By Neil Saunders
Restaurant Brands rounds off its fiscal year with a solid set of results which beat expectations for both sales and profits. Overall group revenue climbed by 5.1% — a slacker pace than last quarter, which is understandable given a more unfavorable exchange rate. Thanks to strong cost control, operating income increased by almost 53%.
A healthy pace of new restaurant openings underpinned continued strong performance in BK’s international division.
Burger King was the star of the show, notching up total growth of 8.5%, and reversing the rather lackluster comparable growth trend of the past two quarters with a 2.8% rise. Domestic performance in the U.S. and Canada was a particular highlight: here BK moved from last period’s shrink in sales, to respectable growth of 2.9% on a total basis, and 1.8% on a comparable basis.
The improvement at Burger King is partly a function of the more serious menu innovation, which kicked off before and during the final quarter. Early in the period the introduction of the Bacon King Burger, and the later roll out of the BBQ Bacon King variant, helped to stimulate demand and allowed BK to cash in on the continuing popularity of bacon among diners. The positioning of the product as a premium option to the Whopper ($5.99 versus $4.19) helped to push up average transaction values. Cheesy Tots, which reappeared for a limited time, also proved to be a hit and were supported by a strong social media and marketing campaign. The $1.99 price point made them a popular and inexpensive add-on to meals.
The reigniting of BK’s domestic business was supported by a continued strong performance in the international division. Here total sales growth ranged from 13.1% in EMEA to 20.3% in Latin America. A healthy pace of new restaurant openings underpinned this; underlying growth across the regions also remains robust.
While Burger King forges ahead, Tim Hortons’ performance continues to slide. Comparable sales were particularly disappointing this quarter — both overall and in Canada where they fell 0.2%. Admittedly some of this is down to the fact that TH’s is coming up against tougher prior year comparatives. We also believe that the pace of menu innovation has fallen back since last year when the company introduced new lunchtime options and new treat based indulgences like Nutella pockets.
Despite the more pressured domestic performance, TH’s continues to perform reasonably on an international basis. Although as we have said before, there continues to be a lack of ambition to seriously roll out the format across both the US and further afield. This is something we think the company will start to remedy in the year ahead.
Overall we believe Restaurant Brands is well positioned as it enters its new fiscal year. However, as with other players in the market we remain nervous about costs.
Neil Saunders is managing director of GlobalData Retail.