International Inc. QSR is poised to benefit from menu innovation, re-imaging initiatives and digital efforts. Also, increased focus on the loyalty program bodes well. In the past three months, shares of the company have gained 9.2% compared with the Zacks Retail – Restaurants industry’s 7.9% growth.

However, dismal comps at Tim Hortons and Burger King as well as decline in traffic due to coronavirus pose concerns.

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

Factors Driving Growth

Restaurant Brands continues to focus on improving its level of service through comprehensive training, improved restaurant operations, reimaging efforts and attractive menu options to enhance overall guest satisfaction, and thereby drive comps. Notably, the company expects to drive traffic by expanding the customer base and continuing to build brand leadership in food quality and taste.

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

Meanwhile, Restaurant Brands is taking initiatives to re-image its restaurants to a more modern decor. Notably, 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. It plans to complete the rollout of Tim Hortons drive-thrus in the United States and approximately half of its drive-thrus locations in Canada by the end of 2020. Meanwhile, the remaining Canadian locations are likely to get upgraded in 2021. Overall, the company plans to install outdoor digital menu board technology at more than 10,000, drive-thrus locations in the United States and Canada.

Apart from the re-imaging initiatives, the company 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 U.S. 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.

Moreover, 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 for 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. Notably, the company is focusing on digital as well as other valuable tool to drive digital adoption and guest registration as well as the Tim's Rewards Program.

Concerns

The coronavirus outbreak has rattled the Retail - Restaurants industry, and Restaurant Brands hasn’t survived the same. Although the company 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. As a result, the environment in Canada stays challenging.

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. It was 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 Brinker International, Inc. EAT, Del Taco Restaurants, Inc. TACO and Fiesta Restaurant Group, Inc. FRGI. Brinker sports a Zacks Rank #1, while Del Taco and Fiesta Restaurant carry a Zacks Rank #2 (Buy).

Brinker has a trailing four-quarter earnings surprise of 116.6%, on average.

Del Taco and Fiesta Restaurant’s earnings in 2021 are expected to surge 41.4% and 418.8%, respectively.

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