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Restaurant Brands (QSR) Banks on Unit Growth, Traffic Dismal

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Restaurant Brands International Inc. (QSR - Free Report) is likely to benefit from unit expansion, digitalization, loyalty program and menu innovation initiatives. However, dismal comps at Tim Hortons along with coronavirus-related woes are concerns.

Let us discuss the factors that highlight why investors should hold on to the stock for the time being.

Factors Driving Growth

Restaurant Brands believes that there is a huge opportunity to grow all its brands around the world by expanding its presence in existing markets as well as entering new markets. Currently, it has more than 27,000 restaurants worldwide, which includes 4,987 Tim Hortons restaurants, 18,691 Burger King restaurants and 3,495 Popeyes restaurants. Nonetheless, it continues to focus on its pipeline to deliver solid net restaurant growth in 2021.

During first-quarter 2021, Tim Hortons announced new round of funding from Tencent (existing investor) and Sequoia Capital and Eastern Bell (new investors) to support the opening of 200 new Tim Hortons restaurants in China in 2021. Notably, the company expects to open 1500 restaurants over the initial term of the agreement.  Moreover, the company announced plans to expand Popeyes in the U.K., India, Mexico and Saudi Arabia. Going forward, the company plans to open 1,000 Popeyes restaurants over the next 10 years.

Restaurant Brands continues to focus on the expansion of delivery via digital platform amid the pandemic. Currently, the company has more than 10,000 active restaurants across its three brands, with most offering delivery via its digital platforms. Restaurant Brands announced that delivery sales have increased significantly compared with their pre-crisis levels. During first-quarter 2021, digital sales from Burger King contributed 9% to total sales, while digital sales from Popeyes contributed 17% to total sales. At Tim Hortons in Canada, digital sales contributed 31% to total sales during the quarter.

During the first quarter, the company rolled out new Royal Perks loyalty program at its Burger King restaurants. Moreover, the company unveiled a new digital first loyalty program at Popeyes. With significant progress made in terms of user experience and gaining more active users, the company is optimistic about its potential for the brand over the long term. Going forward, the company plans to integrate loyalty cards into the digital channel, basically through their mobile app.

Meanwhile, Restaurant Brands continues to focus on improving its level of service through comprehensive training, better restaurant operations, reimaging efforts and attractive menu options. This will help the company enhance overall guest satisfaction and drive comps. Notably, the company expects to drive traffic by expanding the customer base and continuing to build brand leadership in food quality and taste. During the first quarter of 2021, the company made solid progress with regards to its core products with ingredients. This includes French toast sandwich, The Sourdough King and Cheesy Tots from Burger King and Cajun Flounder Sandwich from Popeyes. Also, the company initiated the roll out of hand breaded chicken sandwich in half of its Burger King restaurants in the United States.

Concerns

The coronavirus pandemic has negatively impacted the operations of Restaurant Brands, which shares space with McDonald's Corporation (MCD - Free Report) , The Cheesecake Factory Incorporated (CAKE - Free Report) and Yum China Holdings, Inc. (YUMC - Free Report) in the Zacks Retail - Restaurants industry. Although the company has reopened most of its restaurants, the company is likely to witness dismal traffic due the social distancing protocols. During the first quarter, sales in Canada, Europe, and Brazil were negatively impacted by the reimposed lockdowns.

Due to the pandemic, comparable store sales at Tim Hortons declined during first-quarter 2021. Comps at Tim Hortons fell 2.3% compared with 10.3% fall in the prior-year quarter. The downtick was primarily caused by temporary closures of certain restaurants, owing to the pandemic.

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