Q2 2021 Restaurant Brands International Inc Earnings Call
[music].
Good morning, and welcome to the restaurant brands International second quarter 2.
2021earnings conference call.
All participants will be in listen only mode.
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Please note this event is being recorded.
I would now like to turn.
I think over to Stephen let shneur.
Or b is head of Investor Relations. Please go ahead.
Thank you operator, good morning, everyone and welcome to the restaurant brands Internationals earnings call for the second quarter ended June 30th 2021.
As a reminder of live broadcast of this call.
Turn the call may be accessed through the Investor relations webpage at Investor RBI Dot com and a recording will be available for replay.
Joining me on the call today are restaurant brands International CEO Jose sale, CLO, Josh Kobza, and CFO, Matt Dunnigan.
Today's earnings call contains forward.
Looking statements, which are subject to various risks set forth and the press release issued this morning, and and our SEC filings.
In addition, this earnings call includes non-GAAP financial measures.
Conciliations of non-GAAP financial measures are included in the press release available on our website.
Throughout the call today, we will be.
Call sync 2 year comparisons for system wide sales growth and comparable sales to provide a cleaner indication of how the business is trending versus a more normalized period.
These 2 year comparisons are calculated on a geometric stacked basis by using the 2020 and 2021 disclosed growth metrics and now I'll.
The reference all over to Jose.
Good morning, everyone. Thank you for joining us on today's call I hope everyone is doing well.
We're pleased with the results this quarter and the progress we've made on several key initiatives, including driving development improving system wide sales growth and enhancing our digital platforms.
Our franchisees our teams.
Turn the kind of restaurant team members continue to amaze us with the incredible work, they're doing and their dedication to our brands and our guests.
We remain confident and the strength of our long term value proposition anchored by our guest centric focus 3 iconic brands scalable franchise model growing digital channels commitment to innovation and relentless pursuit of maximizing.
The value for all stakeholders.
We have a strong track record of driving growth and our prospects looking forward of bright as we advance and our paths of 40000 digitally integrated restaurants, our scale, our growing digital business and our agility expands our capabilities deepens, the strength of our brands and positions us well for exciting.
Compounding growth in the years to come.
And even with investments in digital and across the business, we remain highly cash flow generative.
A testament to the strength of our business model, which has enabled us to consistently return significant capital to shareholders over the past years.
In connection with this and given our increased confidence and the outlook of the business.
And so that our board of directors authorized the new significantly expanded share buyback program of our common stock for up to $1 billion over the next 2 years.
We also paid of 53 cent quarterly dividend on July 7th, resulting in 1 of the highest dividend yields and our industry and our board of directors declared a dividend for the third quarter of <unk> 53.
<unk> to be paid in October.
Now before I dig into our brand level performance I'd like to discuss the highlights from the quarter starting with development.
Around the world, we feel very good about the robust pipeline, we have built with our franchise partners and during the quarter. We opened a new restaurant on average every 6 hours.
Overall for the first half we generate.
<unk> net restaurant growth of 378, 1 of our best first half ever giving.
Giving us confidence and our ability to return to our 2018 and 2019 levels of growth this year.
What's more of our growth this year has been well balanced across markets and brands.
It's been especially encouraging to see both existing and new franchise partners around the world building.
Even more conviction and the power of our brands and business model than before the pandemic.
Over the past decade, we built up of very strong and differentiated foundation for growth with our Master franchise network around the world 1.
1 Great example of this is Burger King, France, where we've effectively built the brand and that market from scratch through a strong partnership with our master franchisee.
<unk> per trend.
And earlier this month, we reached an incredible milestone.
And the 400, Burger King and the country, which puts us on track to generate over 1 billion euros and system wide sales in France by the end of this year.
But France is just 1 of many examples of how quickly our brands can scale and to large businesses. When we create the right foundation for growth was.
Young ambitious partners.
That's why we're so excited for the growth potential of our brands around the world, especially as we continue building relationships with new partners, who are eager to move along a similar path and create exciting new pipelines for our business and high growth markets.
A great example of this is Tim Hortons, China, where we're seeing.
A pronounced acceleration and our development growth curve and remain on track the double the size of that business by opening over 200, new restaurants this year alone.
These are just 2 examples of the many markets around the world, where we're working with partners to develop of our brands and.
And that includes the U S, where we experienced the record second quarter NRG from popeye's, reflecting a.
With strong demand to expand popeye's across new and existing markets and with new and existing franchisees.
With restrictions easing we've also been excited to get back out and the field and meet with our global franchisees.
I recently traveled to Switzerland, and Spain to visit new sites with our partners, including new Popeye's locations in both markets and was encourage the.
See our franchisee partners enthusiasm to extend the footprint of our loved restaurants and these markets.
The second headline to highlight is that we had a solid quarter of system wide sales growth up 32% year over year, and plus 4% versus 2019 of sequential improvement compared to our first quarter.
This is 1 of the benefits of having diversified.
Brands across global markets, so regardless of Lockdowns of continue to restrict mobility and some regions. We can still drive solid system wide sales growth from a global perspective.
I'll offer some more color on tims, and a moment, but even with the large population of candidates still working from home. It's been encouraging to see sequential 2 year sales comparables continue to improve every month.
And now into the negative mid single digits in July.
The third headlines from the quarter that I'd like to call out is our progress on digital a key focus area as we enhance our omni channel guests experience through the loyalty and other initiatives to form deeper more valuable long term relationships with our guests.
And our home markets are digital.
And up 60% year on year, and we think this is just the beginning.
We've seen the importance of digital and driving stickiness and check and traffic with delivery sales for example, growing sequentially compared to last quarter.
Loyalty programs are a key driver of enhancing digital sales as well last quarter, we highlighted the success.
Sales of our with Tims rewards this quarter, we continued to grow our digital sales at tims in Canada to more than 30% while at the same time doubling known diner sales.
While still early days these are exciting levels of digital penetration and engagement, which demonstrate the power of what our digital platforms can deliver.
Last quarter, we also launched.
We had and its loyalty program Royal perks across the nation on digital ordering channels, while testing popeye's rewards.
As of the end of this quarter, we've now launched loyalty programs nationally across all 3 brands and our home markets.
We're in the early innings with our loyalty programs at Burger King and Popeye's and we continue to see great progress, which we think will be a big.
Big unlock to help us on our journey towards building, a strong and growing digital sales base.
Before moving onto each brands performance I wanted to take a moment to address commodity cost increases and labor pressures.
It's been well documented that the restaurant industry like many other industries is facing rising commodity costs and wage inflation.
We're confident we have the right tools and processes in place to thoughtfully manage the current inflationary environment and we're working closely with our franchisees to do so like we always do.
Like most others across the restaurant industry staffing continues to be of challenge.
While the situation is evolving daily we're working closely with our franchisees to.
Tools and share best practices, including recruiting and hiring initiatives employee retention programs and technologies that simplify the hiring process.
For example, certain franchisees of piloted the process to receive job applications by text message, which has led to an increase and applications interviews and hires.
To provide we're also supporting our franchisees recruiting efforts by leveraging our social media scale, and providing more targeted support including and upcoming National media and in restaurant campaign in Canada.
Let's turn the discussion of the Tim Hortons and our home market of Canada.
Overall, we saw 3 points of sequential improvement and 2 year comparable sales during the second.
Quarter with each month better than the prior month on a 2 year basis.
And these trends continued to improve and to July with 2 year comparable sales performance now and the negative single digits across every province, including Ontario, which had previously been closed for most of the second quarter.
It's important to remember, Canada and especially.
Especially Ontario remained under strict lockdowns throughout the second quarter, even as vaccination rates improved.
And while transit mobility remains far behind pre COVID-19 levels, and where the U S is today overall mobility did trend upwards as lockdown measures ease throughout the quarter.
We continue to see a clear link between vaccine rollouts and market reopening.
<unk> and our path back to pre pandemic traffic and sales levels.
In addition, we saw sequential improvements in both traffic and sales overall during the quarter, primarily driven by growth and breakfast lunch and coffee share.
These improvements largely reflect the continued execution of our multi year back to basics plan.
Which we're prioritizing creating high quality products and the categories, we're famous for and extending those categories to a few strategic areas that are of natural brands fit where we can drive long term growth.
Such as lunch and cold beverages.
Last quarter, we executed 1 of the biggest shifts and our morning day part and the history of our brand.
Underlying fresh cracked Canadian eggs and a breakfast sandwiches.
And the second quarter, we built off this new platform by enhancing the quality of our bagels for a delicious hot bagel breakfast sandwiches, featuring our fresh cracked Canadian eggs and our guests loved it we.
We saw continued recovery and our morning day part despite continued mobility restrictions, while also gaining share and both breaks.
The sandwiches and the morning day part overall.
Our craveable lunch platform, which is 1 of the highest rated food items by our guests drove of recovering the lunch day part with high average check and high incremental day.
In fact during the quarter, our sandwich incidence reached its highest levels in recent history and drove our lunch day part and June back to pre pandemic.
Introduced and the beverage side, we remain focused on maintaining our leading position and hot beverages highlighted by our dark roast launch earlier this year and.
And enhancing our meaningful market share and cold beverages, where we see continued opportunity for growth.
To capitalize on this we introduced new lines of cold beverages. This quarter, starting with the successful Canadian launch of of Cold Brew coffee.
And may made with 100% ethically sourced premium arabica beans.
Our cold brew launch drove both incremental traffic and sales and increased our ice coffee market share.
We followed this platform with 1 of the most successful launches in the past number of years and the cold beverage space in Canada are real fruit <unk> and.
And we've seen them not only contribute.
Tribute strongly to sales performance, but also drive traffic back to our restaurants.
The real fruit Quenchers are of Great example of our commitment to provide guests with menu items that are made without artificial colors or flavors of benefit that is increasingly important for our guests.
Related to this we've continued to see improvements and our brand perception ratings, including food.
And beverage quality driven by a renewed focus on food quality taste and strong product delivery across the new platforms. We're building.
Also limited edition offerings like our NHL superstar collectible sticks launched during the Stanley Cup playoffs. This year strengthen consumers' connection to the brand by building on our strong sports heritage.
Taken at.
The account overall advancements and market share the strengthening of our brand metrics and continued enhancements and our digital experience through tims rewards and the accelerated rollout of our outdoor digital menu boards. We believe we are well positioned to capture the return of the Canadian consumer as the country reopens.
In addition, and importantly, we've retained the majority of our 80 million.
In dollars and fund support to continue driving key initiatives and the back half of this year.
Let's now turn the discussions of Burger King and particularly in the U S.
We've done a lot of good things with the brand in recent years cut through award winning advertising industry, leading category innovation like the impossible whopper, improving our menu quality with delicious natural ingredients.
<unk> and introducing our dollar of your away value menu.
These accomplishments of helped us get back to growing against pre Covid levels. However, we're not performing at the level that we expect from ourselves or aspire to we understand our biggest areas for breakthrough opportunity. So our underlying issue has really been focus and pace, we haven't put enough focus.
And Canadian priorities that will have the biggest impact and we haven't moved fast enough on these priorities to accelerate the business performance to the level. We know we're capable of.
I know the Burger King business well.
And I know, what we're capable of.
Our franchisees they know what we're capable of I've talked with about 30 of our largest franchise partners.
And the last few weeks and they have no doubt, we should be leading the <unk> of our industry here at our home market.
I've been working closely with the team and they have of focused mindset to move with velocity on our most important priorities.
So more than anything I'm eager to get at at the journey of transforming Burger king into the leading and most loved <unk>.
And the U S.
First and foremost we're focused on driving innovation and our core menu and accelerating day part and category extensions that will become core to our full time menu.
The hand, breaded chicken chicken Sandwich is an example of this focus.
This great tasting chicken sandwich continues to show healthy.
The volumes and restaurants around the country double the previous chicken sandwich and has expanded burger king's demographic, attracting new guests to our restaurants, including those with higher incomes and spending power.
We're excited to have this new platform and the BK menu and expect it to be a driver of sustainable growth for years to come.
We've also remain.
Dedicated to offering great everyday value to our guests with our dollar youre away value menu, which continues to be an important driver of traffic to our restaurants.
In addition, we launched our Bogo plus $1 offer during the quarter as an alternative to the 2 for 5 platform supporting guests, who rely on our bundled value platforms with our iconic core offerings.
And at a tremendous value, while maintaining healthy margins for franchisees.
While we are pleased with our recent progress around menu innovation real ingredients and everyday value as I mentioned last quarter, we recognized significant opportunities remain and key categories and day parts such as breakfast, so you'll be seeing us doing a lot.
Focused work in the coming months to develop highly incremental parts of our menu offering.
Second we're working collaboratively with our franchisees on consistent high standards of operational execution.
And we've invested to enhance the capabilities of our field teams with strong talent to make sure we have the support that our franchisees need.
More of the train their teams and maintain a consistent high standard of execution third we're committed to becoming an industry leader and fully integrating digital into the restaurant and online ordering experience.
We've seen the rapid benefits of scaling of successful digital program at Tim Hortons, and Canada, and it gives us even more confidence.
And our roadmap for Burger King and the U S.
Josh will speak in more detail on our digital initiatives shortly but I will say that we're pleased with the early results of Burger King's Royal Perks loyalty program rollout and continue to prioritize driving program enrollment as we know that in addition to providing us with valuable data and insights loyalty members typically show higher spending.
And frequency as compared to non members.
We have also received positive feedback with over 80% of members likely to recommend the program.
Fourth we are working on upgrading our entire portfolio of restaurants to provide and exceptional guest experience and the high ROI for our franchisees.
We have and incredible group of franchise partners and as we.
Salary and of the business, we're committed to continue growing their profitability.
We know having of modern guest centric and digitally integrated restaurant design is critical to driving further profitability for our partners and we are dedicated to working together to accelerate our image transformation and the Burger King system over the next few years.
Finally on the brand.
We believe we can translate our global advertising creativity into even greater brand loyalty that drives long term traffic and sales momentum and our home market.
And ultimately it's the combination of of powerful menu reliable operations integrated digital and restaurant experience and great advertising that results and long term brand loyalty and visitation.
<unk> looking at Burger King internationally. These markets have been the largest drivers of our growth of the brand over the last decade.
While there has been fluidity to the changes and restrictions and many of our international markets. We were quite encouraged to see a strong rebound and markets, where we saw restrictions lifted somewhat for.
For example, some of our largest markets, including Australia Korea.
Via the U K and Japan saw comparable sales increased double digits versus 2019, giving us confidence and our plans and and our recovery as markets continue to reopen.
But the high quality growth markets and franchise partners, we have in place internationally, we see and attractive path to continue driving exciting long term system wide sales growth for many years to come.
Now, let's turn our attention to <unk>.
We see significant runway for long term growth of popeye's, which continues to generate an average of over $1.8 million and annualized sales per restaurant and the U S versus just $1.4 million of prior to 2019 the year, we launched the chicken sandwich.
This game changing launch and resulting sales.
Sales increase has continued to drive interest and development from both existing and new partners and the U S.
Leading this second quarter to be our best second quarter of net restaurant growth since 2017.
We continue to build a strong pipeline of restaurants to go along with the strong pipeline of new partners with great <unk> experience to grow popeye's and parts of the country.
Currently underdeveloped.
When compared to 2019 Popeye's is drone system wide sales by over 40% year to date of truly remarkable feat. Thanks of the collective efforts of our franchisees and their teams.
As a reminder, we had 1 of our strongest quarters and Q2 of 2020 at popeye's and with sales growth and the positive theories.
And the <unk> last year as we entered the height of the pandemic.
We were fortunate to see our drive through and growing digital businesses more than compensate for lockdown restrictions during the beginning of the pandemic.
While we did see some pressure over the course of the second quarter here in 2021 from competitors launching new chicken sandwiches themselves coupled with.
The industry wide labor challenges are nominal sales remained strong and on a 2 year basis, our comparable sales were up a robust positive 25% with the majority of this growth driven by the continued strength of our chicken sandwich.
And while a lot of our success over the past 18 months can be attributed to the overwhelming guest response to of chicken sandwich and a core product.
And of core category that we took our time to innovate we're not standing still and are focused on what's next.
Earlier. This week you saw us launch of our Nuggets platform, adding an entirely new complementary category to our menu, while leveraging key learnings and product innovation from our chicken sandwich launch.
With this launch similar to.
Of the chicken sandwich and the key to success is an extreme focus on operational performance and execution at the restaurant level.
Just a few weeks ago, we sent over 110 corporate popeye's employees from our office, along with our field teams and trainers to more than 200 restaurants across the U S to work with our franchisees and their teams on operational execution.
And in advance of our launch.
And while still early days the mainstream media campaign starts the first week of August Nuggets are already providing to be incremental and our market tests and of attracting new guests and and attractive demographic and that.
The kids and families and and underutilized day part the afternoon and and the previously untapped occasion.
And <unk> and that snacking.
It's just the beginning for this amazing brands and Theres a lot of work ahead of us, but the brand is stronger than ever and has some of the best unit economics and the industry to build on.
We remain focused on continuing to make popeye's more accessible to everyone and addressing gaps and our menu architecture to drive long term sustainable sales.
I'll now hand things over to Josh to update us on our digital journey across the company.
Thanks, Jose and good morning, everyone.
During the second quarter, we continued to invest and technology that is core to modernizing and improving our guest experience as well as contributing to incremental sales and traffic for our brands.
We benefit from our significant global scale.
<unk>, which allows us to build the industry, leading technology platforms at a competitive cost profile and helps us to attract and retain top talent.
Our tech stack, consisting mostly of in house development that is supplemented by third party vendors facilitates great guest experiences while generating rich data that provides us with the insights to drive decision making across.
Our brands and geographies.
Developing these in house capabilities and areas like E. Commerce for example will significantly improve our operational execution, removing friction with new enhancements are developed while allowing us to remain efficient by outsourcing elements that are not core or unique to our brands.
We learned a lot over the past few years about.
And the importance of digital and crafting of superior guest experience and the importance and loyalty of our digital guests.
Who are generally more engaged come more often and spend more on our products.
We continue to see evidence of many of these dynamics as we grow the digital channels across all 3 of our brands.
This quarter, we reached new records of.
Sales and our home markets, despite why consumer migration back towards in store dining and select regions.
And the aggregate our home market digital sales increased nearly 60% from this time last year with Tim is nearly doubling and both Burger King and popeye's growing roughly 20%.
We see a significant opportunity to.
The digital these channels over time, and a few key initiatives, including our loyalty programs and app engagement opportunities like roll up to win and outdoor digital menu boards as important avenues for growth.
We are excited to now have loyalty programs at all 3 of our brands and their home markets.
We follow a 3 step approach and our roadmap for these programs.
The growth first build awareness and enrollment.
Second focus on active user engagement and third drive frequency check and profitable sales.
And our view at as critical to succeed with steps 1 and 2 in order to successfully execute step 3 and drive long term growth across the business.
We've seen the early impact.
Impacts of this roadmap at Tims, where a program is and the third chapter of at story.
Tims rewards and Canada represents the majority of the brands digital sales and has seen growth and users and engagement over the past 16 months.
During the second quarter, the Tims, App, and Canada surpassed all competitors, capturing and holding the number 1 position and.
Graham active users for food and beverage.
A few months ago, we discussed the powerful impact that our all digital roll up to win contest head on engagement.
With the contests and now in the rearview mirror, we're encouraged to see that it created a strong halo effect with the Tims, Canada business sustaining its new baseline of digital sales of over 30% and with registered.
Registered users representing over 75% of digital sales.
We continue to see at Tims rewards driving check and traffic and most importantly, contributing positively to comparable sales.
And as we continue to learn more about our guests we're at.
Able to create more personalized offers and encourage incremental visitation and spending.
The monthly among the digital flywheel.
For example, if a member visits the store 3 times, a week and the morning for of double double we can offer them a buy 1 get 1 if the return that same day and the afternoon for 1 of our Quenchers.
At Burger King and Popeye's were still in the first chapter of our loyalty story and remain focused on ramping up each brands program and the coming months with.
Fuel step coming at BK as rail perks expands from mobile order only to in store service modes, and the second half.
Enrollment for each program has been encouraging thus far and overall customer satisfaction is strong.
We are excited about the incremental possibilities of our loyalty programs and allowing us to connect with our guests and drive sales.
With the next tranche.
Across all 3 brands are outdoor digital menu boards are another great example of of technology investment that drives results and touches our key focus areas within digital.
We remain committed to modernizing the drive through experience with these menu boards at our 10000, plus North American restaurants by mid 2022.
So everything nearly all of Tim Hortons, Canada drive throughs by year end 2021.
They are more efficient for the restaurants create a better and more streamlined guest experience and allow us to better utilize data, which will enable us to improve the effectiveness of our suggestive selling as our learnings build over time.
We have already observed and uplift and comparable.
Comparable sales from outdoor digital menu boards as compared to static outdoor menu boards and.
In addition, we are seeing encouraging early results on our suggestive sell models, which will improve with usage and scale and our focus on enhancing our algorithms.
1 such enhancement was of recent improvement and the way, we utilized weather data and the model which for exam.
Sample has benefited our beverage sales by furthering our ability to dynamically recommend a cold beverage on the hotter than expected morning or of hot beverage on the cooler afternoon.
Our model also proactively recommends 1 of the top 5 most popular items rather than just the top items, giving our guests the new item to try when they visit.
And.
And our technology focus continues to be centered around knowing our guests and owning the relationship with them, which in turn allows us to provide better service through of personalized enhanced experience.
We believe these efforts will drive increased traffic check and brand loyalty over time.
I'll now pass the call over to Matt.
Thanks, Josh.
To conclude everyone for joining us this morning.
Our global system wide sales for the quarter increased roughly 32% to $8.9 billion and our adjusted EBITDA grew about 52% organically year over year to $577 million.
Beyond the growth and system wide sales there were a few factors contributing to our growth and adjusted EBITDA year over year.
And this includes benefits related to a sizeable shift and sales mix driven by a recovery and sales and volumes at Tims, where in addition to franchise royalties. We also generate EBITDA from property and supply chain activities.
Also as you may recall last year, we increased our bad debt provision to reflect the increased risk environment around receivables and similar.
Similar to last quarter, we've continued to release some of those remaining cautionary provisions as the business continues to strengthen and around the world and.
And finally, our year over year growth this quarter reflected the fact that we had a smaller differential between the AD fund revenues and expenses during the quarter as compared to Q2.2020.
Driven by continued improvements and our business.
<unk> as we lap the trough of the pandemic last year.
It's worth noting that this year's AD fund expense included deploying a portion of the 80 million CAD support behind the Tim Hortons AD Fund and Canada as Jose mentioned looking forward to the second half of the year. We have retained the majority of this investment to fully support our back to basics initiatives.
And as the Canadian market continues to reopen.
These benefits to our organic adjusted EBITDA growth rate were partially offset by higher G&A at.
As we have discussed during our last few calls we're proactively investing in digital and technology as well as hiring across a number of key areas like marketing and operations.
These investments are leading to a sizable.
Year over year increase and segment G&A, which will continue over the balance of this year as we invest behind our capabilities for the future.
Now turning to EPS, our second quarter adjusted earnings per share of <unk> 77, and <unk> grew at a higher rate than our consolidated adjusted EBITDA at over 130% year over year, including and FX benefit of about.
Sizeable gain per cent.
The higher growth was primarily driven by a lower adjusted effective tax rate reduced share count interest savings and lower equity based compensation.
Our adjusted effective tax rate of about 11%. This quarter included discrete non cash benefits such as net reserve releases for certain prior.
Of your tax years, which reduced our adjusted effective tax rate by approximately 6%.
And as well as excess tax benefits from equity based compensation that we realized during the quarter, which reduced at further by approximately 1%.
It is also worth noting that equity based compensation decrease quarter over quarter to $20 million from 26.
The fifth last quarter, primarily related to forfeitures of long term incentives specific to the quarter.
For the balance of the year. We currently expect equity based compensation to ramp up to slightly above first quarter levels related to our commitment behind investing and our people for the long run.
Now turning to our capital structure, while the impact of Covid.
And it did result in a step up and our leverage levels, we've seen that trend reversing with our business largely back on track and.
And so as I mentioned, we have and incredible cash flow profile and during the quarter, we generated nearly $450 million and free cash flow.
The strong free cash flow, coupled with our roughly $220 million sequential.
The increase and LTM adjusted EBITDA contributed to a sizable decrease and our net leverage ratio to 5.3 ex from about 6 ex in Q1.
We also took advantage of favorable market conditions to refinance the $775 million of outstanding principal on our 4 and at quarter percent first lien notes due 2.
<unk> thousand and 24 with and add on to our existing 3 and 7 eighths first lien notes due 2028 effective in July over the past 3 years, we have opportunistically refinanced our entire capital structure meaningfully reducing our interest expense by roughly $100 million annually and extending maturities such that.
<unk> vast majority now fall beyond 2026.
In terms of liquidity, we ended the quarter with about $2.8 billion available, including nearly $1.8 billion and cash and about $1 billion of Undrawn revolver.
Between our current liquidity and the robust free cash flow conversion of our business. We're in a good spots of continued.
That of having our long term capital allocation strategy.
Which since 2015 is included returning nearly $6.5 billion to shareholders through approximately $4.9 billion of dividends and $1.6 billion and share repurchases.
With all of our decisions, including capital allocation, we take a balance.
<unk> approach with the goal of maximizing value for our shareholders over the long run we.
We prioritize reinvesting in our business and a thoughtful way enhancing shareholder returns through significant returns of capital and evaluating strategic opportunities that can drive step function and value creation.
Heading into the second half as our visibility on led.
<unk> and performance continues to improve we will be considering alternatives for the excess cash flow that we build beyond the targeted investments, we're making back into the business.
On this front as Jose mentioned, we announced this morning of continuation of our dividend into Q3 with another 53 per common share and partnership unit keeping.
Keeping us on track for our full year target of $2.12 per share in 2021, and maintaining our industry leading dividend yield.
We also announced this morning that our board of directors approved an increase to our open market buyback authorization from 300 million to $1 billion over the next 2 years.
Buybacks.
And a valuable tool for us historically with nearly 30 million units repurchase since 2015 through partnership exchanges and going forward. We expect they'll continue to be of meaningful lever given the strength of our cash flow generation and intend to use this increased authorization to buy back shares and the open market.
Having said that.
Backs of their primary focus for the second half and beyond remains on driving the core business and delivering on the exciting organic growth potential and we see globally for all 3 of our iconic brands.
With that I'd like to thank everyone again for your support and we'll now open the line for questions operator.
Thank you we will now begin the question and answer session.
And I ask a question you May Press Star then 1 on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing.
To withdraw your question. Please press Star and then.
And all callers will be limited to 1.
The question.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Greg.
Asia Baker with Scotiabank. Please go ahead.
Thank you and good morning, everyone Jose I really appreciate it.
Alright densification.
While there of what.
The the issue with Burger King and the U S and.
And the 5.
Focused area that you've identified and with respect to 1 of those which is the in its transformation and the upgrade of the.
The network in the U S. Can you tell us where you are on that journey and what the pace of that.
Network upgrade will be over the course.
Coming years.
Hi, Patricia Thanks, so much for the for the question the images and transformation of the image on an ongoing basis has always been and important part of the business, obviously and <unk> with the brand.
As well known and penetrated and with the legacy and and heritage at BK has it's very very important.
And it's an ongoing process, we launched our Burger King of Tomorrow.
Image and transformation initiative several years ago, and we've made good progress against that.
Seeing investments from our franchisees as well as from the company and the brand.
The transformation of restaurants and drive throughs.
<unk> in particular.
The integrating digital into all of the restaurants, and then up upgrading the image of the restaurants and the interior as well as and the exterior which is critical for curbside appeal.
And we are moving at a good pace I think we've made some good progress on that but I think we can go faster and it's 1 of the things at.
Our teams.
Our considering and contemplating and working with franchisees.
And working on higher return on investment.
Remodels, especially focus on drive thru and double drive throughs, where we think theres, an opportunity to drive increased capacity and throughput and our drive throughs and integrating technology.
They.
So we've started that process without the digital menu boards.
And that's going well with Burger King and we continue to review and see if there's opportunities to go faster and as we do that analysis and assessment and we will keep you all posted on how and when and.
And what we'll do to accelerate that so thanks, so much for the question.
<unk>.
Our next question comes from Dennis Geiger with UBS. Please go ahead.
Great. Thanks for the question and Jose for Tim Hortons at down mid single in July across Canada, certainly obtained encouraging recovery trajectory seems to suggest your strategy.
<unk> are resonating, particularly as mobility increases I just first wanted to clarify the comment you made about down single digits and 19 over 19 and July was that specific to all provinces individually or fall within that range and then more important of the question is just kind of curious if theres anything else that you could breakdown.
On the Tims performance as it relates to how the system is directly impacted by pandemic.
Factors as we try and assess the strength of the brand isolating that impacts so if theres anything sort of on central business district locations, how to think about that drag anything on that front, if you're able to kind.
Kind of give some color. Thank you.
Great. Thanks for the question Dennis.
As I mentioned, we're really excited about the progress we're seeing with him and we're making progress on brand perception and guest experience.
And food quality ratings are improving as well year over year, and we're focused and executing the back to basics plan with quality improvements.
The fresh cracked eggs and some of the new launches like cold Brew and <unk> are really important I think the.
To your specific question is 1 of the things that was really encouraging about the quarter as of quarter end of <unk>.
Moving through through June and we see at <unk>.
And July as things reopen.
We're moving in the right direction and we see positive.
And the business sequential.
We saw sequential improvement on a 2 year basis for same store sales of 3 points.
Transit scores improve steadily towards the end of the second quarter, Ontario.
Where we have nearly half of our restaurants.
The last to begin exiting the stay at home orders.
I think there is a lot of the folks on the call.
And listening and don't don't really understand the nuances between what's happening in Canada, and Ontario, and particular versus what's happening.
And the U S.
And the Ontario exited stay at home orders on June 2nd on June 11th outdoor dining and retail stores opened on June 30.
Indicating at increased outdoor seating and retail store capacity on July 16th indoor dining with social distancing, which is quite.
About a year.
The spread between what's happened and the U S versus what's happening in Ontario, and here's the stat I think that will give you all a better idea of how just.
How.
Walk down, Ontario has been today, which is July 32021, the Tara.
Auto Bluejays baseball team and plenty of their first game and Toronto since 2019, they've been playing the baseball games and Buffalo for the last couple of years.
And by the way really happy to see Vladimir Guerrero Junior and the rest of the team back in Toronto, and and and the Rajasthan.
<unk> center, because it really means that things are are beginning to open up there and thats a huge indicator for us in terms of mobility, which is a key driver of the business, Ontario and.
Improved to negative single digits and the final week weeks of the quarter and and the first few weeks of July we've seen continued recovery at Ontario in line with the other regions and.
And to kind of cross reference to the other provinces, we've seen the other provinces performing better because things have opened up.
A lot sooner and those provinces so all indicators.
And as we look today and July provinces are now across the country and negative single digits compared to 2019.
It's not the only thing we're focused on and we're focused entirely actually quite a bit on our on our plan.
Still have a lot of work to do we still have quite of bit of firepower and a marketing AD fund as Matt mentioned in his comments.
For the back half of the year. So we're really excited to continue to drive the plan and continue to work with our owners to to be prepared for this REO.
The opening of Canada, and particularly in Ontario, and the coming months and quarters.
Thanks for the question.
Our next question comes from John Glass with Morgan Stanley. Please go ahead.
Thanks, very much I wonder if I could just follow up on Tim. So day, you said you were taking share and the current.
Current quarter, it's hard for us the benchmark tens versus peers do you think you are outperforming the morning day part just generally and the markets and you can talk about at market by market or overall and if you think back whatever it is 5 years, where does your share and breakfast stand today versus that if it was at peak are you at.
New peaks or are you below but youre now improving how do we sort of frame where your share has gone over time and where.
And where it is today.
Yeah. Thanks, so much John for the question as I mentioned, we have seen solid movement and share.
And cold beverages, and iced coffee breakfast, as well and and a lot of that.
We believe based on the on the consumer feedback and brand perception ratings that we that we track regularly.
Is tied into the progress, we're making on the quality improvements of the food and the beverages as well as how we're communicating them and the connection or the reconnection that we're making with our communities all across the country.
And so we think it's very much and I'll.
Output of the work that we're doing.
And we've.
And some and in some cases and particular with breakfast I think we've we've had.
A sizable share of the of the breakfast business, given our penetration and the frequency that we have especially due to.
And so but as I mentioned.
And quite a bit over the last many quarters and probably over the last couple of years.
The research that we had done.
And the feedback we were getting from our consumers is at the decisions that people were making to come to terms were driven mostly by beverage, but if someone was deciding to go somewhere for breakfast for food we werent.
The coffee at the top of the consideration list and so our share on food in particular for breakfast wasn't as strong as it should be and as it could be as compared to our share for beverages and so the.
And the benchmark is where we've been we've seen progress against that obviously COVID-19 had an impact on on share during.
Especially during the height of it through 2000, and 'twenty and into the early part of 2021.
What gives us confidence is that we're chipping away at that and and making really good progress versus where we've been so we're excited about the the share improvements at which are leading indicators of of the ability to grow and this important.
The market for us. Thanks, so much for the question.
Our next question comes from David Palmer with Evercore ISI. Please go ahead.
Thanks Syed.
Quick 1 on Tims loyalty and then just and a follow up on Burger King.
The the.
The loyalty program at Tims was launched back in 2019, and and I know that was at.
Start where it was not the digital 1 and is today you mentioned that the.
Doubling and the loyalty mix there could you give an update as to what that mix and is running at today, how much of a step up as that.
And you know as you're lapping and.
And we think about 2 year trends are and and even into 2022, we'll be thinking 3 year trends versus 2019, I'm wondering how much loyalty can be of lift particularly versus that rough start to the loyalty program. When it was the more of a punch card situation and.
And then the following up on Burger King U S. At.
It sounds like you're moving towards the premium amortization strategy re imaging renovation product and assets.
And I'm wondering that feels longer term in nature, but I'm wondering if you how you're thinking about maybe shorter and medium term type.
<unk>.
And give the sales and thank you.
Great. Thanks, so much for the for the question, David I'll have Josh and touch on the the Tims loyalty and then I'll take the the BK U S question.
Yeah. Thanks, Good morning, Dave. Thanks for the question on non loyalty I would say the first of all we're really pleased with the progress that we've made on on loyalty.
And in Canada with Tims rewards I think the the team has done a fantastic job of evolving the program over time, and making it really engaging and really compelling to our guests there.
We had a big success with the roll up to win contest and the first half of this year and we succeeded I think and getting many more guests engaged and the program and also and.
In terms of driving behavior and engagement on our app with our existing tims rewards members. So we're really pleased with the.
The thoroughness and the quality of the work the team is doing and how well it's resonating with our guests.
Specifically to your question on kind of where the program is it's what I.
I think we mentioned and our earlier remarks.
Loyalty of our digital sales of over 30% of sales now at Tim's and our loyalty and sales are the majority of that so it's a very large chunk of and it's grown very significantly year on year and with respect to the last piece of of your question on end of where we go in 2022 I think our goal is to continue.
To grow the program and particularly at more to make it even more engaging to expand and of all of the excitement that we can bring with the program and what we can offer to our guests to make them even more.
The more excited about engaging with the tims brand more often and to find more and more ways to.
To visit our brand and engage with the brand every.
That alternate organization of the BK question, great. Thanks, Josh.
On the second question on on BK U S. I wouldn't say at the premium position.
And I think it's a plan that's that's kind of a man.
<unk> focus and and the pace I think the the challenge we've talked.
And quite a bit about the BK business and the path and when we're at our best and when we have a balanced approach with the.
Our strong focus on core with premium products that the drive shack, but at the same time, having a balanced approach on value that continues to be the.
The long term view of the business I think where I've seen the opportunity.
<unk> and the near term as I spend time with the team and speaking with franchisees and getting a better handle on what opportunities for acceleration. We have I think we can drive.
Acceleration with the.
A lot more work on.
On the brand image and.
Further improving return.
On the Remodels and new builds.
I think theres an opportunity on menu platform.
And with focus on breakfast premium and value.
I think theres, a bunch of work to do and partnership with our franchisees on operational consistency I think we have a tremendous opportunity, especially as we.
Grow our digital.
And this and integrate that into the restaurant experience both in store as well as off premise through the drive through and through delivery.
And obviously digital being a huge focus for us and then finally I think that the.
The communication side of it.
We've had of.
I think we've been a bit mixed.
Mixed in terms of our execution on our.
<unk>, we spent a lot of time on.
On price driven communication and I think we have a lot more work to do on and cut through.
The brand and high quality.
The messaging around the quality of our products. So that's the focus I wouldnt call at the <unk> only it's all about balance, but it's been mostly about focus and.
Our brands and and pace and moving fast and the things that we think are fundamental to driving growth and the <unk> industry, especially in the U S and that we know we're very capable of doing thanks, so much for the question.
And.
Our next question comes from Jeffrey J D.
With Barclays. Please go ahead.
Great. Thank you very much.
2 questions for you Juan Jose on the unit growth side of things just as we think about the 5% plus worldwide unit growth.
It sounds like you're confident you can hit that and 21. My guess is there's some help from what was a pause for the most part and 2020, helping the backlog of the pipeline.
And I was wondering beyond 'twenty, 1 whether you think you are now at a steady state where you can resume that north of 5%.
I'm just wondering whether there is any issues with supply of construction delays or labor, perhaps that might pose the challenge.
And my follow up was just from Matt on the cash usage you mentioned in your prepared remarks should consider alternative uses of excess cash.
I wasn't sure whether that was exemplified by the dividend and the share repo solely or whether there is potential EBITDA.
Co invest with franchisees and I know you mentioned, China accelerate whether it's the remodels of digital menu board. So any other uses for excess cash that you might consider due to your strengths and the balance sheet and thank you.
Okay.
Hey.
Thanks, So much for the question and I'll take the 1 on unit growth.
And then I'll pass it over to Matt.
As I've mentioned several times, we have we feel really good about the progress, we're making with the pipeline and our prospects for development. We had focused we've said 2 things in the past 1 is that we felt confident we can get back to.
The pre pandemic.
Levels of growth in 2021, and I think the first half so far has validated that view that we've got really good partners really healthy pipelines a lot of it of interest and excitement about growth even more so after the the the impact of the pandemic because people believe.
At much.
Hey, Jeff more so and the and the power of the business and the most difficult of moments.
Resilient and and.
And generates positive cash flow and so we've been at <unk>, especially given our off premise and digital capabilities. So our partners at really excited about it and we.
We see the momentum.
Building and our pipelines and obviously the results for.
And <unk>.
2 quarters speak for themselves.
A lot of excitement with all 3 brands I think what's also exciting about the long term is that we're beginning to see the the U S cash.
Canada as well as international pipelines and get going on the BK side, but we're beginning to see.
The line movement, with Popeye's, and Tim Hortons internationally, which we hadn't seen before and so we had record quarter.
Quarter second quarter for both popeye's, and Tim's from and international growth standpoint pop.
<unk> and the U S also accelerated and the second quarter from a development standpoint, so we still.
Very.
Confident and our ambition is to reach the 40000 restaurant goal that we set for ourselves back in May of 2019.
There is there's a big gap that remains to some of the bigger competitors out there and many markets EBIT markets, where we have strong presence already I think and larger more penetrated urban markets.
It's where we have a decent presence with Burger King in particular and by the way there aren't that many of those but even those we still have.
Tremendous opportunities with new formats.
Delivery only with pickup as well theres a lot of different opportunities for growth here, especially given the expansion of our services.
<unk> modes, including off premise drive through and.
And deliberate and as I said, I think Tim's and Popeyes are early.
Early days earlier than Burger King and.
And we're seeing strong momentum there excitement from new operators and partners to invest and the brands and an acceleration in terms of the investments and the growth.
They're delivering and their market. So we feel confident about the long term and are very focused and the short term. There are challenges certainly in terms of supply chain, especially and the equipment side as you kind of included in your question, but.
But we have really good relationships with the equipment.
Suppliers and vendors.
And.
And we're working closely with them to ensure that we can we can continue to deliver what we have in front of us and that's that's the <unk>.
Work that we do and and we're happy and excited to keep you posted at our progress.
Yes, Jeff and it's Matt here. Thanks for the question as it relates to capital allocation I think we've been really pleased with the performance and progress of the business and.
The cover that we've seen.
I think we believe we have and incredibly healthy cash flow profile, we've seen the balance sheet improve as well along the way as we mentioned with our leverage coming down quite a bit this quarter.
So we feel really well positioned in terms of our balance sheet, our cash flow generation as well as our liquidity.
And the radio.
In terms of our shareholder return potential and the capital that we can return to shareholders over time and as I mentioned in my prepared remarks.
I think we have.
Significant allocation toward our industry, leading dividend and.
We continue to see the business improve and the balance sheet.
Yes, that's really what gave us confidence here to reset our authorization and upsize of that from 302 of $1 billion.
And I think this new program reflects the level that we think makes sense for our business and.
And a really great launching point for us.
To start working actively in the open market.
Improved in terms of repurchases and returning capital to shareholders and adding open market repurchases to our tool set.
We also are very balanced.
And we invest behind the brands already you mentioned BK Jose talked about this before I think.
Jose is just getting into laying out the plans.
With the teams.
In terms of what our focus areas are going to be but if you look back historically, we've always been investing and the BK business as well as Tim's and elsewhere in terms of Remodels that we've put toward.
Our property control and where we're involved and the property as well as investments here internally and people to help support the plans.
And the drive things forward.
So I think when when we consider any kind of investment at all goes back to our capital allocation approach and yes to the extent there is additional investments that could be worthwhile and our.
<unk>.
And drive strong returns for both us and our franchisees and our systems and it will.
Evaluate those and share them in due.
<unk>. Thanks, a lot for the question.
Yeah.
Okay.
Our next question comes from Jon Tower with Wells Fargo. Please go ahead.
Great just coming back to the Burger King U S conversation I'm, just curious and and thanks Jose for kind of going through some of the debt.
The the pace.
Conversation and focus earlier, but I am curious from from your perspective, how much of the kind of sales underperformance or slow return to.
Pre pandemic levels relative to the competition do you think is controllable versus non controllable that is and.
In terms.
Controllable I would view staffing levels at your stores product marketing and operational execution versus non controllable, which is competitors just getting more aggressive with with marketing new product news and promotions at if you could just kind of comment on that that'd be great.
Yeah, John Thanks for the question.
The the industry has been competitive for a long long time, right and so it goes back to the Burger wars, and the eighties and and even before that so.
We are we feel that the the opportunity for acceleration.
The focus is all about focus and pace and it's entirely within our control and I think our franchise easily at the same thing our teams.
We believe the same thing.
So it's all within our control is certainly a lot of work to do on on staffing and retention I think everyone's dealing with these challenges and we're we're working hard with the franchise partners to ensure that they have the ability and they put a lot of effort behind this as well since it's something.
And that they control entirely.
We are working with them closely on that I think the bigger.
And work in front of US is what I laid out earlier in my and my prepared remarks and on top of that with focus and and pace I think we have a really strong team with Burger King.
And we've added.
Some.
Talent, and the organization and marketing as well as and in operations and and.
And the team is at <unk>.
Beginning to gel together, putting at a really strong plan in place working closely with the franchisees and and.
I am confident that the.
It's all in front of us all within our control and it's just a question of the of executing at the highest.
Top of we know we're very capable of so we're excited about where we are and looking forward to sharing our progress in the coming quarters.
Thanks, So much question.
Comes from Gregory shrank from.
You can find securities. Please go ahead.
Levels.
Hey, Thanks for the question Jose I think of couple of questions ago, you were talking about the acceleration in Tims International and the unit side can you talk maybe specifically about China I think you of a couple of hundred stores and the ground there now and what either the returns are looking like or what the markets look like and is there a pace of development.
On China, specifically, the you think makes sense to balance taking advantage of the opportunity long term with operational complexities and I'm, just trying to get on where that might accelerate 2 of them.
The pace of development.
Hey, Greg. Thanks for the question Yeah look we went from zero in 2019 February 19th of 200.
<unk>.
This first quarter of 'twenty, 1 with a commitment from the team there to take to double the size of the business to go from 200 to 400 and and the full year of 2021.
But my view on this is that that the business is super exciting the brand is resonating well there the product.
And in particular, our beverage lineup, which is expanded and and.
Really really high quality at a great value with tremendous digital focus.
And as is striking a chord with the Chinese consumer.
And so we feel confident about the short term being able to grow at.
At the pace at the that the team has communicated.
And I feel very very confident about the long term it's of great market.
Coffee consumption is on the rise of double digit growth.
Former.
T market only now, it's becoming a high consumption coffee market and so we're really well positioned and.
And the market to do some great things I always tell the our franchise partners to go faster, but the but we want to do at the right way the right image the right technology focused the right quality of our products the right execution, but the pace of growth and the near term and it's been exciting and we are of great team there.
Led.
Bye.
By Young Chan, who has been a partner of ours for quite some time. So we're excited about the opportunities in China continue to work closely with the team there and look forward to sharing the progress as we as we keep growing the brand and 2021 and well beyond that thanks, so much for the question.
This concludes our question and answer session.
To turn the conference back over the head of days sales for any closing remarks.
Great. Thanks to everyone for joining us. This morning, we're pleased with the progress we've made this quarter, including the driving strong growth and development keeping us on track to reach our long term target of 40000 restaurants globally.
We remain committed to delivering high quality delicious food and improving the experience for each and every 1 of our guests through our digital initiatives and commitment to operational execution. We know we have the right pieces in place to drive long term sustainable growth at all 3 of our brands and build the most loved restaurant brands and the world have a great rest of the day and stay safe. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.