Yahoo Finance Expansion Efforts to Aid Restaurant Brands (QSR), Costs High
Restaurant Brands International Inc. QSR is likely to benefit from expansion efforts, menu innovation and the loyalty program. Also, the focus on the Royal Reset investment program bodes well. However, inflationary pressures are a concern.
Let us discuss the factors highlighting why investors should retain the stock for now.
Factors Driving Growth
Restaurant Brands believes there is a huge opportunity to grow all its brands worldwide by expanding its presence in existing markets and entering new markets. In 2022, the company entered into master franchise agreements for the PLK brand (in Indonesia, New Zealand, Poland, the Czech Republic and Taiwan), the BK brand (in Poland, the Czech Republic and Romania) and the TH brand (in Pakistan). It also reported development agreements for the PLK brand in Singapore, Dominican Republic, Puerto Rico, Kazakhstan and Honduras. In fourth-quarter 2022, the company opened about 700 new restaurants in international markets.
QSR intends to evaluate opportunities to ramp up international development by establishing master franchisees with exclusive development rights and joint ventures with new and existing franchisees.
The company emphasizes foundational improvements across menu innovation, digital and operations to drive growth. QSR officially launched its Reclaim the Flame plan to enhance all aspects of the guest experience and advance sales in the United States. The company initiated Fuel the Flame advertising co-investment with the launch of You Rule. The company anticipates the initiative to boost advertising fund contributions from participating franchisees through 2028.
The company initiated a $250-million Royal Reset investment comprising Royal Reset Refresh and Royal Reset Remodel program to increase its media firepower, grow traffic and amplify the fundamental improvements. Royal Reset Refresh involves a $50-million investment in new point-of-sale terminals, kitchen display screens and indoor digital menu boards. The Royal Reset Remodel program provides access to $200 million of funding for high-quality, high-return remodels. The company anticipates the program to cover most restaurants in 2023.
The company’s loyalty program is gaining popularity. Restaurant Brands stated that following a rapid ramp-up phase, nearly half of the customers pay through Tim's Rewards. During the fourth quarter of 2022, the company’s global digital sales increased 24% year-over-year to over $3.5 billion. It reported heightened guest engagement backed by integrated marketing campaigns. With significant progress in user experience and more active users, the company is optimistic about its potential for the respective brands over the long term. The company intends to integrate loyalty programs into digital boards to derive synergies.
In the past six months, shares of Restaurant Brands have gained 24.1% compared with the industry’s growth of 18.8%.
Image Source: Zacks Investment Research
Concerns
The company has been continuously shouldering increased expenses, which have been detrimental to margins. n 2022, total costs of sales came in at $2,312 million, up from $1890 million reported in the prior-year quarter. The downside was primarily driven by spikes in commodity inflation. Moreover, labor challenges are a headwind. Although most dining services are open, traffic is still low compared with pre-pandemic levels. The company intends to monitor the situation regularly to gauge the impacts of COVID-19.
Zacks Rank & Key Picks
Restaurant Brands currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Zacks Retail-Wholesale sector are Chuy's Holdings, Inc. CHUY, Arcos Dorados Holdings Inc. ARCO and Bloomin' Brands, Inc. BLMN.
Chuy’s Holdings currently sports a Zacks Rank #1. CHUY has a trailing four-quarter earnings surprise of 19.1%, on average. Shares of CHUY have increased 37.7% in the past year.
The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 10.8% and 19%, respectively, from the corresponding year-ago period’s levels.
Arcos Dorados currently sports a Zacks Rank #1. ARCO has a long-term earnings growth of 7.8%. Shares of the company have declined 1.8% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2024 sales and EPS suggests growth of 8% and 11.4%, respectively, from the year-ago period’s levels.
Bloomin' Brands carries a Zacks Rank #2 (Buy). BLMN has a long-term earnings growth rate of 12.3%. The stock has gained 15.9% in the past year.
The Zacks Consensus Estimate for Bloomin' Brands 2024 sales and EPS suggests growth of 2.4% and 5.5%, respectively, from the year-ago period’s reported levels.
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Restaurant Brands International Inc. (QSR) : Free Stock Analysis Report
