Yahoo Finance Why this big donut chain is seeing a resurgence
After seven straight quarters of same-store sales declines amid menu challenges and competitive pressures, Restaurant Brands-owned Tim Hortons finally appears to be turning the corner.
Second quarter global same-store sales for Tim Hortons — which operates nearly 5,100 restaurants mostly in Canada and was purchased in 2014 by Restaurant Brands (QSR) for $11.4 billion — rose 27.6%. The coffee and donut chain had the best sales performance from within a Restaurant Brands portfolio that also includes Burger King and Popeyes.
"We have been investing quite a bit in quality of food and quality of beverages. We launched fresh cracked eggs. We also launched our cold brew, our quenchers and our new ring-filled doughnuts," Restaurant Brands CEO Jose Cil said on Yahoo Finance Live, referring to the budding turnaround. The company has also seen an influx of digital ordering at the chain thanks to a new loyalty program.
Added Cil, "We are seeing share improvements in breakfast and beverages which gives us confidence we are on the right path to get the business back on track in a growth trajectory."
In a show of that confidence in the brand's outlook, Cil told analysts on a conference call Tim Hortons will open 200 locations in China this year. The company is also adding digital menu boards for the drive-thru at all Tim Hortons Canadian locations by year-end.
"A key piece of our positive thesis has been an underappreciated resurgence in the core Tim Hortons Canada business predicated on sustainable, long-term drivers that should translate into share gains and a better cash flow outlook for Restaurant Brands," said Wells Fargo analyst Jon Tower.
Tower reiterated his Buy rating on Restaurant Brands and hiked the price target to $94 from $90.
Meanwhile, global same-store sales for the second quarter at Burger King rose 18.2%. Popeyes global same-store sales fell 0.3%.
Here is how Restaurant Brands performed compared to Wall Street estimates for the second quarter.
Net Sales: $1.44 billion vs. $1.37 billion
Adjusted Operating Profits: $577 million vs. $526.2 million
Adjusted Diluted EPS: 77 cents vs. 61 cents
Restaurant Brands shares are up 12% year-to-date, underperforming the S&P 500's 17% gain.
Other analysts liked what they saw from Restaurant Brands' second quarter, in particular Tim Hortons.
"[There is] light at the end of the tunnel for Tim's," said Jefferies analyst Alexander Slagle. "Initiatives across day parts [are] starting to bear fruit, with breakfast seeing share gains (including coffee) driven by the success of product innovation (quality of ingredients, fresh cracked eggs, beverages) and lunch day part returning to pre-C[OVID]19 volumes, helped by traction in Craveables platform."
Slagle reiterated his Hold rating on Restaurant Brands shares but lifted the price target to $74 from $70.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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