Restaurant Brands International (QSR, Financial) has witnessed some recovery in the first quarter of 2021 driven by strong demand for Popeyes' chicken sandwiches, increased digitalization and the management's brand awareness initiatives. Menu innovation, digital sales and off-premise sales continued to feature as key growth drivers of total sales across the company's three key brands – Burger King, Tim Hortons, and Popeye's.
However, the comparable sales performance has been flat at the restaurant level, dragged down by underperformance in Canada. Thus, could the recent price uptrend be overly optimistic, or could the stock still represent an appealing investment?
Recent financial performance
Restaurant Brands International reported a decent Q1 2021 result with a top-line of $1.26 billion, which implies 2.86% growth as compared to the $1.23 billion in revenue reported in the corresponding quarter of the previous year. The company beat the analyst consensus estimate of $1.25 billion.
These revenues translated into a gross margin of 40.24% and an operating margin of 31.90% which was higher than that in the same quarter of last year.
Restaurant Brands International reported net income of $179 million and adjusted earnings per share (EPS) of 55 cents, which surpassed the average Wall Street expectations by 5 cents.
In terms of cash flows, the company generated $266 million in operating cash flows and spent $7 million in investing activities during the quarter.
Segment developments
Despite declining sales, Restaurant Brands experienced a number of positive trends in the Tim Hortons business in Canada and is encouraged by the opportunity to return to positive sales growth, driven by the decreased Covid-19 infection rates across Canada. The company most recently announced support of $80 million behind the Tim Hortons marketing program in Canada, which could open doors to a tremendous opportunity for growth
It is also worth mentioning that Tim Hortons announced a new round of funding from Tencent (HKSE:00700)(an existing investor) as well as Sequoia Capital and Eastern Bell (new investors) to support the opening of 200 new Tim Hortons restaurants in China in 2021.
With respect to Popeyes, the biggest highlight is the continued strong performance of its chicken sandwich which is driving revenue for the business. With the success of the Popeyes Chicken Sandwich, the management is inclined to continue the long-term menu innovation pipeline.
In addition, the company also entered into agreements to expand Popeyes to the UK, India, Mexico and Saudi Arabia, expected to total more than 1,000 new restaurants over the next 10 years.
With respect to Burger King, the brand has delivered an improvement in franchisee relations and fundamentals through a streamlined menu and aggressive operating cost cuts.
In summary, with a portfolio of three complementary, widely recognized brands and a scalable business model, I believe Restaurant Brands is poised for growth in the long term.
Upside of digital platform
Restaurant Brands continues to focus on the expansion of delivery via digital platforms amidst the pandemic and continues to build a more direct relationship with customers, engaging them with exciting offers that are relevant to them.
Currently, the company has more than 10,000 active restaurants across its three brands, with most offering delivery using digital platforms.
During the first quarter, the company rolled out its new Royal Perks loyalty program at its Burger King restaurants.
The brand's digital sales accounted for 9% of total sales during the recent quarter, representing year-over-year growth of 40%. In addition, the company unveiled a new digital-first loyalty program at Popeyes, which should help drive recurring traffic among members.
Going forward, the management plans to introduce loyalty cards into the digital channel, primarily through their mobile app, which will help to make progress in terms of enhanced user experience and gaining more user loyalty.
Final thoughts
As we can see in the chart above, the stock price of Restaurant Brands has been in recovery mode and has reached pre-pandemic levels owing to the gradual improvement in footfalls and the company's digital successes.
The company is trading at an enterprise-value-to-revenue multiple of 6.7, which may appear to be on the higher side but is significantly lower than rivals such as McDonald's (MCD, Financial).
Overall, in my opinion, the operational strategies behind its core brands should help the company achieve longer-term market share gains, so I rate the stock as a solid "hold."
Disclosure: No positions.
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