Shares of Tim Hortons parent take a tumble

TORONTO — Restaurant Brands International Inc. shares fell sharply Wednesday morning after the company reported flat first-quarter sales at its established Tim Hortons and Burger King stores.

RBI shares (TSX:QSR) fell 4.37 per cent or $3.47 to $75.88 in mid-morning trading on the Toronto Stock Exchange, rivalling a four-day decline in February that cut $3.43 from the stock’s value.

The shares are still up from about $63 at the end of last year.

The stock market decline followed RBI’s disclosure that comparable sales at locations open at least a year were down one-tenth of a per cent at both chains, after adjusting for currency fluctuations.

“I can assure you we’re going to be working very hard … to improve the pace of sales growth in the coming quarters,” said CEO Daniel Schwartz, adding the company believes they have the right initiatives in place to drive long-term growth.

Tim Hortons, for example, is starting to serve freshly-ground espresso bean lattes at nearly all of its restaurants Wednesday and the company plans to roll out digital apps for both brands later this year.

However, both initiatives have faced some opposition. Some Tim Hortons franchisees, unhappy with RBI’s management of the coffee-and-doughnut chain, have banded together and formed The Great White North Franchisee Association.

David Hughes, the GWNFA’s president, said in a prior interview that the new espresso machines needed to make the lattes were expensive, costing about $12,000 per unit and $3,000 to install.

The high cost caused problems for some franchisees, said Hughes, who owns five locations in Lethbridge, Alta. He believes not all locations will see a return on investment, especially those that are not stand-alone stores.

Schwartz said he believes the lattes will generate good returns for franchisees regardless of their store location.

The company’s digital app rollout, initially planned for this spring, faced a set back when the GWFNA threatened to seek a court injunction to stop its national introduction planned for March 30, saying the app was not ready.

The company has since expanded its beta test, which started in late December last year at 25 Tim Hortons cafes in Ontario.

Schwartz said the app, which will allow customers to order and pay in advance on their smartphone, is now being tested in every Canadian province and will be launched later this year. Scott Thomson, the association’s spokesman, said the company has given franchisees no further information on the launch date.

The company continues to work with its advisory board of elected franchisees to receive counsel on such initiatives, he said, rather than having direct communication with the GWFNA.

The Oakville, Ont.-based company’s revenue for the first quarter ended March 31 saw a nine per cent increase, which was above analyst estimates.

It increased by $82.1 million to about US$1 billion — about three-quarters of it from Tim Hortons — and adjusted earnings rose 20 per cent to $170.6 million, or 36 cents per share.

The adjusted earnings were two cents above estimates compiled by Thomson Reuters, while revenue was about $10 million above the estimate of US$990.27 million.

RBI’s net income, reported in U.S. dollars, was also flat compared with a year ago, at US$50.2 million or 21 cents per share.

The quarterly financial report follows RBI’s acquisition of Popeyes Louisiana Kitchen, Inc. at the end of March, too late in the quarter to have any meaningful impact. The friendly deal was officially announced on Feb. 21.

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