Q2 2021 Restaurant Brands International Inc Earnings Call
Takes us through the Investor Relations webpage at Investor Day, 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.
At <unk>, which are subject to various risks set forth in the press release issued this morning and in our SEC filings and.
In addition, this earnings call includes non-GAAP financial measures.
Reconciliations of non-GAAP financial measures are included in the press release available on our website.
Throughout the call today, we will be referencing.
Statement of your 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 in 2021 disclosed growth metrics and now I'll turn the call.
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 and.
And 2 of 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 in 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 of relentless pursuit of maximizing value.
At a restaurant stakeholders.
We have a strong track record of driving growth and our prospects looking forward of bright as we advance on our path 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.
<unk> growth in the years to come.
And even with investments in digital and across the business, we remain highly cash flow generative.
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 in the outlook of the business we.
Ounce that our board of directors authorized a 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.
Quarterly dividend on July 7th, resulting in 1 of the highest dividend yields in our industry and our board of directors declared a dividend for the third quarter of 53 to.
In October.
Now before I dig into our brand level of performance I'd like to discuss the highlights from the quarter starting with development of.
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 generated net.
Net restaurant growth of 378, 1 of our best first half ever.
Giving us confidence in our ability to return to our 2018 in 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.
More conviction in the power of our brands and business model than before the pandemic.
Over the past decade, we've built up of very strong and differentiated foundation for growth with our master franchise network around the world.
1 Great example of this us Burger King, France, where we've effectively built the brands in that market from scratch through a strong partnership with our master franchisee group of <unk>.
And earlier this month, we reached an incredible milestone.
Putting that 400 Burger king of the country, which puts us on track to generate over 1 billion euros in 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 into large businesses. When we create the right foundation for growth with strong ambitious partners.
And 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 in high growth markets.
A great example of this is Tim Hortons, China, where we're seeing a pronounced acceleration in our development growth curve.
And remain on track to 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 that includes the us where we experienced a record second quarter NRG for popeye's, reflecting a strong demand to expand popeye's across new <unk>.
In existing markets and with new and existing franchisees.
With restrictions easing. We've also been excited to get back out in the field to meet with our global franchisees.
I recently traveled to Switzerland, and Spain to visit new sites with our partners, including New <unk> locations in both markets and was encouraged to see our franchisee partners enthusiasm.
<unk> of the footprint of our loved restaurants in these markets.
The second headline to highlight is that we had a solid quarter of system wide sales growth up 32% year over year end, plus 4% versus 2019, a sequential improvement compared to our first quarter.
This is 1 of the benefits of having diversified brands across global markets, So regardless of Lockdowns.
To extend tended to restrict mobility in some regions, we can still drive solid system wide sales growth from a global perspective.
I'll offer some more color on tims in a moment, but even with a large population in Canada is 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.
July 3rd 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 experienced in loyalty and other initiatives to form deeper more valuable long term relationships with our guests.
In our home markets, our digital sales are up 60% year on year and we think this is just the.
<unk>.
We've seen the importance of digital and driving stickiness and check in 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, we had with tims rewards. This quarter, we continued to grow our digital.
<unk> 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 Burger King's loyalty program Royal Perks across the nation on digital.
Beginning channels, while testing popeye's rewards as of the end of this quarter. We've now launched loyalty programs nationally across all 3 brands in 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 of big unlock to help us on our journey towards building a strong and growing.
Ordering 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.
While the situation is evolving daily we're working closely with our franchisees to provide tools and share best practices, including recruiting in.
<unk> initiatives employee retention programs and technologies that simplify the hiring process.
For example, certain franchisees of piloted a process to receive job applications by text message, which has led to an increase in applications interviews and hires.
We're also supporting our franchisees recruiting efforts by leveraging our.
Our social media scale, and providing more targeted support including an upcoming national media and in restaurant campaign in Canada.
Let's turn to discussion of Tim Hortons at 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.
And 2 year basis.
And these trends continued to improve into July with 2 year comparable sales performance now in 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 Ontario remained under strict lockdowns throughout the second quarter.
<unk>, even us vaccination rates improved.
And while trends in mobility remains far behind pre COVID-19 levels, and where the US is today overall mobility did trend upwards as lockdown measures ease throughout the quarter.
We continue to see a clear link between vaccine Rollouts end market reopening and our path back to pre pandemic traffic in sales.
Yeah.
In addition, we saw sequential improvements in both traffic and sales overall during the quarter, primarily driven by growth in breakfast lunch and coffee share.
These improvements largely reflect the continued execution of our multi year back to basics plan under which we are prioritizing, creating high quality products and the cash.
Levels, 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 in our morning day part in the history of our brand introducing fresh crack Canadian eggs in our breakfast sandwiches.
Category in 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 saw continued recovery in our morning day part despite continued mobility restrictions, while also gaining share in both breakfast 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 of June back to pre pandemic levels.
On the beverage side, we remain focused.
On maintaining our leading position in hot beverages highlighted by our dark roast launch earlier this year and.
And enhancing our meaningful market share in 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 in May made with 100 <unk>.
Sent ethically sourced premium arabica beans.
Our cold brew launch drove both incremental traffic and sales and increased our ice coffee market share with.
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 Quenchers and.
And we've seen them not only contributes strongly to sales performance, but also drive.
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 in our brand perception ratings, including food and beverage quality driven by.
Drive trial focused 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 strength in consumers' connection to the brand by building on our strong sports heritage.
Taking into account overall advancements in market share.
Our renewed strengthening of our brand metrics and continued enhancements in our digital experience through tims rewards and the accelerated rollout of our outdoor digital menu boards. We believe we're well positioned to capture the return of the Canadian consumer as the country reopens.
In addition, and importantly, we have retained a majority of our $80 million Canadian dollars AD fund.
There are to continue driving key initiatives in the back half of this year.
Let's now turn the discussion to Burger King, 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 and introducing our dollar of your away value.
Many of these.
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 on the few priorities that will have the <unk>.
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 in the last few weeks and they have no.
No doubt, we should be leading the <unk> 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 USR in the us.
First and foremost we're focused on driving innovation in our core menu and accelerating day part end category extensions that will become core to our full time menu.
The hand, breaded chicken chicken Sandwich is an example of this focus.
Great tasting chicken sandwich continues to show healthy volumes in 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 remained dedicated to offering great everyday value.
With our dollar of your way 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 at a tremendous value.
To our gaining 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 in key categories and day parts such as breakfast, so you'll be seeing us doing a lot more 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 to train their teams and maintain.
Pain of consistent high standard of execution third we're committed to becoming an industry leader in 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 in Canada, and it gives us even more confidence in our roadmap for Burger King in the us.
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 enrolment as we know that in addition to providing us with valuable data and insights loyalty members typically show higher spending in 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 an exceptional guest experience and of high ROI for our franchisees.
We have an incredible group of franchise partners and as we focus on accelerating the business. We're committed to continue growing their profit.
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 in 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 in our home market.
And ultimately it's the combination of of powerful menu reliable operations integrated digital in restaurant experience and great advertising that results in long term brand loyalty and visitation.
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 in restrictions in many of our international markets. We were quite encouraged to see a strong rebound in markets, where we saw restrictions lifted somewhat.
For example, some of our largest markets, including Australia Korea, the U K and Japan.
<unk> of comparable sales increased double digits versus 2019, giving us confidence in our plans and in our recovery as markets continue to reopen.
With the high quality growth markets and franchise partners. We have in place internationally, we see an 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 at Popeye's, which continues to generate an average of over $1.8 million in annualized sales per restaurant in the us versus just $1.4 million of prior to 2019 the year, we launched the chicken sandwich.
This game changing launch and resulting sales increase has.
Continuing to drive interest in development from both existing and new partners in the us.
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 a strong pipeline of new partners with great <unk> experience to grow popeye's in parts of the country that are current.
Underdeveloped.
When compared to 2019, popeye's us drone system wide sales by over 40% year to date of truly remarkable feat. Thanks to the collective efforts of our franchisees and their teams.
As a reminder, we had 1 of our strongest quarters in Q2 of 2020 at Popeyes with sales growth and the positive <unk> <unk> last.
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 industry wide.
Labour 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.
While a lot of our success over the past 18 months can be attributed to the overwhelming guest response to of chicken sandwich of core product and.
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 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 the chicken sandwich.
Which 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 us to work with our franchisees and their teams on operational execution at.
<unk> of our launch.
While still early days the mainstream media campaign starts the first week of August Nuggets are already providing to be incremental in our market tests and have attracted new guests and an attractive demographic.
Kids and families in an underutilized day part the afternoon and at a previously untapped occasion and.
King.
It's just the beginning for this amazing brand and there's a lot of work ahead of us, but the brand is stronger than ever and has some of the best unit economics in the industry to build on.
We remain focused on continuing to make popeye's more accessible to everyone and addressing gaps in 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 in 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.
Which allows us to build 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 insights to drive decision, making across our brands.
And geographies.
Developing these in house capabilities in areas like E. Commerce for example will significantly improve our operational execution, removing friction when 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 the import.
Brands of digital and crafting of superior guest experience and the importance and loyalty of our digital guests who.
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 digital.
<unk> sales in our home markets, despite why consumer migration back towards in store dining in select regions.
In the aggregate our home market digital sales increased nearly 60% from this time last year with Tim is nearly doubling in both Burger King and pop by us growing roughly 20%.
We see a significant opportunity to grow.
Grow these channels over time in a few key initiatives, including our loyalty programs in 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 in their home markets.
We follow a 3 step approach and our roadmap for these programs.
First build awareness and enrollment.
Second focus on active user engagement and third drive frequency check and profitable sales.
And our view at is 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 impacts of this.
This roadmap at Tims, where our program is in the third chapter of at story.
Tims rewards in Canada represents the majority of the brands digital sales and has seen growth in users and engagement over the past 16 months.
During the second quarter, the tims App in Canada surpassed all competitors, capturing and holding the number 1 position in monthly active users.
Food and beverage.
A few months ago, we discussed the powerful impact that our all digital roll up to win contests had on engagement.
With the context 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 users.
Users running over 75% of digital sales.
We continue to see tims rewards driving check and traffic and most importantly, contributing positively to comparable sales.
And as we continue to learn more about our guests were able to create more personalized offers and encourage incremental visitation and spending fueling the digital.
These represent of wheel.
For example, if a member visits of store 3 times a week in the morning for of double double we can offer them a buy 1 get 1 of if they returned that same day in 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 in the coming months with the next step.
<unk> Dk as rail perks expense from mobile order only to in store service modes in 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, allowing us to connect with our guests and drive sales to our restaurants.
Coming up 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.
Including nearly all of Tim Hortons can.
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 an uplift in 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 in the way, we utilized weather data and the model, which for example has benefited our beverage sales.
Furthering our ability to dynamically recommend a cold beverage on a hotter than expected morning or of hot beverage on a cooler afternoon of.
Our model also proactively recommends 1 of the top 5 most popular items rather than just the top item, giving our guests of new item to try when they visit.
In conclusion, our technology focus continues.
<unk> bye fit 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 overtime.
I'll now pass the call over to Matt.
Thanks, Josh and thanks, everyone for joining us this morning.
To be set of 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 in system wide sales there were a few factors contributing to our growth in adjusted EBITDA year over year.
This includes benefits related.
As of a shift in sales mix driven by a recovery in 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 to last quarter. We have continued.
Need to release some of those remaining cautionary provisions as the business continues to strengthen around the world.
And finally, our year over year growth this quarter reflected the fact that we had a smaller differential between AD fund revenues and expenses during the quarter as compared to Q2.2020.
Driven by continued improvements in our business as we lap the trough of.
2 of seismic 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 in 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 as the Canadian market continues.
Tim use to reopen these.
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 in segment.
Of the pending 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 cents grew at a higher rate than our consolidated adjusted EBITDA at over 130% year over year, including an FX benefit of about 15%.
<unk> net of higher growth was primarily driven by a lower adjusted effective tax rate reduce 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 tax years, which reduced.
<unk>, our adjusted effective tax rate by approximately 6%.
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 million last quarter, primarily.
They related to forfeitures of long term incentives specific to the quarter.
For the balance of year, we currently expect equity based compensation to ramp up to slightly above first quarter levels related to our commitment behind investing in our people for the long run.
Now turning to our capital structure, while the impact of Covid last year did result in a step up.
And our leverage levels, we've seen that trend reversing with our business largely back on track.
As I mentioned, we have an incredible cash flow profile and during the quarter, we generated nearly $450 million in free cash flow.
The strong free cash flow, coupled with our roughly $220 million sequential increase in LTM adjusted.
Primarily contributed to a sizable decrease in our net leverage ratio to 5.3 X from about 6 <unk> in Q1.
We also took advantage of favorable market conditions to refinance the $775 million of outstanding principal on our foreign at quarter percent first lien notes due 2024 within.
Good EBIT at on to our existing 3 and 7 eighths first lien notes due 2028 effective in July over the past 3 years, we of Opportunistically refinanced our entire capital structure meaningfully reducing our interest expense by roughly $100 million annually and extending maturities such that a 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 in 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 spot to continue driving our long term capital allocation.
Location strategy.
Which since 2015 US included returning nearly $6.5 billion to shareholders through approximately $4.9 billion of dividends at $1.6 billion and share repurchases.
With all of our decisions, including capital allocation, we take a balanced approach with the goal of Maxim.
<unk> value for our shareholders over the long run.
We prioritize reinvesting in our business in a thoughtful way enhancing shareholder returns through significant returns of capital and evaluating strategic opportunities that can drive step function value creation.
Heading into the second half as our visibility on leverage and performance continues to improve.
<unk>, 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 us on track for our full year target.
And 12 cents 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 have been a valuable tool for us historically.
<unk> with nearly 30 million units repurchase since 2015 through partnership exchanges and going forward, we expect they'll continue to be of meaningful ever given the strength of our cash flow generation and intend to use this increased authorization to buy back shares in the open market.
Having said that our primary focus for the second half MBR.
And beyond remains on driving the core business and delivering on the exciting organic growth potential that 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.
We'll now begin the question and answer session.
To 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 of key.
To withdraw your question. Please press Star then 2.
All callers will be limited to 1 question at this time.
We will pause momentarily to assemble our roster.
Our first question comes from Patricia Baker with Scotiabank. Please go ahead.
Thank you and good morning, everyone I will say I really appreciate at your discussion of identification rather of what you believe the issue.
Your line with Burger King in the us and the 5.
Focus areas that you've identified with respect to 1 of those which is the image transformation of the upgrade of the network in the US can you tell us where you are on that journey and what the pace of that.
Network upgrade will be able but of course of the coming years.
Hi, Patricia Thanks, so much for the for the question the images and transformation of the image of the ongoing basis has always been an important part of the business obviously in <unk> with the brand.
As well known and penetrated and with the legacy inherited 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.
Yeah.
Transformation of restaurants and drive throughs in particular.
Integrating digital.
All of the restaurants, and then upgrading the image of the restaurant and the interior as well as in the exteriors, which is critical for curbside appeal.
We're moving at a 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 that our teams.
Our considering and contemplating and working with free.
<unk> disease.
Working on a 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 in our drive throughs and integrating technology.
They are in and so we've we've started that process with outdoor digital menu boards.
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. We will keep you all posted on how and when and what we'll do to accelerate that so thanks. So much for the question.
Our next.
Question comes from Dennis Geiger with UBS. Please go ahead.
Great. Thanks for the question Jose for Tim Hortons.
<unk> mid single in July across Canada, certainly obtained encouraging recovery trajectory seems to suggest your strategies are resonating, particularly at mobility increases I just first.
Clarify the comment you made about down single digits in 19 of over 19 in 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 break down on the tims performance as it relates to how the system is.
Wanted to directly impacted by pandemic.
Factors as we tried to 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 were able to kind of give some color. Thank you.
Great. Thanks for.
The question Dennis Yes, as I mentioned, we're really excited about the progress we're seeing with Tim we're making progress on brand perception and guest experience food.
<unk> quality ratings are improving as well year over year end, we're focused on executing the back to basics plan with quality improvements of fresh cracked eggs and some of the new launches like cold brew and <unk> are really important.
Important I think to your specific question is 1 of the things that was really encouraging about the quarter as of quarter kind of.
Move through through June and we see at continue.
Continue in July as things reopen.
We're moving into right direction, and we see positive indicators in the business sequential we saw sequential improvement.
On a 2 year basis for same store sales of 3 points.
Gross transit scores improve steadily towards the end of the second quarter, Ontario.
Which is where we have nearly half of our restaurants was the last to begin exiting the stay at home orders I think there's a lot of the folks on the call.
And listening.
I don't really understand the nuances between what's happening in Canada and in Ontario in particular versus what's happening here in the us.
At the Ontario exited stay at home orders on June 2nd on June 11th outdoor dining and retail stores opened on June 30th at increased outdoor seating and retail store capacity.
<unk> on July 16th indoor dining with social distancing, which is quite.
About a year.
Read between what's happened in the U S versus what's happening in Ontario, and here's a stat I think that will give you all a better idea of how just how locked down Ontario has been today.
July 30 of 2020.
1 <unk>.
The Toronto Blue Jays baseball team of playing their first game in Toronto since 2019, they've been playing their baseball games in Buffalo for the last couple of years.
By the way it really happy to see Vladimir Guerrero Junior and the rest of the team back in Toronto and in the Roger Center, because it really means that things are are beginning to open up there.
And that's a huge indicator for us in terms of mobility, which is a key driver of the business, Ontario improved to negative single digits in the final week at weeks of the quarter and the first few weeks of July we've seen continued recovery at Ontario in line with the other regions.
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.
As we look today in July provinces are now across the country and negative single digits compared to 2019.
Not the only thing we're focused on we're focused entirely accurate.
Quite a bit on our on our plan, we still have a lot of work to do we still have quite of bit of firepower in our 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 reopening of Canada in particular at Ontario in 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 Jose You said you were taking share in the current quarter, it's hard for us to benchmark tens versus peers do you think.
You are outperforming the morning day part just generally in 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 of breakfast stand today versus that if it was at peak are you at new peaks are you below but youre now improving how do we sort of frame where your share has gone.
Gone over time and where we're.
We're at is today.
Yeah.
Thanks, So much John for the question as I mentioned, we have seen solid movement in share.
Cold beverages, I of coffee breakfast as well and at a lot of that and we believe based on the on the consumer feedback and brand perception ratings.
That we track regularly.
Is tied into the progress, we're making on the quality improvements of the food and beverages as well as how we're communicating them and the connection with of reconnection that we're making with our communities all across the country. So we think it's very much.
Output of the work.
That meeting.
We've seen some inc. In some cases in particular with breakfast I think we've we've had.
Ah.
Sizable share of the of the breakfast business given our penetration in the frequency that we have especially due to a coffee, but as I mentioned.
Quite a bit over the last many quarters and probably over.
We are doing for 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 really at the top of the consideration list and so our share on.
The last particular for breakfast wasn't as strong as it should be end as it could be as compared to our share for beverages and so.
The benchmark us 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 2020 end into the early part.
Food and put us in 'twenty, 1 at which.
What gives us confidence is that.
Chipping away at that and making really good progress versus where we've been so we're excited about the share of improvements, which are leading indicators of of the ability to grow in this important market for us. Thanks, so much for the question.
Part of 2 of our next question comes from David Palmer with Evercore ISI. Please go ahead.
Thanks.
Just a quick 1 on tims loyalty and then just a.
A follow up on Burger King.
The loyalty program at Tims was launched back in.
In 2019, and I know that was a tough start.
It was not digital wanted us today, you mentioned that.
Doubling in the loyalty mix there could you give an update as to what that mix is running at today, how much of a step up is that.
And you know as you're lapping and should we think about 2 year trends are at an EBIT.
Moving 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 more of a punch card situation and then following up on Burger King U S.
It sounds like you are.
It's a premium amortization strategy re imaging renovation product end assets.
I'm wondering that feels longer term in nature, but I'm wondering if you how you're thinking about maybe shorter medium term type.
<unk> she can give the sales and thank you.
Great. Thanks so.
Moving towards for the question, David I'll have Josh touch on the Tims loyalty and then I'll take the <unk> question.
Yes. Thanks, good morning, Dave. Thanks for the question on non loyalty I would say first of all we're really pleased with the progress that we've made on loyalty in Canada with tims rewards at the.
Team has done a fantastic job of evolving the program.
For the over time, and making it really engaging at really compelling to our guests there.
We had a big success with the roll up to win contest in the first half of this year and we succeeded I think in getting many more guests engaged in the program and also in terms of driving behavior and engagement of our app with our existing tims rewards.
<unk> for us.
So we're really pleased with that.
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 end of where the program is at.
We mentioned in our earlier remarks.
Our digital sales of over 30% of sales now at Tims.
Members of our loyalty sales or the majority of that so it's a very large chunk of its grown very significantly year on year end.
With respect to the last piece of of your question on kind 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.
Net 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.
More excited about engaging with the Tim as brand more often and to find more and more ways to visit our brand and engage with the brand every day.
Alternate organization of the BK question, Great. Thanks, Josh.
David on the second question on on the BK U S. I wouldn't say it's of premium innovation plan I think it's a plan that's.
That's kind of.
Emphasizing focus and pace I think the challenge, we've talked quite a bit about the BK business in the past.
We're at our best when we have.
Balanced approach with us.
Our strong focus on core with premium products that are that drive check but at the same time, having a balanced approach on value debt continues to be the long term view of the business I think where I've seen the opportunity in the near term as I spend time with the team and in speaking with franchisees.
Disease, and getting a better handle on what.
Opportunities for acceleration, we have I think we can drive.
Acceleration with with a lot more work on.
On the brand image.
Further improving return on Remodels and new builds.
I think theres an opportunity on menu platform.
<unk>.
With focus on breakfast premium and value.
I think theres a bunch of work to do in partnership with our franchisees on operational consistency I think we have a tremendous opportunity, especially as we at.
Grow our digital business and integrate that into the restaurant experience both in store as well.
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 communication side of it we've had of.
I think we've been a bit mixed.
Mixed in terms of our execution on our brand communications, we spent a lot of time on.
On price.
Driven communication and I think we have a lot more work to do on on cut through.
Brands and high quality.
Messaging around the quality of our products. So that's the focus I wouldnt call at premiums only it's all about balance, but it's been mostly about focus and and end pace and moving fast and the things that we think are.
Price dental to driving growth in the <unk> of our industry, especially in the us and that we know we're very capable of doing thanks. So much for the question.
<unk>.
Our next question comes from Jeffrey Bernstein with Barclays. Please go ahead.
Great. Thank you very much.
2 questions from here Juan Jose on the unit growth side of things just as we think about the 5% plus worldwide unit growth.
Like you're confident you can hit that in 'twenty..1 my guess is there's some help from what was a pause for the most part in 2020, helping the backlog of the pipeline. So I'm just wondering beyond 'twenty..1 whether you think you are now at a steady.
Fundamental resumed at north of 5%.
I'm just wondering whether there is any issues with supply of construction delays or labor, perhaps that might pose a 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.
Statewide solely or whether there is potential maybe to co invest with franchisees I know you mentioned, China accelerate whether it's remodels of digital menu board. So any other uses for excess cash that you might consider due to your strengthen the balance sheet. Thank you.
Okay.
Hey, Jeffrey Thanks, so much for the question I'll take the 1 on unit growth.
Sure.
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 are focused we've said 2 things in the past 1 is that we felt confident we can get back to.
At pre pandemic levels of growth in 2021, and I think that.
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 <unk> the impact of the pandemic because people believe.
Much more so in the and the power of the business in the most.
First half at the moment, it's resilient end.
And generates positive cash flow and so we didn't give especially given our off premise and digital capabilities. So our partners at really excited about it and we.
We see the momentum building in our pipelines and obviously the results for the last 2 quarters speak for themselves.
We have 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.
Canada as well as international pipelines get going on the BK side, but we're beginning to see strong movement with popeye's and Tim Hortons internationally.
<unk>, which we hadn't seen before and so we had record.
At quarter second quarter for both Popeye's and Tim from an international growth standpoint.
In the US also accelerated in the second quarter from a development standpoint, so we still.
Are very confident in our ambition to reach the 40000 restaurant goal.
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 in many markets even markets, where we have strong presence already.
And larger more penetrated urban markets, where we have a decent presence with Burger King in particular.
Goal that 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 service modes, including off premise drive through and and.
And deliberate.
As I said, I think Tim's and Popeyes are early.
Early days earlier than Burger King.
And we're seeing strong momentum there excitement from new operators and partners to invest in the brands and an acceleration in terms of the investments and the growth that they're delivering in their market. So we.
We feel confident.
In term of very focused in the short term there are challenges certainly in terms of supply chain, especially on the equipment side as you kind of included in your question.
But we have really good relationships with the equipment.
Suppliers and vendors.
And we're working closely with them to ensure that we can we can continue to deliver.
About the line of in front of Us and that's the work that we do in and we're happy and excited to keep you posted at our progress.
Yes, Jeff 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 recovery that we've seen.
I think we believe.
Believe we have an 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.
2 in terms of our shareholder returns.
What we <unk> in the capital that we can return to shareholders over time.
Mentioned in my prepared remarks.
I think we have.
Significant allocation toward our industry, leading dividend and us.
We continue to see the business improve in the balance sheet improve yeah, that's really what gave us confidence here too.
<unk> reset our authorization and upsides of that from 302 of $1 billion.
I think this new program reflects the level that we think makes sense for our business.
And a really great launching point for us.
To start working actively in the open market in terms of repurchases and returning capital to shareholders.
And adding open market repurchases to our toolset.
We also are very balanced end.
And we invest behind the brands already you mentioned.
Hey, Jose talked about this before I think.
<unk> is just getting into.
Laying out the plans and the with the teams.
In terms of what our focus areas are.
B, but if you look back historically.
Yes, we've always been investing in the BK business as well as Tim and elsewhere in terms of Remodels that we put toward.
Our property control and where were involved in the property as well as investments here internally in people to help support the plans and drive things forward.
When when we consider any.
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 RV.
<unk> strong returns for both us and our franchisees and our systems and we'll evaluate those and share them in due course.
A lot for the question.
Our next question comes from Jon Tower with Wells Fargo. Please go ahead.
Great just coming back to the Burger King US conversation I'm, just curious and thanks Jose for kind of going through some of the debt.
The pace.
Conversation and focus earlier, but I.
I am curious from your perspective, how much of the kind of sales underperformance or slow return to pre.
Pre pandemic levels relative to the competition do you think is controllable versus non controllable that is in.
In terms of.
Controllable I would view staffing levels at your stores product marketing.
Getting operational execution versus non controllable, which is competitors just getting more aggressive with marketing new product news at promotions. If you could just kind of comment on that that'd be great.
Yes, John Thanks for the question.
The industry has been competitive for a long long time retro it goes back.
The Burger wars in the eighties, and even before that so.
We are we feel that the opportunity for acceleration.
<unk> is all about focus and pace and it's entirely within our control and I think our franchisees believe at the same thing our teams believe the same thing.
It's all within our control is certainly a lot.
1 on staffing and retention I think everyone's dealing with these challenges and where we are.
We're working hard with our franchise partners to ensure that they have the ability and they put a lot of effort behind us as well since it's something that they control entirely.
We were working with them closely on that I think the.
At work to do.
Work in front of US is what I laid out earlier in my prepared remarks, and on top of that with focus and us.
And pace I think we have a really strong team with Burger King.
We've added.
Some top talent in the organization and marketing as well as in operations.
Bigger and the team is.
Beginning to gel together, putting at really strong plan in place working closely with the franchisees.
And I am confident that at.
All in front of us all within our control and it's just a question of of executing at at the highest levels, which we know we're very capable of so we're excited about where we are looking.
And to sharing our progress in the coming quarters.
Thanks, So much question.
Comes from Gregory strength.
You can find securities. Please go ahead.
Hey, Thanks for the question Jose I think a couple of questions.
Forward you were talking about the acceleration in Tims international on the unit side.
Can you talk maybe specifically about China I think you of a couple of hundred stores in 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 do you think it makes sense.
<unk> taken advantage of the opportunity long term with operational complexities I'm, just trying to get on where that might accelerate to us.
Pace of development.
Hey, Greg Thanks for the question Yeah.
We went from zero in 2019 February 19th of 200.
This first quarter of 'twenty 1 with.
With a commitment from the team there to take to double the size of the business to go from 200 to 400 and in the.
Full year of 2021.
My view on this is that that the business is super exciting the brand is resonating well there the product in particular, our beverage lineup, which is.
And at an.
Really really high quality at a great value with tremendous digital focus.
<unk>.
As striking a chord with the Chinese consumer.
And so we feel confident about the short term being able to grow at the pace at that the team has communicated.
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 in the market to do some great things I always tell the.
Our franchise partners to go faster.
But we wanted to do at the right way the right image the right technology focused the right quality of our products through at execution, but the pace of growth in the near term has been exciting and we are of great team there.
Led by.
By Young Chan, who has been a partner.
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 in 2021 and well beyond that thanks, so much for the question.
This concludes.
A question and answer session I would like to turn the conference back over to Jose sell 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.
And 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 in the world have a great rest of the day and stay safe. Thank you.
We remain conference is now concluded. Thank you for attending today's presentation you may now disconnect.