Restaurant Brands reports US$163M Q4 profit, narrowly tops expectations

The parent company of Tim Hortons narrowly topped profit expectations for its fourth quarter, but touted improvement in the coffee-and-doughnut chain’s Canadian business after executives worked to mend a tumultuous relationship with some franchisees.

Restaurant Brands International Inc. said comparable sales at its Canadian Tim Hortons locations grew 2.2 per cent for the quarter ended Dec. 31, 2018 — the highest that figure has been in the last 10 quarters.

“Importantly, our momentum in the fourth quarter is an indication that the winning together plan that we developed with our franchisees in early 2018 is working,” said Daniel Schwartz, who recently stepped down as CEO to assume the executive chairman role, during a conference call with analysts Monday morning.

The plan includes improving product offerings, restaurant experience and brand communication.

It came as RBI worked to overcome negative media coverage after a group of disgruntled franchisees banded together and formed the Great White North Franchisee Association to give a voice to franchisees amid alleged mismanagement.

The group filed two class-action lawsuits against its parent company, and it and RBI executives engaged in a public spat accusing each other of various misdeeds. The two sides recently made a significant step in settling the two lawsuits and expect to have a fulsome settlement agreement before a judge on March 21.

Schwartz also pointed to continued strength in breakfast foods thanks to all-day breakfast offerings, an October hockey card program and strong holiday offerings, including innovative new beverage for helping to improve results in Canada.

The company plans to continue that momentum into this year as it will roll out a new loyalty program later in 2019.

RBI tested seven markets with a number of different possible programs, said Tim Hortons president Alex Macedo in an interview. While market testing is still happening, the company’s already determined what the program will look like and plans to roll it out “soon.”

One analyst on the conference call appeared skeptical that a loyalty program would result in more purchases at Tim Hortons rather than simply giving away the product for free.

“What we want is guests feeling that they’re being rewarded for their loyalty and, at the same time, restaurant owners making more money,” said Macedo. “And the mechanic that we landed on delivers exactly on that.”

RBI’s new CEO Jose Cil later echoed that same sentiment, saying the program drove additional sales and more frequent visits during the market tests.

The company also continued to boast its international expansion plans for the brand, including planning for more than 1,500 stores in China over the next decade. Though, one analyst wondered why executives are so confident the coffee chain brand would be successful outside of Canada, where it is lesser known than at home.

“Some markets are of course doing better than others,” Cil acknowledged on the call, but said the company feels good about how consumers are engaging with the brand in all of its new markets. Tim Hortons now operates in the Philippines, the United Kingdom, Mexico and Spain. Executives say it will “soon” open its first store in China.

RBI’s adapted the brand more to local consumers’ needs and wants in those markets, he said.

It’s not had to make any changes on the beverage side as it realized its coffee drinks tend to be “global flavours,” said Macedo.

However, the company’s changed its food offerings abroad, he said, including serving quesadillas in Mexico and tostadas for breakfast in Spain.

The discussion came as RBI, which keeps its books in U.S. dollars, reported its fourth-quarter results.

The company, which also includes Burger King and Popeyes restaurants, said its profit attributable to common shareholders amounted to US$163 million or 64 cents per diluted share. That compared with a profit attributable to common shareholders of $395 million or $1.59 per diluted share in the same quarter a year earlier.

On an adjusted basis, the company earned 68 cents per share for the quarter. Analysts on average had expected a profit of 67 cents per share for the quarter, according to Thomson Reuters Eikon.

Revenue for the quarter totalled $1.39 billion, up from $1.23 billion a year ago.

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