Q1 2022 Restaurant Brands International Inc Earnings Call
Good morning, and welcome to the restaurant brands International first quarter 2022 earnings Conference call.
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Please note. This event is being recorded I will now hand that to the conference host Steven Lichtman RPI as head of Investor Relations. Please go ahead.
Thank you operator, good morning, everyone and welcome to restaurant brands Internationals earnings call for the first quarter ended March 31 2022 as.
As a reminder, a live broadcast of this 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's 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 in the press release issued this morning and in our SEC filings. 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.
Please note that growth metrics discussed during the prepared remarks, including consolidated system wide sales growth net restaurant growth in organic adjusted EBITDA growth exclude results from firehouse subs, which we acquired on December 15th 2021 to reflect comparable year over year growth figures.
And now I'll turn the call over to Jose <unk>.
Good morning, everyone and thank you for joining us on today's call to discuss our first quarter of 2022.
We started the year off strong with progress in key focus areas, including Tim Hortons, Canada, and Burger King U S and continued momentum in our international business. While also seeing digital traction across all brands with home market digital sales, reaching their highest levels ever as a percentage of system wide sales.
During the first quarter, we once again grew year over year comparable sales driven by just over 10% comparable sales at Tim Hortons in Canada exceeding our own high single digit expectations that we shared in March and 20% comparable sales growth in our Burger King International business we.
We also made further progress chipping away at the gap to our competition and Burger King U S. But have important work ahead of us and are focused on establishing a strong growth plan in collaboration with our franchisees. Meanwhile, firehouse subs continue to drive comparable sales on top of its double digit growth last year. We also continued to make progress on digital initiatives, we saw sequential improvement.
<unk> and the contribution of digital sales to overall sales across all brands in their home markets, including Tim Hortons, Canada, reaching over 36% of system wide sales our development results in the first quarter kicked off another exciting year, and we're still expecting to accelerate overall net restaurant growth. Despite our decision to cease restaurant development in Russia and our recent.
Surge in Covid cases across China. In fact, we opened a record number of restaurants during the first quarter led by all of our brands internationally and by Popeye's in the U S.
We also announced another exciting new development partnership with Tim Hortons in India, a priority market for us and our long term international expansion plans.
Additionally, I'm happy to report that we have resolved all disputes with our popeye's in Burger King franchise partners in China, unlocking long term growth for both brands in this important market. The combination of comparable sales and net restaurant growth helped drive year over year system wide sales growth of 14% an increase of nearly $1 billion year over year and org.
<unk> adjusted EBITDA growth of 9%, which included a negative 2.6% impact on adjusted EBITDA growth related to Russia.
And finally during the quarter, we continued our commitment to shareholder returns delivering over $400 million through a combination of dividends and open market share repurchases.
We remain committed to our overall capital allocation philosophy, which benefits from the free cash flow profile of our business.
Allowing us to execute across each of our priorities reinvesting in our business returning significant returns to shareholders and remaining flexible to pursue other strategic opportunities overtime.
Turning to brand performance, we'll start with Tim Hortons, Canada, you can expect to hear much more from the Tim Hortons, Canada leadership team on the brand's recent progress and long term growth strategy at our Investor Day. Later. This morning, So I'll keep my comments brief and focused on our Q1 results for the first quarter. We were pleased to report a 10% year over year increase in comparable sales.
Excellent result, reflecting the hard work of our restaurant owners and team over the past couple of years.
These positive results were driven by strength in our underlying core business that we've worked so hard to reinforce and improve over the past years continued traction from our digital initiatives strong promotional performance and measured pricing tied to inflation.
We also saw accelerating underlying sales trends throughout the quarter as restrictions ease across the country and mobility increased in fact comparable sales at our Super urban locations grew nearly 30% year over year during the quarter with each month growing faster than the prior.
We were encouraged to see especially strong results in March with comparable sales improving weekly and exited the month with momentum I am pleased to share that all product categories and day parts contributed to our sales performance and strengthened throughout the quarter with lunch foods and baked goods as notable standouts on the product side and morning, and lunch standing out on the day part.
Syed.
The team's quality improvement work through back to basics on breakfast and coffee offerings is paying dividends and strengthening our competitive positioning and market share in our flagship categories of breakfast food and coffee.
In fact, our freshly cracked eggs platform helped drive breakfast food market share to its highest level in over five years.
Successful calendar initiatives during the quarter included the launch of team Canada Hockey cards ahead of the Winter Olympics and the relaunch of two of Canada's favorite Donuts and one of mine the improved Apple Fritter and Boston cream.
Either paired with our fresh brewed coffee our continued.
Commitment to improving the quality of our offerings resulted in a notable boost in product satisfaction and guests coming back for more of our delicious baked goods. We also ran our annual roll up to win contests are most successful to date driving even higher incremental sales and last spring's campaign and lifting digital sales over 36% of system wide sales for.
The first quarter with over 40% digital sales sustained during the month of March the success of this core foundational work has paved the way for our expansion into high growth food and beverage categories less penetrated day parts and doing even more exciting things with the sizable digital business. We've created youll hear more on our exciting plans for the long term late.
This morning, the Tim Hortons, Canada leadership team.
Which will be webcast live on our website, turning now to Burger King U S 2022 marks the starting point for Burger King's multi year plan to reclaim the flame last quarter, Tom walked us through some of the critical near term initiatives. The team is focused on to enhance the overall guest experience advanced the brand's growth and drive long term sustainable sales.
Though the benefits of many of these initiatives are targeted to start taking effect in the back half of the year were encouraged to see some progress this quarter and want to share some highlights.
First we've made good progress in our efforts to modernize and reposition the brand.
Earlier this year, we announced our decision to put our creative account into review to improve the effectiveness of our messaging strategy increase the returns on our advertising investments and modernize the home of the Whopper, We recently announced our decision to join forces with a new creative agency and look forward to accelerating our creativity and innovation in a way that is distinct and relevant for today's guests.
<unk>.
This quarter, we demonstrated our balanced approach to menu innovation and value for money, while keeping our core equity the whopper top of mind.
We kicked off the year with a new five dollar have it your way meal, featuring a double whopper junior.
In addition in order to treat the whopper is the powerful multibillion dollar brand that it is we've removed that legendary Burger from our core discount offerings and added some fan favorite variety, the big King and quarter pound King to our new two for five offer.
This shift resulted in a win win a more profitable lineup for our franchisees and a more compelling offer for our guests with a shift from two for six to two for five. In addition, we leveraged guest insights to create an item that offered more portability at a price point between our whopper junior and Whopper the whopper melt.
We launched with three delicious flavors and added the product to our flame grilled selection for a limited time.
Our results demonstrate that the offering had strong messaging with high quality ads performed well on our digital platforms and proved to be incremental to our burger platform at a healthy price point.
On operations, we built off our first round of menu simplification and launched a late night specific menu in early February .
The streamlined menu provides an opportunity for our franchisees to stay open later by minimizing complexity, while balancing the sales impact.
Simplification remains an ongoing process as we investigate the most thoughtful way to create efficiencies in the restaurant improved guest experience and drive profitable sales.
We're cognizant that our franchisees continue to see profitability pressures due to the significant volatility in the current environment and we're continuing to research and explore ways to assist franchisees on an ongoing basis.
Team member engagement and retention remains an opportunity across the industry and an important initiative for our expanded field team to improve productivity at the restaurant level. This quarter, we shared our employee value proposition framework with franchisees. This framework was the result of countless hours of research and sharing of best practices and has received positive feedback thus far.
As we work together to create a culture of operational excellence.
The good news is our guest satisfaction has sequentially improved over the past three quarters.
As we continue to rollout the employee value proposition and our simplification efforts. We're confident we can continue to engage team members and improve guest satisfaction, which is an integral part of our growth strategy.
An image, 33% of our system features the latest Burger King of Tomorrow image and technology elements as Tom shared last quarter, we're working with franchisees across the system on the right investment approach for the balance of the system and we will share more substantial update later in the year.
Similar to investments that we've made at Tim Hortons, Canada. The team is working closely with franchisees to assess how best to support our image and advertising efforts to drive the highest return for us and for franchisees.
Now to touch on our results for the quarter, we saw 0.5% decline in comparable sales driven by the lapping of last year's stimulus benefit macro headwinds in March had a modest impact from reduced operating hours.
These impacts were partially offset by a net benefit from our focus on core offers this year versus a bigger focus on core discount in 2021, the introduction of the five dollar habit, Yahweh meal and Walker Mills.
I'm pleased to see that our efforts helped narrow the gap to our peers by a few hundred basis points. This quarter. This is no victory lap, but we're encouraged by this continued signs of progress, but no. We still have a long way to go to recapture market share and set the BK brand up for the future.
The team has worked hard to make a difference in a short amount of time and I look forward to sharing more updates in the back half of this year as we reclaim the flame.
Now turning to our Burger King International business, which has been a consistent growth engine for the brand as it contributes nearly 60% of the brand's global system wide sales and continues to get stronger every year.
We achieved an impressive system wide sales growth of 31%, reflecting an even stronger than expected resurgence in sales showcased through strong comparable sales growth in key international markets and continued momentum on net restaurant growth.
During the quarter five of our largest international markets, France, Spain, Germany, Korea, and Brazil generated double digit growth that offset softer performance in China related to a recent resurgence in COVID-19 cases and associated restrictions.
On top of positive macro tailwind brand positioning calendar work and digital initiatives, we've executed have helped drive incremental sales.
We made good progress finding the right way to localize the Burger King experience in some cases that could mean developing products that lean on local culture, such as meats and cheeses specific to an area. While in other cases, it could mean highlighting imported food and beverage products. If that's what our guests are asking us for this formula is something that recently worked well in France and surrounding countries.
Each with small modifications that resonated well with guests. In addition, our largest and fastest growing markets have increasingly strong digital capabilities that help us deliver a modern and convenient guest experience. This is ultimately strengthened our positioning as leaders in the market and enables us to create best practices for future application, we shared a detailed update in March.
On the growth of our international markets in recent years and touched on many of these key trends and examples by markets that are driving the business forward.
Our strong foundation brand awareness local expertise product innovation and digital capabilities have contributed to our resilient international business that is well positioned for growth and we're optimistic of the long term opportunity to expand this highly scalable business in new and existing markets around the world turning now to popeye's, which is celebrating 50 years.
This June we closed the quarter with our global Popeye's Convention hosted in New Orleans honoring the brand's rich, Louisiana history rooted in delivering home cooked Cajun flavors and an authentic southern experience for our guests alongside our amazing franchisees and team members. The energy was electric with strong attendance from home and abroad. All focused on how we can work together.
Other to take the brand to new heights in the coming years.
In March we also celebrated the fifth anniversary of our acquisition of this iconic brand.
It's pretty remarkable to see how far popeye's, it's come with system wide sales growing from $3 2 billion in 2016 to just north of $5 5 billion in 2021, and adjusted EBITDA more than doubling from $95 million to over $225 million in the same period.
And it's been amazing to see the reception to the Popeye's brand both at home and around the world as we've expanded into new markets, while growing in existing markets, adding over 1000 restaurants globally since popeye's joined the RBI family and.
In 2022 is kicked off with continued development momentum after a milestone year in 2021 Popeye's posted record first quarter unit growth with the highest number of first quarter net openings since we acquired the brand.
Our existing international markets, notably, Spain, Philippines, Turkey, Mexico, and Brazil grew significantly year over year, reinforcing our excitement around future growth as we expand our offerings to more guests around the world.
We expect to continue to see this growth trajectory unfold as the year progresses and are on track to deliver record net unit growth in 2022, including opening over 200, new locations in North America. This year, while launching in new markets like Romania and France.
Importantly, we're opening high quality restaurants with over half of our locations in North America, featuring double drive throughs, which will increase throughput and foster a better guest experience.
Despite strong net restaurant growth of 8%, including 6% in the U S softer home market comparable sales resulted in system wide sales increase of four 1% continued staffing challenges, resulting in lower year over year store hours competitive pressures, specifically around last year's chicken sandwich launches and the lapping of 2021 stimulus benefits.
<unk> and a four 6% year over year decline in home market comparable sales.
That said, we saw positive contribution from our menu initiatives, including the launch of our six dollar big box.
And we're excited to announce the arrival of our new Buffalo Ranch chicken sandwich, which builds on our chicken sandwich platform and adds some fun flavor for guests with our fan favorite Buffalo Ranch sauce improvements.
Improvements in operations and service levels remain key focus areas and represent a real sales growth opportunity.
I'm happy to say, we've seen early signs of progress from recent efforts with our guest and operations metrics improving year over year. This progress reflects our largest supporting field team and enhanced operations framework that celebrates wins and adds additional transparency into relative performance in areas of opportunity.
I'm optimistic that together with our franchisees and their restaurant team members, we will continue to improve operations and foster the warm positive guest experience. The brand was founded on 50 years ago and drive top line growth for the next 50 years to come and finally I'd like to touch on firehouse subs, the brand's commitment to community coupled with its hardy subs and compelling value proposition drove impressive.
The results this quarter.
Firehouse subs U S retained its recent momentum building average unit volumes to an all time high of nearly $920000 on a trailing 12 month basis growing year over year comparable sales four 5% on top of 24% comparable sales last year, increasing system wide sales, 7% and generating over 30% of sales through digital channels.
I'm also pleased to share that firehouse subs continues to be recognized as a philanthropic leader in the industry and was named the number one brand in the restaurant industry that supports communities for the fourth consecutive year based on recent technomic inside consumer data.
The brand's strong community connection is in large part tied to the success of the firehouse subs public safety Foundation, which in partnership with the hard work of restaurant owners and team members has granted over $67 million in contributions since its inception, helping provide first responders with lifesaving equipment to be better prepared to save lives in the.
They serve as the firehouse subs team likes to say sell more subs save more lives.
I'm also delighted to see the brand integrating smoothly into RBI and just the short amount of time, we've made good initial progress towards accelerating development in many geographies around the world and have begun to assess where we can help enhance the brand's already strong digital capabilities. We remain confident in this brands pace of growth and look forward to sharing more updates as the year progresses.
With that I'd like to hand, it over to Josh to take you through a quick update on our digital initiatives Josh.
Thanks, Jose and good morning, everyone. As you know across our brands, we view digital as an important tool to create a more convenient seamless guest experience increase engagement and brand affinity and ultimately drive sales in the first quarter. We were pleased to deliver favorable momentum across all of our brands at Tim Hortons in Canada, We saw continued sequential.
<unk> improvement in digital sales with the market, reaching over 36% during the quarter.
Meanwhile, Burger King Popeyes, and firehouse subs generated 9%, 18% and 30% of sales through digital channels and their respective home markets sequential improvements from Q4 results.
We attribute this improvement to a combination of factors, including growth in delivery and increase in mobile order and pay continued traction from loyalty and well executed digital campaigns. The most notable campaign this quarter with our Tim Hortons roll up to win contest an iconic part of the brand's history that has now been brought into the digital age traditionally roll up to win.
Was a fun brand building opportunity in traffic initiative, which we have now transformed into an incredible driver of digital engagement and sales. We ran two roll-up contests last year that collectively added approximately 3 million new registered members to tims rewards expanding our already strong loyalty program in Canada and.
In 2022, we sought to further engage those users embedding them more deeply into our digital ecosystem by building and points based incentives to use mobile order and pay introducing an unprecedented number of guests to this service mode.
We also built upon strong brand partnerships to offer Canadians are largest prize pool ever with more than 100 million Canadian dollars.
These partner funded prizes allowed us to reduce the required owner investment and level of product cannibalization meaningfully increasing same store sales contribution year on year. This is just the tip of the iceberg in terms of what we can do with the digital assets. We've built at Tim Hortons and I encourage anyone listening to tune into our Tim Hortons, Canada Investor Day in just a few hours to hear from the team on.
Our digital journey as we scale, our digital platforms at Burger King and Popeye's, We believe we can leverage the wins, we've seen at Tim Hortons, while earlier days promotional initiatives did help drive digital engagement at both Burger King and Popeye's this quarter at Burger King Whopper melts performed well on digital channels and marked the first time, we offered exclusive builds and meals through our digital.
Platform pop is also made progress during the quarter largely driven by a renewed focus on delivery, including enhancing service levels and the delivery experience on both first and third party platforms. In addition to marketing investments supporting delivery.
And the drive thru, we've discussed completing the rollout and effective utilization of our outdoor digital menu boards and I'm pleased that we are making consistent progress on our goal to equip 100% of our drive throughs and the U S and Canada across Burger King and Popeye's as we've mentioned in the past our Tim Hortons system is substantially complete and it is exciting to see the significant experience.
These menu boards offer our guests and the efficiencies they bring to our restaurants with that I'll hand, it over to Matt to take you through our financials for the quarter. Thanks, Josh and good morning, everyone before walking through our results I'd like to share a bit more detail on the impact of the actions, we announced as it relates to Russia.
We had 820 fully franchise Burger King restaurants at the end of 2021 that represented about 2% of our system wide sales and one 7% of our EBITDA in 2021.
During the first quarter, Russia had a roughly 12 million dollar impact on our year over year, adjusted EBITDA and we anticipate a fairly even impact across the year. In addition from a development standpoint over the last five years, Russia has averaged about 80 net new restaurants a year.
Despite the loss of this contribution the strength and diversification of our global partners across many growth markets keeps us well positioned to accelerate overall net restaurant growth in 2022.
Shifting to the first quarter overall, our global system wide sales grew 14% to $8.8 billion up nearly 1 billion year over year and our adjusted EBITDA was $530 million up 9% organically excluding firehouse.
As I mentioned, Russia had a negative $12 million impact on our results, which was a negative two 6% headwind to our adjusted EBITDA growth rate.
The remaining gap between our system wide sales growth and organic EBITDA growth was related to our 2021, G&A and technology investments, partially offset by positive timing in our AD funds. This quarter. We also made a slight change to the way we report revenues and expenses supporting certain technology initiatives to provide consistency across our brands as well as with industry peers.
We had previously included revenue at Burger King from technology fees, which are paid by the system as a function of digital sales levels in franchise and property revenues, while the associated technology expenses were included in BK segment G&A going forward. We will report these technology revenues and expenses under advertising and other services on our P&L.
We do expect to spend more on technology expenses, then we collect in revenues this year at BK as we build and enhance our capabilities with the intention of ramping our digital sales and the associated fees to fully fund these initiatives longer term during the first quarter. The net impact of $9 million of technology expenses and offsetting revenues was about negative $6 million.
Adjusted EBITDA or negative 1% impact on our organic growth rate.
Related to this change we have included a quarterly reconciliation of the movements for 2021 in our press release. This morning, our first quarter segment G&A. After adjusting for this shift and excluding firehouse was $89 million, which was lower than the fourth quarter comparable level of $94 million that we mentioned would be a reasonable baseline for 2020 to do.
Due to some timing that we expect to reverse later this year.
On a year over year basis growth in segment G&A had a negative three 5% impact on our organic adjusted EBITDA growth rate as it relates to AD fund timing our year over year growth. This quarter reflects the fact that advertising expenses exceeded revenues by approximately $17 million less than they did in the first quarter of last year, resulting in an organic adjusted EBITDA.
Tailwind of about positive 3%.
Before turning to EPS I would like to briefly discuss our sales cost of sales margin within our Tim Hortons segment.
As we've mentioned in the past few quarters and similar to what others across the industry have noted we are seeing a significant increase in commodity volatility leading to elevated levels of inflation as mentioned last quarter. Given the fact that we generally take a pass through approach inflation has increased both our revenues and expenses, which in turn results in dilution of our percentage margin well.
Continue to manage through the volatility that has extended into this year. However, we are encouraged by the underlying volume growth. We are seeing as we execute on our sales plan and the business in Canada continues to improve shifting to EPS. Our first quarter adjusted earnings per share was <unk> 64 cents compared to 55 cents last year, representing an increase of approximately 17%.
Including an FX headwind of about negative 2%.
The higher growth compared to our organic adjusted EBITDA growth of 9% was mainly driven by contribution from firehouse subs and a reduced share count from our repurchase activity, partially offset by higher adjusted effective tax rate turning to our cash flow and capital structure during the quarter, we generated $224 million in free cash flow, enabling us to continue.
Investing in our business and follow through on our commitment to return capital to shareholders through both our industry, leading dividend and open market share repurchases against which we have been actively buying back shares and during the first quarter repurchased and retired approximately 2.9 million shares of our common stock for nearly $161 million. In addition.
And we returned approximately $241 million to our shareholders through a 54 cents per share dividend and we recently declared an additional dividend of 54 cents per common share and unit payable on July six consistent with our previously announced target of $2 16 for 2022.
And even with combined capital returns of over $400 million, our net leverage remained stable at five five times.
And so as I mentioned, we are excited by the underlying growth in the business, we're seeing and also with the capital allocation flexibility of this creates over time, given our high rates of cash flow conversion and over $2 billion of existing liquidity as we progress through 2022, we see clear opportunities to enhance our growth by building on our momentum attempts, which you'll hear more about shortly.
Executing on our near term priorities at BK U S accelerating digital across all brands and delivering on our big global development opportunities with that I'd like to thank everyone again for supporting us and joining the call. This morning, and we'll now open the line for questions operator.
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First question is from Dennis Geiger of UBS. Your line is now open. Please go ahead.
Great. Good morning, and thanks for the question I was wondering if Jose maybe you could talk a little bit more about what youre seeing from.
From your customers across maybe the key home markets in the U S and Canada in particular.
Behaviours changed much and how the consumers are using the brand in and maybe most importantly, if you could just kind of tie how the BK in the tims brand our position in a more challenged consumer spending environment, recognizing that that both brands arguably have more idiosyncratic drivers to improve market share, but just wondering if you could kind of talk about.
That positioning looking ahead as it relates to your plants. Thank you.
Yes, good morning, and thanks for the question Dennis.
We've seen consumer confidence tested surely by the pandemic and obviously in more recent months by the volatility.
That we're seeing across North America.
For the consumer the inflationary environment is it's certainly something that's top of mind, we've seen food at home inflation.
Being under a little bit more pressure over the last six months than food away from home, which creates.
For the restaurants based on a more positive environment.
Other things that we've seen in terms of consumer behavior is that the trends that were accelerated throughout the pandemic things like.
Off premise.
Our service modes, whether it's digital rewards drive thru delivery is continue to be sticky.
We're also seeing a.
<unk> come back a bit.
As restrictions have eased, especially here in Canada, but really throughout North America in our home markets, we've seen <unk> come back a bit.
All of this.
To say that we're very cognizant of.
The sensitivities that the guest has.
And we're taking a thoughtful approach I think.
The brands, both brands Tims and BK.
In North America and candidate for Tims in U S for Burger King both brands have strong.
Kind of a balanced approach as to the menu and how we address consumer needs and our teams have been spending a lot of time thinking about that.
Surely addressing.
We're being thoughtful about the guest perception on what the competition is doing in our franchisees profitability as we think about addressing that.
<unk> headwinds.
With pricing initiatives that we've seen throughout the last six to 12 months.
Our focus is always on.
On the franchisee on our guests and making sure we keep that.
In line with and understand what's happening with our competition and we're going to take a balanced approach throughout and b be long term in our view on how to address the immediate pressures that the consumer is feeling.
Thanks for the question.
Our next question is from Brian Mullan of Deutsche Bank. Your line is now open. Please go ahead.
Hey, Thank you just a question on Tim.
<unk>.
Just wondering if youre able to see a measurable impact from the AD fund contribution increases that took place is that something that's helping already or is it a bit too early.
And just wondering if that could be a tailwind over the course of this year and then just related to that.
Shared some encouraging commentary about March in particular.
Is it fair to think that margins back to maybe positive first 19 kind of how you talked about in December if youre willing to comment. Thank you.
Yeah, Brian Thanks for the question.
We were encouraged by the positive momentum.
In Q1 in the second half of Q1.
And heading into the second quarter, we're seeing strong as I mentioned in my prepared remarks strong underlying core performance of the business with that with coffee with breakfast.
And continued improvement in AR.
In other day parts as well.
Obviously, the ease of restrictions and the increase in mobility has helped as well and we were we've been measured in our pricing in Canada, making sure. We don't get too far ahead of our skis and get too far ahead of the.
France, the consumer as well.
I think some of the positive.
Indicators in the first quarter that I mentioned things like the Super <unk>.
Ben business and kind of the organic there has improved significantly as one of the better performing.
Areas of the business.
It was the same in Q4, so that I think thats.
A testament to the improvement in mobility. We also saw that Ontario was one of the stronger performing regions, which is which was one that had some of the stronger restrictions over the last 24 months and we're going to share quite a bit more at the at the Tim Hortons Investor day, the first ever Investor day, a little bit later this morning, I think it's at 11 o'clock.
We have a lot of confidence.
In the long term.
And in the full year plan that we have here for Tim I think on the AD fund just coming back to that question, which is your first one.
That was a contribution that we made to the advertising fund here in Canada in 2021.
And we feel that the investments we've made there alongside our franchise owners were really important to to continue to double down on brand related messages as well as some of the improvements and coffee quality as well as some of the innovation on beverage and some of the improvements in breakfast and we're encouraged by the progress there and we'll continue to.
To work closely with the owners to make sure we drive that part of the business long term. Thanks, so much.
Our next question is from David Palmer of Evercore. Your line is now open. Please go ahead.
Thanks, a question on Burger King rest of World same store sales growth.
Versus pre COVID-19 levels accelerated despite omicron, which was pretty good which regions fueled growth in the quarter and generally do you expect growth to accelerate.
Except for I would imagine youre going to have more Russia negative impact I think you are including Russia in the comp base, there and I would imagine China will be bigger headwind into <unk> as well, but.
I'm wondering how we should be thinking about what.
What markets are really fueling the growth in.
And maybe some gives and takes in terms of markets going forward. Thanks very much.
Hey, great. Thanks for the question as I mentioned in my prepared remarks, we're excited by.
By the work that's happening internationally and the progress we're making it's really broad based.
Across regions with the exception.
Russia and in China that I mentioned with some headwinds given the more recent.
Restrictions there due to their zero Covid policy.
Across regions and in some of the key markets that we have larger markets Spain.
Korea.
Several others we've seen.
A combination of good work on the menu side.
Continued growth on the digital front.
Off premise continues to be a strong part of our growth with delivery as well as some curbside and digital rewards types of type of program and then macro improvements with restrictions easing and mobility picking up.
<unk> has seen has helped us drive growth as well in those markets and what we're saying is in store dining and many of those markets, which is such a big part of.
The business is snapping back so the combination of a good plans good digital and and good kind of macro environment has been positive for that business and we feel confident in the long term. There. The teams are working closely with our master franchisees and all of the markets to continue to drive innovation and draw.
Good brand messaging and continue to push on the digital platforms that are so important for growth in these markets. Thanks, so much for the question.
Our next question is from Brian Bittner of Oppenheimer <unk> Co. Your line is now open. Please go ahead.
Thank you. Thank you very much just two questions. One could you help us understand the level of year over year pricing.
Both at Tim Hortons, Canada, and Burger King U S. That's the first question and second one just going back to David Palmer's question on on the Burger King International business.
All the color that you just gave but can you maybe summarize why you believe your comps are now trending so far above pre Covid do you believe you took a lot of market share during COVID-19 outside the U S with the Burger King brand. So naturally these international markets are as a storm out of Covid.
Just ending up with a better sales model or is it that digital has taken off just any more color on why these levels. Our comps are so much higher than pre COVID-19.
Yes, Thanks, Brian for the question for the two questions I'll start with the last one which continues on the prior one from Dave.
I think simply put the off premise business that group quite quite significantly through the pandemic has stuck or at least so far remains quite sticky and in on premise is coming back in digital has been a big part of both of those right. So so internationally, we have a strong.
Digital business through kiosks, as well and where we have.
As an example in western markets in Europe , where we have really strong.
Lunch and dinner pushes the.
Kiosks helped quite a bit to alleviate some of the order.
Point pressure that some of the restaurants will feel so the digital business has been quite.
Quite strong.
And on premises is getting back to levels that we've seen before.
I think the combination of stickiness of off premise in that on premise growth is whats driving.
Some significant growth in our and what we saw in the first quarter and we feel confident.
Confident long term in our plans for those markets.
In the quarters to come.
On your first question on year over year pricing as I said in one of the earlier.
Our comments and responses we've been very.
Measured and we're staying close to the consumer obviously, staying close to our franchisees and their P&L and staying close to the competition to make sure.
We take the right steps on pricing we're facing.
As everyone knows pretty meaningful pressure from a commodity standpoint and.
And so we're we're responding.
As appropriate and we've stayed relatively in line.
With with inflation.
And CPI, both in the U S as well as in.
In Canada, and Canada inflation is kind of.
Lagging about 2% behind where we see it in the U S and so our pricing across the board is roughly in line with that with those two with those two measures. Thanks, so much for the question.
Our next question is from John Glass of Morgan Stanley . Your line is now open. Please go ahead.
Thanks, very much back on Tims is there a way to index or talk about absolute traffic levels at tims in Canada versus 19 to understand what the opportunity is to recapture that there may be inside of that can you talk about traffic levels at breakfast understanding that comp store sales are up but there is pricing there's mix, there's a lot of dynamics in there. So just.
Looking at three year comps may not be the entire story on transaction specifically.
Yes, John Thanks, so much for the question, we haven't separated traffic and.
And that checks.
Historically and not planning to do so today.
Hey, Bob.
We have seen improvements quarter over quarter in terms of.
Of traffic flows into the restaurants and part of this.
As I shared earlier I think is is a function of the good work that the team is doing on menu innovation as well as kind of core <unk>.
Quality improvements some of it is a function of the messaging some of it is a function of mobility improving them and at the same time. Some of it is a function of the measured approach that we're taking on on pricing.
We're always focused on making sure we don't lose traffic when we take pricing, especially in environment like we're facing today, but broadly speaking we are seeing improvements.
Inflows of of customers through the drive throughs as well as in store.
And through our apps in Tims, Canada, and it's for those reasons I just laid out thanks so much.
Our next question is from Jeffrey Bernstein of Barclays. Your line is now open. Please go ahead.
Great. Thank you very much.
On.
Corporates potential willingness to help your brands I guess, most specifically where most recently Burger King.
No. It was mentioned earlier about the Tim Hortons AD fund contribution that you guys helped with last year, So maybe along those lines.
And I know Jose you mentioned something about looking at ways to assist franchisees Burger King on an ongoing basis. So I'm just wondering what are maybe the options there.
It would be considered on your end.
As you would define I guess, helping assist.
The Burger King franchisees in this scenario.
Color you could provide would be great. Thank you.
Yeah.
Sure. Thanks for the question Jeff.
Yeah look we've historically.
We've talked about our capital allocation approach.
Investing in the business has been kind of a top priority and we've done it with terms we've done it with dk.
Contributed capital too to Remodels and other programs.
We're investing in G&A in our business as well I think last quarter. We shared investments we've made at Burger King two to add to grow the field teams by 50% in order to be able to support provide better training and just get closer to the business with our franchisees to be able to help them work through all the <unk>.
That we have in place long term for the business.
I think as it relates to your specific question on VK.
And.
Any contributions are part of our approach is we can take to be able to help the business. The focus is on being able to drive growth and the BK U S business and we're looking at that and I've mentioned this in my prepared remarks in last quarter as well with Tom that we're looking at that and working through plans with the with the franchisees are long term plans.
[noise] around marketing around the advertising fund.
To drive more media firepower. There in addition to our work to accelerate and have a meaningful impact on on our real estate and our restaurants image to be able to drive growth there and so we continue to work through that.
There was a number of options on the table both in terms of advertising in terms of image contributions in <unk> and <unk>.
We'll share more in the back half of the year as we as we finalize those plans and you guys will be the first or after our franchisees. The first to know thanks so much.
Our next question is from Jack got out of Goldman Sachs. Your line is now open. Please go ahead.
Alright, thanks for taking the question.
Tim Hortons and certainly appreciate the positive results there in that 30% plus I think you noted in the urban locations is there any way to frame, maybe those non urban locations and what the comp looks like theyre.
Just as we get a sense of maybe improving mobility trends.
Having a booster dose urban locations versus the non urban.
Hi, Jared yes. Thanks for the question we've seen the good news is we've seen growth on.
On a year over year basis.
And all our Vanity so rural suburban urban and Super urban.
We've also seen growth in same store sales year over year or comparable sales year over year in all regions, Ontario, Quebec, Western and Atlantic.
We've seen growth in different formats.
As well.
And in different day parts as well so so the growth that we saw in the quarter and the improvements sequentially.
Q1 versus Q4.
It was pretty broad based and I think it's a testament to what I mentioned earlier around the good work. The team is doing a good plan.
Excellent operational work that the franchisees and the owners are doing in their restaurants.
And the continued.
Easing of restrictions and an improvement in mobility throughout the country.
Thanks, so much.
Our next question is from Nicole Miller of Piper Sandler. Your line is now open. Please go ahead.
Thank you good morning, I wanted to ask a question about Tim Hortons and a 36%.
Our transactions that are digital could you speak a little bit more QE that cohorts that you can now break that group in two and their behavior, especially behind frequency and spend thanks.
Yeah, Nicole good morning, and thanks for the questions Josh.
I would say first of all we've been really pleased with the work that the team has done here in Canada on in all of our all of our digital programs, particularly on Tims rewards.
You'll get a chance to hear a lot more about it a little bit later today when the team shares it's more information during the Investor day.
A couple of the things that are kind of most most interesting to me at least are that we've seen in some of that consumer behavior that our tims rewards members tend to be the most loyal members of tenant the highest frequency I think the frequency is.
Yes.
But it clearly astounding, it's really incredible how often are our tims rewards members are using our app, how often they come and visit us.
And go to the stores and I think one of the other things that we've seen that's been really interesting to our teams here is is that we see as we deploy new features in the App things like our hockey challenge things like roll up we see those guests start to interact with our app, even more frequently so it's that's driving a lot of our thinking about.
And we can evolve the tims rewards program and how we can evolve the app over time to drive even further engagement with a such a large and loyal portion of our consumer base.
A lot of a lot of great things going on team doing really I'd say groundbreaking work.
Within our system and and hopefully will get even more insights into that here in just a few hours.
Our next question is from Jake Bartlett of Truth Securities. Your line is now open. Please go ahead.
Great. Thanks for taking the question Mike was on the Burger King U S business.
You shared that some customer satisfaction scores were improving I'm, hoping you can give some more detail around that maybe some context of where satisfaction levels are now versus a couple of years ago, you know, how the how fast or how steep the trajectory of improvement is and then through the rest of the year here.
<unk> you.
These efforts are going to start to drive market share gains or improvement in sales in the back half of the year can you just help us understand some of the catalysts along the way specifically marketing you have a new agency or using it as a new marketing campaign, you can telephone when that might start any catalysts along the way.
In addition to the the metrics customer satisfaction would be helpful.
Yeah, Jake Thanks for the question.
We have seen improvement as I mentioned in my prepared remarks on operations, our overall satisfaction at at Burger King in the U S.
And it's been a fun.
The improvements have been quarter over quarter, the last three quarters.
Encouraging I think it's great work from the franchisees as well as great work from the field teams that Tom.
Tom has put in place.
The.
The benefit there is that it's a it's an outcome of a number of different initiatives, including simplification efforts that we started to make in the final quarter of 2021.
It's a function also of some of the additional support we're providing in the field. It's just the beginning.
Wouldn't consider it a victory lap or a big celebration other than.
Confirmation that we're on the right track and we're putting our resources and efforts.
On the right things, which is all about guest experience in guest satisfaction and that's where we think we have a tremendous opportunity with BK in the U S. I think more broadly as we think about growing the business in the U S. Obviously marketing our menu plans as well as our communication plans are really important.
On the media front and on the advertising front, we've made changes.
Over the last or we announced changes last week, which we think are important.
As we as we look at driving better messaging more more targeted messaging.
A clear brand positioning for Burger King in the U S.
And being able to punch at or above our weight from a from a media standpoint. So these are all <unk>.
Parts of the of our game plan. In addition to that we've talked about digital being a big unlock for the U S business continuing to.
To accelerate our plans on the digital front and.
In doing so not not just.
Kind of in store, but also.
Driving growth in digital through R. R.
Relatively ubiquitous drive through our platform.
And then I think beyond that there's a there's a lot of work to do as well on an image. We I commented on on having about 33% or 30 plus percent of our restaurants in the U S with the Burger King of Tomorrow image.
We're working closely with the with the franchisees.
And our teams to find ways to have even more impact.
On the guest experience through investments in the restaurants, which we think are.
One of the key unlocks as well for the business. So there's a lot to lot to do but we've got a great team that's working hard alongside our franchisees to build up plan and start executing it. So we'll keep you posted on all of those details.
We come as we come to a.
Kind of frame up those those plans alongside our franchisees in the coming months and quarters. Thank you.
Our next question is from Andrew Charles with Cowen. Your line is now open. Please go ahead.
Great. Thank you guys I have a two part question Jose to follow up on an earlier question you know as part of plans to assist BK U S. Franchisees are you guys exploring AD fund of royalty relief just the last few years you guys called out that store level profits were flat and obviously the industry is seeing quite a bit of commodity pressure in 2022, particularly it would be and then just my.
Second question, Matt you highlighted that Burger King saw bad debt expense of <unk>, primarily in Russia.
Call correctly bad debt expenses recorded 60 days after royalties are due in the conflict in Russia. It Didnt escalate really until the middle to end of February . So if you just help quantify that total bad debt expense in <unk> for Burger King and how much of that was Russia versus the U S. I think investors would really appreciate that thanks.
Thanks, Andrew on your first question.
I'd say that the.
The investments we're looking at and the work we're doing is to figure out how best to drive overall.
Overall topline growth and profitability for the business.
Advertising.
Image these are areas, where we think.
There's a there's tremendous.
Opportunity as we've seen with with terms as an example.
So those are areas, we're looking at we're not considering.
Royalty relief.
As one of the areas to look at.
Yes, I think.
Related to the second part of your question on bad debt I think the impact from.
From Russia in the quarter I think we quantified in the prepared remarks was about $12 million that.
That was a combination of bad debt plus.
Shifting to cash recognition in the quarter.
As we talked about sort of our move away from the operations in Russia.
And so it was a combination of those two things that amounted to the overall impact on the quarter.
Which is a pretty good proxy.
Proxy for sort of the overall level of impact from the loss of business. There during the quarter to look at going forward and then outside of Russia. There I would say, there's no material significant bad debt activity to call out.
Thanks for the question.
Our next question is from Lauren Silberman Credit Suisse. Your line is now open. Please go ahead.
Thank you for the question I wanted to follow up on the comment on the U S. Consumer are you seeing any signs of trade down in any regions or markets and then specific to delivery are you seeing any shift in trends there or I guess, how are you thinking about the willingness of consumers to pay the premium for delivery in a more challenging consumer backdrop. Thank you.
Hi, Lauren Thanks for the question.
On the on the consumer and the U S consumer.
I think the behavior has been relatively consistent over the last six months, we havent seen any any material.
Trade down I think the there's always balanced in how the consumers interact with our brands.
With core being a strong part of it.
Core is an example of where it can be.
Whopper.
And in other core items, so we're seeing strong performance in our.
Core offerings as well.
In some cases premium.
And value continues to be a part of our business that we always are.
<unk> provide.
We think exceptional everyday value to our customers. So we haven't seen anything material shifting there.
And we continue to provide a balanced approach to our customers. Thanks, so much for the question.
Loren, maybe I'll take the question on delivery.
And particularly for our U S businesses, our Burger King and Popeyes.
Businesses are probably the most relevant and the largest for US I would say, we haven't seen any big departure in trend. There. We continue to see growth in both of those businesses and we're really focused on making sure that we're working really well together with our third party delivery providers to make sure that we bring the best possible experience to our guests whether they order directly.
And the restaurant or through the delivery platforms, we're very focused on improving enhancing guest experience things like driver experience and the operations in the restaurants. So those are our big focus areas and that's where we've been working to make sure that we continue to drive growth there.
Well, thanks to everyone for your questions and for joining us this morning.
We made notable progress this quarter against key priorities, including driving double digit comparable sales growth at Tim Hortons, Canada, and Burger King International and further narrowing the gap to peers at Burger King in the U S.
Reaching our highest levels of digital engagement over ever in our home markets and opening a record number of new restaurants in the quarter and returning over $400 million of capital to shareholders. Our results this quarter reflect the continued.
After it and the hard work of our team our franchise owners and their team members and we believe we're well positioned to continue to build off our momentum in the year ahead. Thank you again for joining us and we look forward to connecting with all of you again later this morning at our Tim Hortons, Canada Investor day. Thanks, So much.
Okay.
This concludes today's call. Thank you for joining you may now disconnect your line.
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