Restaurant Brands' demand growth was strongest at Tim Hortons, which accounts for nearly half of the company’s total revenues.Laura Proctor/The Globe and Mail
Tim Hortons parent company Restaurant Brands International Inc. QSR-T reported a 25-per-cent increase in profits, and better-than-expected sales growth in its third quarter, driven by strong customer demand at the Canadian coffee chain and its international franchises.
The Toronto-based company, which also owns fast-food chains Burger King, Popeyes Louisiana Kitchen and Firehouse Subs, reported net income attributable to shareholders of US$315-million or 97 cents a share in the three months ended Sept. 30, compared to US$252-million or 79 cents a share in the same period last year.
A pullback in consumer spending in the U.S. has affected restaurant sales across the industry this year, and Restaurant Brands has also observed a “choppy” environment in the American market at the beginning of October, chief executive officer Josh Kobza told analysts during a conference call on Thursday.
Despite that, sales and customer traffic improved at Burger King, which Mr. Kobza stressed was not the result of deep discounting. Burger King has been working through a multi-year plan to improve its restaurant operations and renovate tired locations – an effort modeled on the turnaround the company did at Tim Hortons a few years ago.
While the cost of beef this year has reached all-time highs, squeezing profit margins for burger chains, executives believe the problem is temporary, Mr. Kobza said.
The growth in demand was strongest at Tim Hortons, which accounts for nearly half of the company’s total revenues.
As unemployment has been ticking upward in Canada and consumer sentiment has been softening, Tim Hortons has remained “really disciplined about price” and has shown an ability to compete in a difficult macroeconomic economic environment, Mr. Kobza said.
The rising price of coffee beans recently led Tim Hortons to increase its coffee prices by 1.5 per cent. But customers view the chain as offering value at a “fair price,” he told analysts, “and that’s the kind of thing that I think allows you to perform well even in some of the tougher macroeconomic environments, which we observed over the past quarter or two.”
Restaurant Brands’ comparable sales – an important metric that tracks sales growth at locations open for more than one year – grew by 4 per cent, an improvement from this time last year, when sales growth was just 0.3 per cent.
Sales growth exceeded analysts’ estimates, which had predicted 2.1-per-cent comparable sales, according to the consensus estimate from S&P Capital IQ.
A weak spot in the company’s performance was Popeyes, where sales declined and Restaurant Brands is working on addressing “inconsistency” in its operations, Mr. Kobza said. The chain will be shifting some of its marketing strategy away from limited-time offers, which create interest in novelties but do not help to drive repeat customer visits, he added.
Sustained customer demand for Restaurant Brands’ relatively lower-priced fast food options contrasted with results from Chipotle Mexican Grill CMG-N, which on Wednesday cut its annual sales forecasts, hurt by U.S. customers who have been cutting back on spending amid worries about tariffs and inflation.
Chipotle noted a particular drop in demand from American households with incomes of less than US$100,000 per year, and from younger customers.
Restaurant Brands total revenues grew by 6.9 per cent compared to the prior year, to US$2.4-billion in the quarter.