Restaurant Brands International Inc. QSR will likely benefit from strong comps growth, menu innovation and digitalization efforts. Also, the focus on the strategic investments bodes well. However, inflationary pressures are a concern.
Let us discuss the factors highlighting why investors should retain the stock.
Factors Driving Growth
Restaurant Brands continues to impress investors with solid comps growth. In first-quarter 2023, the company’s consolidated comparable sales came in at 10.3% compared with 7.4% reported in the prior-year quarter. Comps in Tim Hortons (or “TH”), Burger King (“BK”) and Popeyes (“PLK”) came in at 13.8%, 10.8% and 5.6% compared with 8.4%, 9.9% and (3%) reported in the prior-year quarter. The upside was primarily driven by higher traffic, strengthening of core offerings, enhanced restaurant operations and pricing initiatives.
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 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. As of Mar 31, 2023, the company funded $20 million and $25 million toward the Fuel the Flame investment and Royal Reset investment.
During first quarter 2023, digital sales increased 30% year over year, courtesy of strong contributions from kiosks and delivery. The company reported solid digital sales in markets such as France and Spain. The company’s performance has been primarily driven by attributes such as growth in delivery, an increase in mobile order and pay as well as continued traction in the loyalty program. The company remains optimistic about the growth of digital sales in international markets, backed by various service modes.
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In the past six months, shares of Restaurant Brands have gained 22% compared with the industry’s growth of 11%.
The company has been continuously shouldering increased expenses, which have been detrimental to margins. In first-quarter 2023, total costs of sales came in at $550 million, up from $494 million reported in the prior-year quarter. The upside was primarily driven by spikes in commodity, labor and energy costs. The company is cautious in this regard as further increases in inflation could result in foreign exchange volatility and rising interest rates thereby affecting the business.
Zacks Rank & Key Picks
Restaurant Brands currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector are Arcos Dorados Holdings Inc. ARCO, Chipotle Mexican Grill, Inc. CMG and Chuy's Holdings, Inc. CHUY.
Arcos Dorados currently sports a Zacks Rank #1 (Strong Buy). ARCO has a long-term earnings growth rate of 7.8%. The stock has gained 27.9% in the past year. You can see the complete list of today’s Zacks Rank #1 stocks here.
The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales suggests growth of 13.4% from the year-ago period’s levels.
Chipotle carries a Zacks Rank #1. CMG has a long-term earnings growth rate of 31.8%. The stock has improved 60.4% in the past year.
The Zacks Consensus Estimate for Chipotle’s 2024 sales and EPS suggests growth of 12.4% and 20%, respectively, from the year-ago period’s levels.
Chuy’s Holdings carries a Zacks Rank #2 (Buy). CHUY has a trailing four-quarter earnings surprise of 23.4%, on average. Shares of CHUY have increased 55.8% in the past year.
The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 10.1% and 23.4%, respectively, from the year-ago period’s levels.
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