Restaurant Brands International (QSR, Financial)
Restaurant Brands' sales continued to improve through July due to the company's quick response to Covid-19, the benefits of its off-premise and value-focused business model, and the easing of shelter-in-place orders. While Restaurant Brands' share price has recovered more than 90% from its bottom in March, it still remains down 13% year to date, and 28% below its high last year prior to the onset of the Coronavirus.
In addition to bolstering safety procedures, QSR shifted its marketing to highlight its off-premise business including drive-thru, delivery, and digital ordering. The company is making significant digital investments by expanding its delivery footprint, driving mobile app adoption, and improving loyalty programs. To support franchisees, the company moved from fixed to variable rent at locations it controls, and temporarily deferred rents for certain franchisees. QSR also provided franchisees with additional liquidity from rebates and cash advance programs, and by pausing capital commitment requirements.
At Burger King U.S., same-store sales have improved to flat, primarily due to an increase in drive-thru sales. At Popeyes U.S., same-store sales quickly recovered, now growing in the high-twenties percent, even as this year's sales begin to lap the launch last year of its highly successful chicken sandwich. While Tim Horton's same-store sales have recovered to negative low-single-digits percent in the U.S., they remain in the negative mid-teens percent in Canada due to a slower pace of reopening, and lower drive-thru penetration. With the easing of shelter-in-place orders, more than 90% of QSR's restaurants are now open.
As a result of the company's quick actions and significant recovery in sales along with the support of various government programs, management estimates that the vast majority of franchisees at all three concepts are cash-flow positive in their home markets. The company expects its system-wide unit growth to be flat in 2020 as it works with franchisees to optimize its global footprint, and to return to its mid-single-digit historical growth rate in 2021.
We believe that each of Restaurant Brands' concepts will emerge stronger from the crisis as its restaurant concepts are competitively advantaged in a socially distant and more budget-conscious consumption environment, enhanced by the company's continued investment in drive-thru, delivery and digital.
We believe that Restaurant Brands' current valuation does not reflect its improving business fundamentals, strengthening competitive position, ample liquidity, and long-term unit growth opportunity. We believe that as underlying sales trends at each of its brands, in particular, Tim Hortons, continue to improve, QSR's share price will more accurately reflect our view of the company's business fundamentals.
From Bill Ackman (Trades, Portfolio)'s Pershing Square 2020 semiannual shareholder letter.
