QSR - Restaurant Brands International

[KCLarkin]

One area where QSR could have a big impact is the supply chain. The combined scale of BK and DPZ would give QSR enormous negotiating leverage.

[KCLarkin]

Last year, QSR grew earnings 33% but trailed S&P by 9%. So the stock now looks pretty attractive on a relative basis (22x 2018E). Note that it still has plenty of debt. I'm thinking of making this a 5% position.

 

Globe & Mail roundup of Q4 earnings:

 

Better-than-anticipated fourth-quarter financial results led RBC Dominion Securities analyst David Palmer to raised his target price for shares of Restaurant Brands International Inc. (QSR-N, QSR-T).

 

"We continue to believe that Restaurant Brands' highly visible unit growth and SSS drivers should support long-term revenue growth of 7 per cent, which, with leverage, should ladder up to a 15-per-cent-plus total return after considering the company's extraordinary cash flow generation prospects and now 3-per-cent dividend yield," he said. "Using this growth rate, RBI's current 2018 estimated price-to-earnings multiple of 22 times implies a 2018 P/E to growth ratio of 1.5 times. Lastly, the company's 5-per-cent free cash flow yield (2018E) and 3-per-cent dividend yield stack up well against peers when considering the outsized growth we expect in 2018 and potential for future concept growth through M&A."

 

On Monday, the parent company of Tim Hortons and Burger King reported earnings per share, excluding one-time items, of 66 US cents, exceeding analysts' average estimate of 57 US cents.

 

"We highlighted what we thought were the six reasons that RBI stock has underperformed since last fall: 1) tax rate uncertainty; 2) aggressive competition from a more modern McDonald's; 3) negative publicity in Canada; 4) revenue recognition changes; 5) supply chain margin downside; and 6) rising interest rates," said Mr. Palmer. "Some clarity was given, including that management was 'happy' with the current level of Tim Hortons margins and that it expects a 'low 20's tax rate,' which we suspect may be conservative. In addition, further clarification of the impact of revenue recognition may come with the release of the 10-K filing. That said, while competition in Canada from McDonald's and others could continue to pressure Tim's lunch daypart, we are hopeful that new leadership, including the addition of former BK North America President Alex Macedo as President of Tim Hortons, will help move the chain in the right strategic direction. Lastly, the market seems to be reacting favorably to the company's dividend announcement, which raised its annual payout to $1.80 per share, bringing RBI's yield to 3 per cent —well above that of peers. We look forward to discussing these and other 'big picture' items during our meetings with RBI management next month."

 

In reaction to the results, Mr. Palmer hiked 2018 and 2019 EPS estimates to US$2.74 and US$3.10, respectively, from US$2.71 and US$3.06, citing "stronger" Burger King same-store sales trends in the U.S. as well as "stable" Tim Hortons Canada SSS and margin trends.

 

With an "outperform" rating, his target increased by US$1 to US$78. The average is $71.67.

 

Elsewhere, CIBC World Markets analyst Mark Petrie lowered his target to US$73 from US$75 with an unchanged "outperformer" rating.

 

"We value the balanced approach QSR takes to multiple aspects of its business, from menu innovation to unit growth strategies to capital allocation," said Mr. Petrie. "In our view, it is this balance, and the attendant discipline around spending of all kinds, that supports a premium earnings multiple and positive view on the shares overall. Our price target is reduced modestly ... but we maintain our Outperformer rating, and QSR remains one of our top picks in the Consumer Discretionary space."

Credit Suisse analyst Jason West lowered his target to US$71 from US$74 with an "outperform" rating.

 

Mr. West said: "As usual, QSR provided limited forward guidance with 4Q results. However, commentary around tax reform impact and Tim Horton's Canada were better than feared. We believe shares may continue to recover as investors revisit the name given improved understanding and visibility around some of the key concerns in the story. Despite the 6-per-cent relief rally on Monday, QSR remains one of the cheapest names among franchised restaurants on cash flow metrics. We also continue to see optionality with the balance sheet, as net debt/EBITDA should approach 4.5 times by year-end 2018 vs. as high as 7 times in recent years."

[gfp]

Purely anecdotal, but my research suggests QSR has a big hit on their hands with the chick-fil-a ripoff chicken sandwich launch.  I'm in New Orleans, of course, so it could be less popular elsewhere.  Seems like they properly researched and executed this product launch and it will be a big winner for Popeyes.

[Gregmal]

Purely anecdotal, but my research suggests QSR has a big hit on their hands with the chick-fil-a ripoff chicken sandwich launch.  I'm in New Orleans, of course, so it could be less popular elsewhere.  Seems like they properly researched and executed this product launch and it will be a big winner for Popeyes.

 

I actually just went out and tried this and it is pretty impressive. Might I even say, better. But the difference to me, is this is a fast food sandwich and clocks in at almost 700 calories, with the meal putting it into the 1200-1300 range. Part of what I think makes Chic-Fila unique, is that its fairly healthy compared to other food joints. Sandwich is 450 calories and 800 or so for the whole meal. Chic-Fila is also slightly cheaper, and overall, I think safe here as if anything, I see this canibalizing Popeyes other menu items, rather than poaching Chic-Fila customers.

[DTEJD1997]

Purely anecdotal, but my research suggests QSR has a big hit on their hands with the chick-fil-a ripoff chicken sandwich launch.  I'm in New Orleans, of course, so it could be less popular elsewhere.  Seems like they properly researched and executed this product launch and it will be a big winner for Popeyes.

 

I tried stopping in my local Popeye's for a late lunch.  They were "out" of chicken sandwiches!

 

I somehow got the impression that they were out because of mismanagement and not that people had been storming into the store demanding the chicken sandwich though.

 

Local location is weakly managed.  You have to wait a while, and they frequently mess up the order in minor ways.  For example, no sauce or fork to eat the red beans & rice with.

 

I've often wondered that if instead of paying $1 or $2 more than minimum wage and taking whatever type of worker they can get, why not start at minimum wage+$1.  Then, after every 4 months or so, if the worker shows up on time, does quality work, then give a $.50/hour raise.  After a few years, a diligent worker could be making $15+ an hour.  Give workers modest benefits after a year or so.

 

Instead, you've got unmotivated workers...lines of customers waiting, damage to your brand....pay extra, get better than average workers!  See the sales increase, quality & satisfaction go up.  What am I missing here?

[KCLarkin]

I tried stopping in my local Popeye's for a late lunch.  They were "out" of chicken sandwiches!

 

I somehow got the impression that they were out because of mismanagement and not that people had been storming into the store demanding the chicken sandwich though.

 

Based on social media, I believe they were truly sold out in many locations. Popeye's is a relatively small chain (1/3 the revenue of Chick-fil-a) so I think it is legitimate that even a small "storm" of customers would overwhelm them. Their production is also not optimized for high volume, so any jump in demand is likely to overwhelm them. But I agree that customer service is not a strength.

 

I'm not sure if selling out is a good thing or a bad thing. Some people will find the product more alluring because it is hard to get.

 

I highly disagree with Gregmal's comment about this sandwich cannibalizing Popeye's other menu items. Menu innovation is a major driver of same store sales for quick serve restaurants. If this is a hit, it should increase frequency of visits and maybe even attract some people who don't go to Popeye's. I agree that it is unlikely to poach from Chic-Fil-A, since they have such a loyal customer base (but also is controversial due to anti-LGBTQ activities and is closed on Sundays).

 

I'm expecting a nice bump in Same Store Sales. Combined with the Impossible Whopper, I think RBI will have a nice quarter. I just wish they could fix Tim Horton's -- they have really hurt that brand.

[rogermunibond]

I would imagine the chicken sandwich rollout is just the beginning.  They need to steal more from the CFA menu and add more varieties of nuggets, strips etc.

 

I tried the chix sandwich and thought it was pretty good.  $3.99 for the sandwich compared to $3.69 for CFA isn't bad.

 

Where Popeye's probably needs to improve is with their chicken tenders.  They look processed to death with the round puck shape.  Also get rid of fried shrimp.

[DTEJD1997]

I tried stopping in my local Popeye's for a late lunch.  They were "out" of chicken sandwiches!

 

I somehow got the impression that they were out because of mismanagement and not that people had been storming into the store demanding the chicken sandwich though.

 

Based on social media, I believe they were truly sold out in many locations. Popeye's is a relatively small chain (1/3 the revenue of Chick-fil-a) so I think it is legitimate that even a small "storm" of customers would overwhelm them. Their production is also not optimized for high volume, so any jump in demand is likely to overwhelm them. But I agree that customer service is not a strength.

 

I'm not sure if selling out is a good thing or a bad thing. Some people will find the product more alluring because it is hard to get.

 

I highly disagree with Gregmal's comment about this sandwich cannibalizing Popeye's other menu items. Menu innovation is a major driver of same store sales for quick serve restaurants. If this is a hit, it should increase frequency of visits and maybe even attract some people who don't go to Popeye's. I agree that it is unlikely to poach from Chic-Fil-A, since they have such a loyal customer base (but also is controversial due to anti-LGBTQ activities and is closed on Sundays).

 

I'm expecting a nice bump in Same Store Sales. Combined with the Impossible Whopper, I think RBI will have a nice quarter. I just wish they could fix Tim Horton's -- they have really hurt that brand.

 

If they can improve their sales...so much the better.  I am skeptical though if they will put a dent in Chik-Fil-A though.

 

My local Popeyes looks like they recruit from prison release.

 

They also have a sign on their back door for employees to keep the door closed & locked, as "YOUR LIVES MAY DEPEND ON IT".  Of course, they have bullet proof glass in the front.

 

This store is not in Detroit, it is on 9 mile road, NOT 8 mile road!!!! 

 

I only go through the drive through, that way I can make a quick getaway if needed...

[KCLarkin]

I am skeptical though if they will put a dent in Chik-Fil-A though.

 

Given their size, relative to CFA and other fast food restaurants, they don't need to put a dent in CFA to get a nice bump in SSS. The question is whether the bump will be sustainable or if this is just a fad.

 

 

[merkhet]

I don't know if it's sustainable or not, but I think the main thing missed is that the competitive advantage of CFA is not the chicken -- it's the service. A better Popeye's chicken sandwich will maybe take market share from other places, but I doubt it will convert CFA folks to Popeye's folks.

[DooDiligence]

Drove past a Popeyes at 5ish pm today & there were cars wrapped around the building waiting to get to the drive up.

 

I drive by this same store quite a bit (and eat there too) and can't remember seeing this much traffic.

 

Does this sandwich have crack in it?

[KCLarkin]

https://blog.placer.ai/2019/08/26/the-chicken-wars-victor/

 

[sleepydragon]

https://blog.placer.ai/2019/08/26/the-chicken-wars-victor/

 

I went to my local Popeyes yesterday at 11am, and the chicken sandwich is sold out!

Did they hire the marketing team from Apple?!

[gfp]

Thanks for the link - its interesting to see some nationwide figures.  It's hard to tell how Popeye's is doing in general when you are in Louisiana, where it holds a sort of special place in the local culture.

 

Popeye's also had a dedicated UberEats operation at the location I visited, and the drive through line stretched out into a major street, causing a big traffic backup at a stop light several blocks behind.  At risk of that old yogi Berra joke, 'nobody goes there anymore, its too crowded'

[DooDiligence]

https://blog.placer.ai/2019/08/26/the-chicken-wars-victor/

 

I went to my local Popeyes yesterday at 11am, and the chicken sandwich is sold out!

Did they hire the marketing team from Apple?!

 

Same here, but only tried one location for lunch.

 

Wanted to try one because I've noticed the same lines as described here "stretching into the street" on multiple days.

 

I stood in line inside & didn't learn they were out until I got to the front of the line.

 

Seems pretty slack to make people wait like that.

Announce it on the outdoor signage instead of pissing people off.

 

I left without ordering & won't be going back any time soon.

 

"That's all I can stands, cuz I can't stands n'more!"

"Where's the entrance to the exit?"

 

Churches & Publix have great fried chicken too.

[sleepydragon]

https://blog.placer.ai/2019/08/26/the-chicken-wars-victor/

 

I went to my local Popeyes yesterday at 11am, and the chicken sandwich is sold out!

Did they hire the marketing team from Apple?!

 

Same here, but only tried one location for lunch.

 

Wanted to try one because I've noticed the same lines as described here "stretching into the street" on multiple days.

 

I stood in line inside & didn't learn they were out until I got to the front of the line.

 

Seems pretty slack to make people wait like that.

Announce it on the outdoor signage instead of pissing people off.

 

I left without ordering & won't be going back any time soon.

 

"That's all I can stands, cuz I can't stands n'more!"

"Where's the entrance to the exit?"

 

Churches & Publix have great fried chicken too.

 

Before college I worked at Popeyes for two summers. I always loved the food. I should have bought the stock (it was trading at 35 PE before being acquired)

[Gregmal]

From my experience the food is always great but the employees are a little rough around the edges to say the least....although the best chicken places Ive ever been to all shared that characteristic.

[sleepydragon]

From my experience the food is always great but the employees are a little rough around the edges to say the least....although the best chicken places Ive ever been to all shared that characteristic.

 

Yeah, when I worked there I shouted at customers sometimes, but they all tried to smile back cuz they want their chicken. Lol.

The work environment was stressful cuz so many customers and hot oily smelling air. I had many customers who came in and paid for a meal using a cup of pennies and nickels.

[Gregmal]

From my experience the food is always great but the employees are a little rough around the edges to say the least....although the best chicken places Ive ever been to all shared that characteristic.

 

Yeah, when I worked there I shouted at customers sometimes, but they all tried to smile back cuz they want their chicken. Lol.

The work environment was stressful cuz so many customers and hot oily smelling air. I had many customers who came in and paid for a meal using a cup of pennies and nickels.

 

Haha yea I don't know what it is, other than maybe a culture thing, but this again highlights where Chic-Fila is an outlier. By me there's a place called Chicken & Rib Crib. The places would make you want to vomit. Tattooed up dudes with jeans hanging off their asses and hairnets halfway on, cockroaches on the floor, obvious drug transactions occurring outside the store. But Ive still never had chicken like the wings they serve. Crispy as heck outside and moist inside. Wings the size of your fist. An order of 20 is like $10. People are whores for good food. Thats why the Popeyes sandwich will do well. The rest of their stuff IMO never really stood out.

[BG2008]

"People are whores for good food. Thats why the Popeyes sandwich will do well. The rest of their stuff IMO never really stood out."

 

I miss the cheap eats in Flushing and Chinatown.  We never cared about the attitudes or lack of service.  I have literally been called "that fat guy" in a local dialect by one of the woman.  As the Chinese and Korean community have gotten wealthier, you don't have the same grunt mentality of running a restaurant.  The new food concepts are minimized menus and lots of bubble tea shops or just other gimmicky restaurants with 20-25 years old who can't cook jack.  I am really going to miss good Chinese food in the next decade or 2. 

 

 

[Spekulatius]

"People are whores for good food. Thats why the Popeyes sandwich will do well. The rest of their stuff IMO never really stood out."

 

I miss the cheap eats in Flushing and Chinatown.  We never cared about the attitudes or lack of service.  I have literally been called "that fat guy" in a local dialect by one of the woman.  As the Chinese and Korean community have gotten wealthier, you don't have the same grunt mentality of running a restaurant.  The new food concepts are minimized menus and lots of bubble tea shops or just other gimmicky restaurants with 20-25 years old who can't cook jack.  I am really going to miss good Chinese food in the next decade or 2.

 

If the flow from emigrants from China dries up, good authentic Chinese food will be harder and harder to find. There is just no way 2nd or 3rd generation emigrants from China are going to work their but off to run a Chinese restaurant.

[SHDL]

I happen to do a lot of serious cooking at home but man Chinese cooking is difficult (and labor intensive).  One would think that good Chinese food would therefore deserve a premium, but interestingly it has always been one of the cheapest dining options in the US.  No wonder supply is dwindling.  I’ve been to a lot of great (but expensive) Chinese restaurants around the world but none of them were in the US, interestingly. 

[gfp]

https://www.rbi.com/file/Index?KeyFile=402720224

 

Popeye's brand Q4 sales up 42.3%, Same store sales 34.4%...  That's one way to make up for "over-paying"

 

We'll see where it stabilizes.  But regardless, they are going to grow unit count huge at Popeye's from here.

[Okonomen]

https://www.rbi.com/file/Index?KeyFile=402720224

 

Popeye's brand Q4 sales up 42.3%, Same store sales 34.4%...  That's one way to make up for "over-paying"

 

We'll see where it stabilizes.  But regardless, they are going to grow unit count huge at Popeye's from here.

 

But nevertheless sales in their dominant segments franchises are struggling on a comparable basis

[mwtorock]

https://www.rbi.com/file/Index?KeyFile=402720224

 

Popeye's brand Q4 sales up 42.3%, Same store sales 34.4%...  That's one way to make up for "over-paying"

 

We'll see where it stabilizes.  But regardless, they are going to grow unit count huge at Popeye's from here.

 

But nevertheless sales in their dominant segments franchises are struggling on a comparable basis

 

It is actually alarming that Tim Horton's is still not doing well...