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Restaurant Brands (QSR) Banks on Digital Efforts, Traffic Low

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Restaurant Brands International Inc. (QSR - Free Report) is likely to benefit from digital initiatives, solid comps growth and menu innovation. Also, focus on expansion initiatives bodes well. However, pandemic-induced soft traffic is a concern.

Let us discuss the factors highlighting why investors should retain the stock for the time being.

Factors Driving Growth

Restaurant Brands has been focusing on the expansion of delivery via digital platforms to drive growth. Two years ago, the company had just couple of hundred restaurants in North America on delivery. Currently, it has more than 10,000 active restaurants across its three brands, with most offering delivery via the company’s digital platforms. During fourth-quarter 2021, Tims Canada generated more than 1/3 of its sales from digital channels. Popeyes and Burger King home markets generated 16% and 9% of their sales through digital channels, respectively. The company witnessed solid contributions from sales through digital channels in international markets (more than 50%). In 2021, global digital sales came in at approximately $10 billion, thereby contributing more than 30% to its total system-wide sales. The company’s performance has been primarily driven by attributes such as growth in delivery, an increase in mobile order and pay as well as continued traction in loyalty program.

Despite the coronavirus crisis, the company impressed investors with solid comps. The company reported sequential improvements in comps across all of its segments. During fourth-quarter 2021, comps in the Tim Hortons (Canada) and Burger King (international business) rose 180 and 320 basis points quarter over quarter to 11.3% and 19.4%, respectively. The upside was primarily driven by solid promotions with respect to its core platform along with a rise in delivery and digital sales. Going forward, the company continues to focus on improving services through comprehensive training, better restaurant operations, reimaging efforts and attractive menu options. This will help the company enhance overall guest satisfaction and drive comps.

During fourth-quarter 2021, the company made solid progress with regards to its core products with ingredients. In the breakfast category, the company stated to have benefited from cracked eggs platform as well as steak and egg breakfast sandwich, thereby boosting morning daypart sales ahead of 2019 levels. The company reported sequential improvement in hot beverage sales on the back of its brewed coffee offerings as well as handcrafted espresso beverages. The combination of richer and bolder recipes, dairy alternatives and equipment tune-ups, with respect to espresso-based beverages added to the upside. QSR also benefited from its plant-based product offerings particularly in Europe. During the quarter, the company unveiled the veggie version of its iconic Long Chicken — in Spain and Germany. Backed by positive customer feedback, the company is optimistic in this regard and intends to expand the platform in new markets in Europe and across the globe.

Restaurant Brands believes that there is a huge opportunity to grow all its brands around the world by expanding its presence in existing markets and entering new markets. In January 2022, the company announced a Master Franchise and Development Agreement with the Silla Group subsidiary to boost its Popeyes portfolio in the South Korea region. The company will open its first restaurant in 2022. QSR intends to evaluate opportunities to ramp up international development by establishing master franchisees with exclusive development rights and joint ventures with new and existing franchisees. Also, it plans to focus on its pipeline to deliver solid net restaurant growth in 2022.

Concerns

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Shares of Restaurant Brands have declined 14.7% in the past year compared with the industry’s 5.6% fall. The downside was caused by the coronavirus crisis. Pandemic-induced restrictions, labor challenges and supply chain disruptions have taken an enormous toll on the company. Although the majority of dining services are open, traffic is still low compared with pre-pandemic levels. The company intends to monitor the situation on a regular basis to gauge the impacts of COVID-19.

Zacks Rank & Key Picks

Restaurant Brands currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1Rank (Strong Buy) stocks here.

Some better-ranked stocks in the Zacks Retail-Wholesale sector include Genesco Inc. (GCO - Free Report) , Arcos Dorados Holdings Inc. (ARCO - Free Report) and Tapestry, Inc. (TPR - Free Report) .

Genesco sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 2,739.6%, on average. Shares of the company have increased 28.1% in the past year.

The Zacks Consensus Estimate for Genesco’s 2022 sales and earnings per share (EPS) suggests growth of 35.3% and 673.7%, respectively, from the year-ago period’s levels.

Arcos Dorados carries a Zacks Rank #2 (Buy). ARCO has a long-term earnings growth of 24.7%. Shares of the company have increased 55.5% in the past year.

The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 9.2% and 148.9%, respectively, from the year-ago period’s levels.

Tapestry carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 28.2%, on average. Shares of the company have declined 17.1% in the past year.

The Zacks Consensus Estimate for Tapestry’s 2022 sales and EPS suggests growth of 17.5% and 22.9%, respectively, from the year-ago period’s levels.