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Surging Burger King lifts Restaurant Brands International

But the company's Tim Hortons and Popeyes chains both struggled to win over consumers last quarter.

Burger King’s U.S. same-store sales rose 5.1% in the quarter ended Dec. 31, parent company Restaurant Brands International said on Monday, as the chain’s “balanced” menu approach continues to win over consumers in a competitive market.

The performance, which capped a year in which Burger King’s systemwide sales rose 10.1%, helped investors overlook continued weakness at RBI’s Tim Hortons and Popeyes brands. RBI’s stock surged nearly 7% on Monday.

“We invested in renovating the system, improved marketing, launched good menu offerings, improved operations,” RBI CEO Daniel Schwartz said on the company’s fourth quarter earnings call on Monday. “The combination of that allowed us to grow sales per restaurant and profitability per restaurant for many years.”

Burger King’s system sales worldwide were $20.1 billion in 2017, after operators built another 1,000 global locations, giving the burger chain 16,767 total units, including 7,226 in the U.S. Global same-store sales rose 3.1% for the year, including 2.5% in the U.S.

But the chain’s U.S. same-store sales improved dramatically in the second half of the year thanks to a combination of value offers, such as two Whoppers for $6, while the chain has continued to develop innovative menu items, such as the Bacon King and Cheesy Tots.

Its performance has come despite strong results at rivals McDonald’s and Wendy’s amid an intense, competitive environment. “The QSR industry has been competitive, and it will be competitive,” Schwartz said. “That hasn’t changed our approach of offering a balance of value and premium. You’ll continue to see this balance.

“If we stick to our plans and work hard with strong franchise partners, we’ll be able to grow the business.”

But growth has been slower at the Oakville, Ontario-based company’s Tim Hortons brand, which is strong in Canada but has little presence in the U.S. and internationally.

Tim's same-store sales rose 0.8% in Canada, where 3,918 of the chain’s 4,748 locations are located. Overall, same-store sales were flat, suggesting that same-store sales declined in the U.S. and other markets.

The moderate growth came as the chain debuted new espresso-based drinks as well as its mobile app.

Executives also said that they deliberately kept unit count growth at a more modest pace to be “more selective” about new units.

“We decided to be a little bit more selective,” said Josh Kobza, RBI’s chief technology and development officer. He noted that the chain still added more than 100 locations in its home market last year. “We continue to grow our base at a healthy rate and will continue to do that going forward. We just chose to be a little bit more selective in 2017.”

Tim Hortons has faced some challenges in its home market, notably lawsuits filed by franchisees there against the corporation, following the formation of a franchisee association there.

The brand also faces similar challenges in the U.S., where operators have sued the brand. The company itself also filed lawsuits to terminate franchisees in Minnesota and Missouri.

On the call, Kobza said that the U.S. is “a huge growth opportunity for Tim Hortons over the long term,” but, “our progress there has been slower than hoped. We see that in the results so far. But we remain committed to that market.”

Executives also have high hopes for Popeyes despite a decline in same-store sales. The chain’s same-store sales in the fourth quarter declined by 2.5% in the U.S., culminating a challenging year in which same-store sales fell 2.2%. RBI bought Popeyes in the spring.

Schwartz blamed the problem on “heightened competitive activity” in the quick-service chicken market, with brands pushing a lot of value.

But he also said that same-store sales early in the first quarter “have improved sequentially,” and the brand has been testing marketing efforts that the company hopes will build momentum later this year.

Popeyes operates nearly 2,900 locations, most of them in the U.S., and the company believes it could add locations domestically and internationally in the coming years.

“We’re quite encouraged with the outlook for the Popeyes business,” Schwartz said. “Unit economics continue to be quite strong and we’re confident in our ability to drive sales growth for operators in the long run.”  

Restaurant Brands International said revenues rose 10% to $1.2 billion in the quarter. Net income in the quarter more than tripled to $395 million, or $1.59 per share, from $118.4 million, or 50 cents a share, in the same period a year ago. The company’s earnings were better than analysts expected.

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