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Solid Comps Aid Restaurant Brands (QSR), High Costs Ail
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Restaurant Brands International Inc. (QSR - Free Report) is benefiting from strong comparable sales growth, expansion initiatives and menu innovation. In the past year, the stock has gained 21.2% compared with the industry’s growth of 8.8%. However, elevated inflationary pressures and a shift in consumer discretionary spending are concerns.
QSR has an impressive long-term earnings growth rate of 8.3%. In 2023, its earnings and sales are likely to witness growth of 1.9% and 8.5% year over year, respectively.
Let’s delve deeper.
Growth Drivers
The Zacks Rank #3 (Hold) company impressed investors with solid comps. In second-quarter 2023, consolidated comparable sales came in at 9.6% compared with 8.2% reported in the prior-year quarter. Comps in Tim Hortons, Burger King and Popeyes were 11.4%, 10.2% and 6.3% compared with 12.2%, 8.7% and 1.4%, respectively, reported in the prior-year quarter. The upside was primarily driven by higher traffic, strengthening of core offerings, enhanced restaurant operations and pricing initiatives.
The company is also gaining from expansion efforts. During second-quarter 2023, QSR opened 169 net new restaurants, contributing to a 4.1% year-over-year growth in the overall restaurant count.
QSR initiated its global expansion, unveiling its first overseas Firehouse location in Zurich, Switzerland. The restaurant, which features Firehouse menu and an innovative guest-centric design including 100% digital ordering, will be serving potential international development opportunities in the future. The company is very optimistic about growth opportunities in 2023 and remains on track to grow its restaurant base toward its long-term goal of 40,000 locations.
Restaurant Brands continues to focus on improving its level of service through comprehensive training, improved restaurant operations, reimaging efforts and attractive menu options to enhance overall guest satisfaction, and thereby drive comps.
During second-quarter 2023, it witnessed solid top-line performance in its Popeyes brand. This was fueled by various factors including expansion of chicken sandwich platform, introduction of Ghost Pepper Wings, innovation in beverages and desserts, and a substantial 22% gain in digital sales. In the United States, Popeyes reported rises of 4.2%, 5.1% and 9.4% in comparable sales, net restaurants and system-wide sales, respectively.
The company has an unwavering focus on its goal to drive traffic and revenues at its restaurants through core product platforms, a balanced menu design, expansion of delivery business, promotional offerings, efforts to grow breakfast daypart and product launches.
Image Source: Zacks Investment Research
Concerns
The rise in labor and commodity costs continues to hurt QSR. The industry players expect to witness higher costs due to labor and supply-chain shortages for quite some time. Restaurant Brands has been witnessing labor challenges in a handful of markets.
In second-quarter 2023, the total cost of sales was $612 million, up 4.8% from $584 million reported in the prior-year quarter. The upside was mainly driven by an increase in commodity, labor and energy expenses. For 2023, our model predicts the total cost of sales to rise 9.3% year over year to $2526.5 million.
Key Picks
Some better-ranked stocks from the Zacks Retail-Wholesale sector are:
The Zacks Consensus Estimate for ANF’s 2023 sales and EPS implies increases of 10.4% and 1,644%, respectively, from the year-ago period’s levels.
BJ's Restaurants, Inc. (BJRI - Free Report) sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 121.2%, on average. Shares of BJRI have declined 4.6% in the past year.
The Zacks Consensus Estimate for BJRI’s 2023 sales and EPS indicates growth of 5.6% and 447.1%, respectively, from the year-ago period’s levels.
Arcos Dorados Holdings Inc. (ARCO - Free Report) currently carries a Zacks Rank #2 (Buy). ARCO has a long-term earnings growth rate of 11.4%. The stock has gained 34.1% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS suggests rises of 19.2% and 13%, respectively, from the year-ago period’s levels.
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Solid Comps Aid Restaurant Brands (QSR), High Costs Ail
Restaurant Brands International Inc. (QSR - Free Report) is benefiting from strong comparable sales growth, expansion initiatives and menu innovation. In the past year, the stock has gained 21.2% compared with the industry’s growth of 8.8%. However, elevated inflationary pressures and a shift in consumer discretionary spending are concerns.
QSR has an impressive long-term earnings growth rate of 8.3%. In 2023, its earnings and sales are likely to witness growth of 1.9% and 8.5% year over year, respectively.
Let’s delve deeper.
Growth Drivers
The Zacks Rank #3 (Hold) company impressed investors with solid comps. In second-quarter 2023, consolidated comparable sales came in at 9.6% compared with 8.2% reported in the prior-year quarter. Comps in Tim Hortons, Burger King and Popeyes were 11.4%, 10.2% and 6.3% compared with 12.2%, 8.7% and 1.4%, respectively, reported in the prior-year quarter. The upside was primarily driven by higher traffic, strengthening of core offerings, enhanced restaurant operations and pricing initiatives.
The company is also gaining from expansion efforts. During second-quarter 2023, QSR opened 169 net new restaurants, contributing to a 4.1% year-over-year growth in the overall restaurant count.
QSR initiated its global expansion, unveiling its first overseas Firehouse location in Zurich, Switzerland. The restaurant, which features Firehouse menu and an innovative guest-centric design including 100% digital ordering, will be serving potential international development opportunities in the future. The company is very optimistic about growth opportunities in 2023 and remains on track to grow its restaurant base toward its long-term goal of 40,000 locations.
Restaurant Brands continues to focus on improving its level of service through comprehensive training, improved restaurant operations, reimaging efforts and attractive menu options to enhance overall guest satisfaction, and thereby drive comps.
During second-quarter 2023, it witnessed solid top-line performance in its Popeyes brand. This was fueled by various factors including expansion of chicken sandwich platform, introduction of Ghost Pepper Wings, innovation in beverages and desserts, and a substantial 22% gain in digital sales. In the United States, Popeyes reported rises of 4.2%, 5.1% and 9.4% in comparable sales, net restaurants and system-wide sales, respectively.
The company has an unwavering focus on its goal to drive traffic and revenues at its restaurants through core product platforms, a balanced menu design, expansion of delivery business, promotional offerings, efforts to grow breakfast daypart and product launches.
Image Source: Zacks Investment Research
Concerns
The rise in labor and commodity costs continues to hurt QSR. The industry players expect to witness higher costs due to labor and supply-chain shortages for quite some time. Restaurant Brands has been witnessing labor challenges in a handful of markets.
In second-quarter 2023, the total cost of sales was $612 million, up 4.8% from $584 million reported in the prior-year quarter. The upside was mainly driven by an increase in commodity, labor and energy expenses. For 2023, our model predicts the total cost of sales to rise 9.3% year over year to $2526.5 million.
Key Picks
Some better-ranked stocks from the Zacks Retail-Wholesale sector are:
Abercrombie & Fitch Co. (ANF - Free Report) flaunts a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 724.8%, on average. Shares of ANF have surged 226.5% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ANF’s 2023 sales and EPS implies increases of 10.4% and 1,644%, respectively, from the year-ago period’s levels.
BJ's Restaurants, Inc. (BJRI - Free Report) sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 121.2%, on average. Shares of BJRI have declined 4.6% in the past year.
The Zacks Consensus Estimate for BJRI’s 2023 sales and EPS indicates growth of 5.6% and 447.1%, respectively, from the year-ago period’s levels.
Arcos Dorados Holdings Inc. (ARCO - Free Report) currently carries a Zacks Rank #2 (Buy). ARCO has a long-term earnings growth rate of 11.4%. The stock has gained 34.1% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS suggests rises of 19.2% and 13%, respectively, from the year-ago period’s levels.