By MARINA STRAUSS
Tuesday, February 13, 2018
Investors of the parent of Tim Hortons reacted favourably to its fourth-quarter results with profit beating analysts' expectations, helped by strong sales at the company's Burger King business despite some softness at the iconic coffee-and-donut chain.
Shares of parent Restaurant Brands International Inc. rose more than 6 per cent to close at $75.48 on the Toronto Stock Exchange. They had previously fallen 17 per cent since their peak in late October amid the company's strained relations with some of its Tim Hortons franchisees and tensions over managing higher minimum wages in Ontario.
RBI said on Monday it was more than doubling its dividend for the first quarter of 2018 to 45 US cents a share from 21 US cents a share, a hike that "is larger than anything we would have predicted," said Mark Petrie, retail analyst at CIBC World Markets.
But on the minimum-wage controversy, RBI chief executive Daniel Schwartz said Tim Hortons would focus on bolstering sales to make up for any cost inflation, without suggesting he was yielding to franchisees' push for higher prices to offset the added expense pressure.
"As it pertains to the Tims brand, the business is strong, the brand is healthy and we're working closely with our restaurant owners to drive sales for many years to come to offset any inflation we may face," Mr. Schwartz told an analyst conference call.
RBI grappled with worker protests last month after its franchisees responded to higher minimum wages in Ontario by clawing back some benefits and paid breaks to make up for the added costs. The protests added to the bad publicity for Tim Hortons that some analysts said was one of the factors driving down RBI's stock price.
But Mr. Schwartz did not indicate how Tim Hortons was performing in its current first quarter of this year when January's protests took place. On Jan. 1, minimum wages rose 21 per cent in Ontario, the chain's key market.
In its fourth quarter, Tim Hortons sales at restaurants open a year or more, a key industry indicator, rose 0.1 per cent compared with 0.2 per cent a year earlier and slipped 0.1 per cent for 2017, down from a 2.5-per-cent lift in 2016.
Still in Canada, where Tim Hortons has struggled with unhappy franchisees and tensions over minimum-wage increases, those same-restaurant sales were higher at 0.8 per cent. On the other hand, outside of Canada those critical sales may have fallen as much as 7 per cent, said David Palmer, an analyst at RBC Dominion Securities.
Same-store sales at RBI's Popeyes Louisiana Kitchen division also were soft, dropping 1.3 per cent in the fourth quarter compared with a 2.8 per cent increase a year earlier.
Mr. Schwartz, who has focused more on the Tim Hortons business amid the tensions with franchisees, said the chain was challenged by a weak economy in Western Canada as well as in its lunch business.
But he said he is encouraged by the opportunities in introducing more of its Tim Hortons customers to its relaunched espresso-based coffee as well as a new digital order-and-pay app and new lunchtime sandwiches.
He said the company is putting more focus than ever on technology to help build the business, having recently named its previous chief financial officer, Josh Kobza, as chief technology and development officer, while promoting another RBI executive, Matt Dunnigan, as chief financial officer.
In its fourth quarter, Tim Hortons's gross profit margin failed to rise for the second quarter in a row after having increased in past quarters.
But Mr. Dunnigan said the company is happy with those levels.
Some Tim Hortons franchisees have complained that RBI was overcharging them for some supplies and the company lowered some prices it charges its restaurant owners although they say the reductions aren't enough.
CIBC's Mr. Petrie said with the big boost in the dividend payout, RBI may not be as quick to do an acquisition in the coming year but is more likely to concentrate on improving sales momentum and accelerating international growth at both Tim Hortons and Popeyes. RBI acquired Popeyes last March.
Mr. Kobza said Tim Hortons' U.S. growth is progressing at a slower pace than the company had initially anticipated. But he said expansion outside of North America is advancing well, including new restaurants in Britain and the Philippines and the first ones in Spain and Mexico.
In Canada "we're still growing quite well," he said.
"You'll see us continue to do that in the future in Canada, we just chose to be a bit more selective in 2017."
In the United States "our progress there has been slower than we had hoped" but the company still sees it as "a really big long-term opportunity," he said.
RBI of Oakville, Ont. said its same-restaurant sales at Burger King, known for its Whopper burgers and onion rings, rose 4.6 per cent in the quarter ended Dec. 31. Analysts on average had expected growth of 2.5 per cent, according to Consensus Metrix.
RBI's net profit attributable to shareholders more than tripled to US$395-million or US$1.59 per share while total revenue climbed 11 per cent to US$1.23-billion.
Excluding one-time items, the company earned 66 US cents per share, beating analysts' average estimate of 57 US cents, according to Thomson Reuters I/B/E/S.
RESTAURANT BRANDS INTERNATIONAL (QSR) CLOSE: $75.48, UP $4.39
RBI grappled with worker protests last month after Tim Hortons franchisees responded to Ontario's minimum-wage hike by cutting some benefits.
DOUG IVES/THE CANADIAN PRESS