Burger King's parent's stock slides as profit beat is not enough to offset same-store sales miss

By Ciara Linnane

Burger King saw its first traffic increase since the second quarter of 2021 as turnaround continues

The stock of Restaurant Brands International Inc. - the parent company of fast-food entities Burger King, Tim Hortons and Popeyes - fell 4% Tuesday, after the company beat profit estimates for the fourth quarter but same-restaurant sales fell short of expectations.

The stock (QSR) was headed for its biggest one-day percentage decline in almost two years. The last time it fell this much was April 22, 2022, when it closed down 4.4%, according to Dow Jones Data.

The Toronto-based company posted net income of $726 million, or $1.60 a share, in the quarter - up from $335 million, or 74 cents a share, in the year-earlier period. Adjusted per-share earnings came to 75 cents, ahead of the 73-cent FactSet consensus.

Revenue rose to $1.820 billion from $1.689 billion, matching the FactSet consensus.

Same-restaurant sales rose 5.8%, led by more than 8% growth at Tim Hortons and more than 6% at Burger King U.S. FactSet was expecting a rise of 6.4%.

"During 2022 and 2023, there were increases in commodity, labor, and energy costs which have resulted in inflation, foreign exchange volatility, rising interest rates and general softening in the consumer environment which have been exacerbated by conflicts in the Middle East," the company said in a statement.

The Middle East conflict had an impact on more than a dozen countries, Chief Executive Joshua Kobza told analysts on the company's earnings call.

By segment, sales rose 9% at Tim Hortons, were up 4.9% at Burger King, rose 11.2% at Popeyes Louisiana, and were up 7.8% at Firehouse Subs. International sales rose 12.8%.

Tim Hortons, the Canadian coffee shop chain, typically contributes the most to the company's top line, and has been benefiting from the addition of cold drinks and afternoon snacks.

Burger King, meanwhile, is in a turnaround that involved remodeling restaurants with new technology and increasing the ad spend under a campaign called "Reclaim the Flame."

The chain saw positive traffic for the first time since the second quarter of 2021, said Kobza, suggesting the moves are working.

Burger King U.S. grew franchisee profitability by nearly 50% in 2023, surpassing targets set in 2023 ahead of schedule.

"Given the strong early results from our short-term refresh program as well as the impact of our pending acquisition of Carrols, we now expect to shift approximately $50 million of the $200 million investment previously earmarked for remodels to an expanded short-term refresh initiative," he told analysts, according to a FactSet transcript.

Kobza was referring to Carrols Restaurant Group, the company's biggest U.S. franchisee which Restaurant Brands is acquiring in a $1 billion deal announced in January. That deal is aimed at accelerating the remodeling of restaurants.

Read now: Burger King to buy franchisee Carrols so it can 'rapidly remodel' restaurants

Starting with the fourth quarter, the company is reorganizing its financial reporting into those five operating segments. It has also changed its definition of segment income to adjusted operating income and away from adjusted Ebitda, or earnings before interest, taxes, depreciation and amortization.

The new metric includes depreciation and amortization, excluding franchise agreement amortization, as well as share-based compensation and non-cash incentive compensation expenses.

The stock has gained 12% in the last 12 months, while the S&P 500 has gained 22.8%.

-Ciara Linnane

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02-13-24 1206ET

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