Q2 2022 Restaurant Brands International Inc Earnings Call
Reaching roughly a third of consolidated system wide sales.
We also saw good development progress within the second quarter and have a clear path to accelerate unit growth up 2021 levels.
Popeye's made notable development advancements in this quarter and remains on track to deliver a record year.
This is an example of our strengthening development mix as our growth at Popeye's and Tim Hortons accelerates, while our development engine at Burger King ramps back up to historical levels.
To put some context around this are combined Tim Hortons and popeye's footprint upside home markets.
Has reached nearly 2500 restaurants up from approximately 500 restaurants, just five years ago and grew over 20% year over year in the second quarter.
In parallel we're building development capabilities at firehouse in the U S and globally to drive another pillar of growth in the coming years.
The combination of comparable sales and net restaurant growth helped drive Q2, systemwide sales of $10 1 billion up 14% year over year, excluding firehouse subs and organic adjusted EBITDA growth of 9%, which included a negative 2% or $11 million impact on adjusted EBITDA growth related to Russia.
These results coupled with a fully franchised cash generative business model allowed us to continue driving strong shareholder returns.
In the second quarter, we delivered over $400 million of capital through a combination of share repurchases and our dividend.
Before diving into brand results for the quarter I want to touch on sustainability, which continues to be central to our goal of operating and building. The most loved restaurant brands in the world.
We recently released our second annual restaurant brands for good year end review report, which highlights the achievements our brands made across sustainability in 2021.
I encourage you all to take a look and learn more about the progress we made across our three pillars food planet and people and communities.
I am confident that what we achieved in 2021 will make a lasting difference in the world and I'm excited to continue the positive momentum on sustainability initiatives across our brands.
Turning to our brand performance, we'll start with Tim Hortons, Canada.
During our first ever at Tim Hortons, Canada Investor Day earlier this year excellent our Tim Hortons, Canada leadership team walked through the journey of the brand has taken since 2019 that has allowed us to transition to phase II of our back to basics plan, which is focused on accelerating growth in the coming years.
On this front, we were pleased with the progress we made accelerating sales growth during the quarter with comparable sales up 14% year over year and positive 2% versus 2019 for the quarter.
This performance was a result of continued improvements in our core breakfast baked goods and coffee offerings extensions to our PM food in cold beverage lineup.
And our second collaboration with Justin Bieber, all of which have been aided by increased mobility and targeted strategic pricing initiatives.
It's clear that the groundwork we laid during phase one of our back to basics plan is paying off with guests as they return to Tim following the easing of restrictions in late Q1.
Sales during the second quarter sequentially improved versus 2019 levels across all day parts, all formats or vanities and regions.
All product categories. Excluding hot beverage were also positive versus 2019 levels during the second quarter with our movement into high growth categories, such as cold beverage and PM food fully offsetting the headwind from hot beverage sales our extension into higher ticket higher growth categories with PM food in cold beverage continues to gain traction in.
In May we introduced part one of our loaded platform, which is the loaded wraps initially available and cilantro lime and avocado chicken flavors and are encouraged by the early results.
To build on this exciting platform on June 15th we introduced loaded bowls prepared fresh to order filled with Hardie Greens very tasty chicken Greens and Mouthwatering sources, which are also driving incremental sales to PM day parts not only has the loaded platform delivered strong sales. It's also benefited our customer mix.
These new menu items have allowed us to drive improvements in preference measures for tims with younger guests and have reengage existing guests that historically frequency tenders for breakfast and snacks only.
At our Investor Day, we also outlined our goal of being guests most sought after option for the entire beverage category Hot cold and specialty <unk>.
During the quarter, we made further progress against this goal innovating on our high quality cold brew platform with our new roasted hazelnut cold brew, which helped grow cold beverages by double digits versus 2019.
Another valuable lever to accelerate growth is modernizing our brand this quarter, we introduced the sequel to our collaboration with Justin Bieber with the rehab of our fan favorite 10 bps 10 bps designed and developed by Justin himself along with the addition of the French vanilla deep brew another delicious innovation on our KOL group platform the <unk>.
<unk> help generate incremental visits from existing guests, while also attracting a younger more digitally inclined guests.
We remain very focused on our digital journey at Tims, which already generates over one third of its sales from digital channels illustrating the growing importance of technology to the brand and its guests.
We continue to make progress enhancing our capabilities and driving more guests to our platforms. Both in store and from home, which resulted in a double digit year over year percent increase in digital sales during the quarter.
I am very proud to see the combined efforts with our restaurant owners and how they're resonating with guests that said, we're still early in the journey and look forward to continuing to accelerate growth through the second phase of our back to basics plan in the quarters and years ahead.
Turning now to Burger King U S. We've.
We made encouraging progress in the quarter narrowing the comparable sales gap to peers, while working closely with franchisees to solidify our multi year plan to reclaim the flame.
The team is gearing up for an important milestone in early September at our National franchise Convention, where we will discuss the planned investments we expect to make with our franchisees to springboard compelling long term growth at Burger King U S. A.
As I mentioned before we look forward to sharing the details with all of you as we come out of convention aligns with our system on the path forward to reclaim the plan.
In the meantime, I am pleased with this important progress we've made across a number of our near term initiatives to enhance the guest experience and drive long term sustainable and profitable sales growth.
During the quarter, we saw notable improvements in key operational metrics steady progress across our digital capabilities and consistent execution of our marketing plan.
On operations, you heard a stressed the importance of precision and creating a culture of operational excellence at Burger King U S. We continue to see the benefit of recent menu and process simplification efforts that are driving efficiencies in the restaurants, resulting in favorable operational outcomes and an improved guest experience without a near term negative impact to sales related to the <unk>.
Product reduction.
We're also focused on exploring ways to assist our franchisees as they navigate through ongoing pressures as a result of the current operating environment. We have already taken a number of steps to bolster franchisee support including developing and rolling out an employee value proposition improving our feedback framework with the introduction of our franchisee success system online dashboard and expanding our field teams.
I am pleased to see the franchisees actively utilizing the employee value proposition guidebook and implementing best practices into their hiring and retention routine both of which we believe have helped drive the quarter over quarter increase in average hours of operation. In addition, our franchisees success system operational framework is providing our franchisees with valuable insights into their performance.
By comparing key restaurant level metrics to the system average as well as the top 10% of the operators once an area of opportunity has been identified whether order accuracy speed of service or training related among others. Our expanded field team has been able to develop an action plan to assist franchisees in our efforts to improve.
Collectively these initiatives are driving improvements in guest satisfaction, which has improved sequentially over the last four quarters.
As a reminder, we have a significant growth opportunity from improving this metric in particular as we've seen a clear positive correlation between guest satisfaction and higher comparable sales.
Burger King's digital progress is steadily advancing our mobile app with white label delivery capabilities and loyalty through Royal Perks is getting faster through improvements. Our engineers have made we're learning more from digital guest interactions and we're finding new ways to drive engagement and platform adoption through integrated marketing campaigns take.
For example, the frequent Flyers campaign, we ran during the second quarter, where we offered members the option of free Fries every week for the rest of the year. The campaign has proven to be incremental to digital sales since its launch and stands as an exciting step in expanding our regional audience.
Finally on marketing, we're focusing our media firepower on fewer well tested high quality and high impact messages and we've seen our purposeful shift in this area begin to resonate with guests.
And while still early days, we're actively working with a new creative agency on ways to modernize our brand positioning and communications to further engage and connect with today's guests.
Now to briefly touch on our results for the second quarter, we saw a <unk>, 4% increase in comparable sales in the quarter driven by a net benefit from our focus on core offers including removing whopper from core discount during the first quarter a.
Our strong value platform with the $5 Youre way meal and positive contribution from digital and delivery channels.
These benefits were partially offset by the impact of lapping stimulus in April and May of 2021.
Our efforts this quarter helped sequentially narrow the comparable sales gap to our peers a reflection of the hard work of the BK U S team, our franchisees and restaurant team members.
I look forward to seeing continued progress across the business in the coming months and to sharing updates on our long term plan with all of you in September .
Now turning to a valuable growth engine for the Burger King brand the international business, which contributed 60% of the brand's global system wide sales and over 55% of adjusted EBITDA during the second quarter.
Burger King's International business continued to gain significant traction across key global markets and delivered another quarter of robust system wide sales growth, expanding 28% and adding about $600 million of sales year over year.
These results were driven by strong momentum in comparable sales at 18% year over year, coupled with solid net unit growth and strengthening pipelines.
Since the last quarter of 2021 with the exception of Lockdown challenges faced in China, Our largest international markets have performed well beyond pre pandemic sales levels and during the second quarter, we saw that trend continue and in some cases accelerate.
Four of our largest markets, France, Spain, Germany, and Brazil generated double digit comparable sales growth and collectively contributed over $1 2 billion to system wide sales during the quarter.
<unk> strong brand positioning has served as an incremental growth driver above and beyond the macro recovery. Many of our markets are currently experiencing.
Guests in markets like France, Spain, Germany, the U K and Switzerland ranked Burger King in their top three preferences on.
On top of that our guest in France, Germany, UK, and Italy consider Burger King as their top <unk> preference, we attribute the strong brand affinity we've established to the hard work our teams and our franchisees have done to deliver a memorable and enjoyable guest experience.
Our modern brand positioning is also contributed to fostering a positive experience for guests.
We have strong digital capabilities internationally with many of our largest markets generating over 50% of sales through digital channels.
Digital sales are a win win for franchisees are business and guests draw.
Driving sales with a measurable uplift in check higher margins per ticket for franchisees improved operations and a more seamless and better guest experience.
We expect our digital sales to continue to grow over time, given the significant development runway, we see in key international markets.
We have an incredible business internationally and one that we expect will continue to be a powerful growth driver for the brand for the years to come.
Turning now to popeye's, another exciting long term growth engine for our business.
Popeye's meaningful transformation over the last few years with U S comparable sales of 25% versus 2019 levels continues to drive interest from franchisees to bring our delicious, Louisiana style chicken to more guests in the U S and around the world.
The brand is on track to accelerate off a record 2021 development year with the majority of openings in North America being drive through locations that typically have average restaurant sales levels over 10% higher than the system average.
Outside of North America, Popeye's is making notable progress across existing markets like Turkey, and Spain, and we're seeing traction in new markets like India and the U K.
The strong development momentum translated into net restaurant growth of over 8% for the second quarter and helped drive system wide sales growth of nearly 10%, including 6% in the U S.
Popeye's U S comparable sales were relatively flat after three years of incredible growth.
This quarter, we also celebrated brands 50th anniversary in June with memorable Activations, such as our 50 years of love campaign, and thoughtful and relevant promotions, including offering two piece bone in chicken for the original 1972 price of 59, if ordered to do with Popeye's digital channel.
Making pop is more convenient for guests is an important priority for the brand.
From continued net restaurant expansion. The team is also focused on enhancing the brand's digital presence to make it more accessible to guests across service modes and platforms.
We were pleased to see positive contribution from these efforts during the quarter with delivery sales, increasing 8% year over year on top of a robust 27% increase in the prior year period, and helping to drive digital sales penetration to 18%.
Looking ahead, we will continue to grow by building convenience through restaurant development and digital capabilities, while driving guest service improvements Popeye's is a brand with a rich culture and history offering delicious high quality food and has an exciting long term growth story ahead.
And finally firehouse subs sustained all time high average unit volumes of approximately $920000 on a trailing 12 month basis up from a consistent level of approximately $700000 in 2020, and the years leading up to it.
This continued strength has been driven by notable outperformance from new units generating higher average unit volumes than the system average, giving us more confidence than ever in the exciting growth opportunity ahead for this unique brand.
In June I had the pleasure of attending my first firehouse subs convention, where family reunion as the firehouse subs team called them and met over 300 of our franchisees and their families that have helped make firehouse subs. The success. It is today, we had the opportunity to introduce franchisees to our compelling growth mindset and algorithm at RBI and I was very pleased to see the message embraced.
And the team energized to deliver it was clear from our time together that we have a passionate and dedicated group of franchisees that firehouse subs committed to their public safety mission and dedicated to delivering on our big Dream to build the most loved restaurant brands in the world.
For the second quarter firehouse subs saw net unit growth of two 5%.
Which offset softer comparable sales of down approximately 1%, resulting in a 2% year over year increase in system wide sales.
The second quarter was a tough comp to the prior year period, which benefited from stimulus and we're firehouse posted an incredibly strong comp sales performance of 31%.
The team worked to offset this by creative traffic driving initiatives such as maize name of the day promotion to keep firehouse subs top of mind.
Looking ahead, we're focused on accelerating the brands development and continuing to enhance firehouse subs digital capabilities, specifically as it relates to enhancing the loyalty program and E Commerce infrastructure.
We're excited to keep you updated on our progress in the months ahead.
As you can see it was an action packed and exciting quarter, where we made solid progress across all brands and in all regions.
Now I'd like to turn it over to Josh to walk you through a quick update on our progress on the digital and technology fronts Josh.
Thanks, Jose and good morning, everyone.
I'd like to share a few highlights from the quarter that show consistent progress against our goal of enhancing guest experience through technology.
Results this quarter show us guests are using digital channels more than ever.
Home market digital sales were collectively up in the low double digits year over year with the international business well above that.
This growth spanned across channels, notably delivery loyalty and mobile order and pay.
We're seeing benefits from collaboration between our marketing and digital teams with exclusive online offerings, such as the frequent failures campaign at Burger King.
Performance enhancements, we've made to our e-commerce platforms that reduce the time it takes to place an order.
And important reliability upgrades to restaurant technology that help create an overall seamless experience for guests and our team members.
With a common tech stack powering our mobile apps and other E. Commerce platforms, we're able to take features and performance upgrades and deploy them across our brands with east for.
For example, this quarter, we moved the popeye's app to a more modern code base, improving loading times by up to 52% thus far.
A statistic that importantly is highly correlated to app usage and orders.
We're planning to roll out a similar speed upgrades to Burger King and Tim Hortons in the coming months.
Restaurant technology is increasingly important as restaurants have evolved from essentially only having point of sale hardware to working with multiple delivery aggregators, having indoor and outdoor digital menu boards mobile app integration and likely more technology touch points in the future.
We want all of this to work seamlessly for our guests and for team members in the restaurants. So they can focus on excellent service.
One of our larger ongoing efforts in this area relates to standardizing key elements of in restaurant technology.
This quarter, we made progress rolling out a common network provider in our home markets fast and stable networks mean more uptime for all elements of our technology.
We also advanced efforts to ensure we have modern pls hardware and software across our system, enabling greater agility, when adjusting our menu prices and content.
These are just two examples of the many things our technology team is working on to set ourselves up to do much more in the future.
While we are making progress and guests and restaurant technology, we're thinking about how we can evolve our restaurant design to facilitate digital orders and unlock more throughput as more transactions come through the drive through and other off premise channels.
We have restaurants piloting a number of these format innovation tests around the world.
We're testing express drive to arrange for mobile order and pickup tandem drive throughs with two sets of menu boards and order points in a single link.
And restaurants with above lane conveyor systems, allowing two cars to receive their orders at the same time with.
With delivery growing significantly each year the experience of delivery drivers has become an increasingly large priority as well. So we're also testing walkup windows that can reduce wait times for both delivery drivers and guests who placed mobile orders.
All of these features have speed of service in mind, which is an important part of the overall experience at our brands.
Wouldn't expect these innovations in all of our restaurants in the near future. It is important for us to continuously test new concepts that could be deployed at scale in the coming years with that I'll hand, it over to Matt to take you through our financials for the quarter.
Thanks, Josh and good morning, everyone for the second quarter, excluding firehouse, our global system wide sales grew 14% to $9 8 billion.
And our adjusted EBITDA increased about 9% organically to $618 million.
And so as I mentioned, Russia had an approximately $11 million negative impact on a year over year, adjusted EBITDA, which was about a negative 2% headwind.
Beyond this our increased segment G&A of $89 million, excluding firehouse reduced our adjusted EBITDA growth rate and additional 2% as we continue to invest in our teams and add talent in key areas such as operations and digital.
We believe this is an important piece of the approach, we're taking to support our brands and deliver better and better multichannel experiences to our guests, which we view as a key growth unlock for the future.
As mentioned over the past few quarters will continue to be proactive on this front and expect to see a modest ramp in core segment G&A in the back half of the year.
Before turning to EPS I would like to touch on the current inflationary environment.
So as I mentioned similar to others during the quarter, we saw continued commodity volatility and elevated levels of inflation.
We've been working closely with each of our systems to drive sales, including by taking a measured approach to pricing to offset some of these pressures as well as identifying other restaurant profitability initiatives for our focus and investment in our field teams.
Inflation has also had a flow through impact on our P&L, increasing both our sales and cost of sales line items as market increases in commodity costs are generally pass through.
This grossing up of commodity costs in both sales and cost of sales has had the effect of diluting our percentage margins.
However, the underlying health of this business is ultimately driven by our progress in driving sales and volumes at Tim Hortons in Canada, which we continued to see improved based on the strong execution and progress of our back to basics plan.
Shifting to EPS, our second quarter adjusted earnings per share was ADT.
Compared to <unk> 77 last year, representing an increase of approximately 6%.
There were also a couple of factors in the quarter that affected this growth rate, including an unfavorable foreign exchange rate impact, which reduced our growth by approximately four points and.
And a higher adjusted effective tax rate as we lapped a discrete benefit from Q2 of last year, which reduced our growth rate by an additional eight points.
Excluding these two factors our organic adjusted earnings per share growth was approximately 19% year over year.
It is also worth noting that equity based compensation increase year over year to $32 million.
As a reminder, in 2020, we changed our equity based compensation framework to shift from five year to three and four year vesting and this process of shifting to the new framework has contributed to the increase in our equity based compensation over the past few quarters. In addition for comparability purposes. The prior year period was also reduced by discrete forfeitures.
And long term incentives.
Turning to our cash flow and capital structure.
During the quarter, we generated $417 million in free cash flow, allowing us to execute on key aspects of our capital allocation policy, including making important investments in our business and returning over $400 million of capital to shareholders, including through our industry, leading dividend, which we declared again for Q3 at <unk> 54 per common.
Sharing unit consistent with our previously announced target of $2 16 for.
For the full year of 2022 in.
In addition.
During the second quarter, we repurchased and retired approximately $3 2 million shares of our common stock for $165 million.
We also ended the quarter with a liquidity position of $1 8 billion.
Including over $800 million of cash and so our net leverage sequentially declined to five four times.
As we look forward to the second half.
We are now starting to see strong sales momentum from phase two of our back to basics plan at Tim Hortons, Canada at the same time as our international business continues to fire on all cylinders, our digital capabilities accelerated and our global unit growth picks up steam across all brands.
While we are pleased with the near term progress we've made at Burger King U S to stabilize the business and continued closing the gap to peers are top priority finalizing the long term plan with our system and locking in the important strategic investments, we will make together over the next few years to accelerate our growth.
And so as I mentioned, we're looking forward to sharing the details of this plan with you all in September following our BK U S Convention.
And with that I'd like to thank everyone again for your support and for joining US. This morning, we'll now open the line for questions operator.
Yeah.
If you would like to ask a question. Please press star followed by one on your kind of thank you Pat now.
Turning to ask your question. Please ensure you're on mute locally if you change your mind. Please press star certified.
Our first question is from John Glass of Morgan Stanley . Your line is now open. Please go ahead.
Thanks, and good morning.
I'm curious about the development, particularly at the at the Burger King brand and what you think the unlock his understanding of the Covid period, there was impact but sales now are strong and above COVID-19 levels is this an issue of equipment location availability is it willingness of franchisees or maybe if there are certain markets, where it's lagging just what do you think the unlock has to get Burger King <unk>.
National and particularly development back to their historical levels and over over what timeframe do you think that may occur.
Hey, John Good morning, Thanks, so much for the question.
On the development front, we're still well positioned.
To accelerate overall unit growth in 2022. So we're excited about the progress we've made and the opportunity that we have in front of us this year and beyond we have a strong pipeline.
We've said this before we tend to see from time to time, some some volatility by quarter, but we feel very good overall that there is plenty of gas in the tank if you will to accelerate growth.
Note that the overall mix of growth is shifting we're accelerating in growth both domestically and internationally and popeye's as I mentioned in the prepared remarks.
Seen record levels at <unk>.
Growth at North in North America for Popeye's, and where we are.
Seeing acceleration of growth internationally in places like Spain, Brazil, Philippines, and Mexico, and we think it is just.
At the beginning of the journey for pipeline internationally, and we're accelerating growth at tims as well internationally in the middle East and Mexico, and the U K as well as really significant opportunity for <unk>.
Growth in China for Tims Dk International the business is strong as you pointed out and as I mentioned in the prepared remarks same store sales growth has been really really strong and compelling and exciting and we think we have a solid path for continued growth over time, but we still are ramping up to pre pandemic levels in <unk>.
Development I think Theres, two big markets that we've highlighted before.
That we're working on one big one that we're working on and one that's.
Because of the situation.
Geopolitically.
There is no development.
Going on there, which is Russia, and China has been impacted by macro headwinds.
And some of the.
The challenges that they face with the zero COVID-19 policies.
We saw something about something in the neighborhood of about 80 net restaurants coming from Russia.
Five years in China.
More than double of that and so we're working closely with the teams there we've made a significant investment.
Earlier in the quarter in China to capitalize that business and we've got a really strong team. There so long term ramping up development in China.
Is one of the key drivers to get back to pre pandemic levels of growth for Burger King International elsewhere, we're seeing strong growth strong excitement from a business standpoint, the partners are well capitalized the teams or are looking for sites and the pipelines are growing in a way that we feel very confident and so we're focused on China to get back to pre pandemic levels.
And elsewhere, we feel really good about where we are thanks for the question.
Thank you.
Our next question is from David Palmer of Evercore ISI. Your line is now open. Please go ahead.
Thanks.
<unk> rest of World same store sales growth it looks like you're outperforming other global change internationally.
I guess some of this might be your regional weighting versus peers, but love to understand where you are seeing the most growth and where you think youre gaining market share and why that is and then just as a separate like more of a model question on the supply chain business.
Your margins on that business are below maybe 300 basis points below where they were a few years ago I wonder if we should be thinking about that.
Something of an upside area or we should be thinking about that as you know.
Maybe you may have a $1 billion in it.
Absolute EBITDA from that business.
The nominal sales or higher or lower from in other words margin isn't the thing, but rather EBITDA should be remaining steady from here.
<unk>.
Hi, Dave Thanks for the question or the two questions.
I'll take the first one on Burger King rest of World and then I'll pass it over to Matt on supply chain.
On Burger King International as you pointed out we've seen some really strong performance there.
Dating back to the end of last year.
If you if you look at the performance through the pandemic and we shared this before we saw some really strong improvement in overall performance of our off premise business drive throughs delivery and other modes of service that were off premise given the the necessity of the pandemic situation of the pandemic. So.
That business was.
<unk> proved to be very sticky, especially delivery.
Our directory business are kind of expanding directory business and when things opened up in Europe and in other markets internationally, we've seen folks come back to dine in restaurant.
The combination of two things has given us really strong overall performance.
We're seeing strength throughout the international region, we've seen strengthen.
In Western European markets, and some of our bigger markets like Spain, France U K.
Germany, we've seen strength in markets in Asia, as well with the exception of China, as we pointed out and Latin Americas bounce back quite strong as well so it's pretty broad based and I think what's exciting is that the strength of the growth internationally as it is.
Not just.
Easing of restrictions driven it's really strong calendar very strong digital performance our business internationally is growing tremendously from a digital standpoint with delivery as well as mobile order and prepay and kiosks and other digital service modes in order modes, driving additional frequency and accelerated growth.
Growth in our.
And I kind of balanced approach to menu with premium being quite strong as well as our core offerings continue to.
Growth.
And we're seeing improvements in operations and in service with our franchisee is doing a fantastic job.
Operationally so the combination of all of those plus the great image that we have internationally and a growing service modes upfront.
Our premise.
It is really a key driver of the performance and as I said exciting that it's broad based across all regions.
And in many markets and we will continue to drive that which fuels our development pipeline for years to come.
Matt you want to touch on the second part of the question, Yes, Yes, sure Hi, Dave. Thanks for the question as it relates to the supply chain I think as I mentioned.
A modest prices have created real volatility in our business.
Theres no doubt were.
Seeing that just like our franchisees.
Monitoring that closely and we're working through things with the system.
Managed through a pretty tough environment pretty tough volatile volatile environment.
And we're taking measured pricing actions out in the market.
To offset some of this.
But also as you pointed out we're seeing some volatility impact.
Our P&L with commodity price increases that inflates, both our top line revenue and our cost of sales, which consequently creates the effect of reducing our percentage margins.
Similar to what you just described I think we're focused on creating a sustainable path for volume growth in that business.
Which we know over time is going to allow us to grow our dollar profit as the business grows and as we drive.
Successful.
Successful execution of our plan in Canada.
I think that's the primary driver of the long term health and growth of that business in and that's what we're focused on.
Yes, and I would add to that Dave.
We are focused as well.
Primarily on the supply chain side of ensuring that we have the best cost and the highest quality for our franchisees, which is critical to their success in driving their profitability.
Thank you.
Our next question is from Dennis Geiger of UBS. Your line is now open. Please go ahead.
Thanks for the question and I appreciate all the comments on the progress against our back to basics plan and the resulting momentum that youre seeing.
Wondering if you could speak to the pricing actions that you've taken across your brands and if you've seen any resistance to that to that pricing and I guess, specifically on Tim Hortons curious not just about the menu pricing, but the overall ticket and given all the enhancements that you've made across the menu and the brand broadly how important is this to just tick.
Component, perhaps to the growth as you think about looking ahead from premium as Asian attach et cetera. Thank you.
Hey, Dennis Thanks for the question yes.
Yes on pricing generally.
Across the brands I've touched on that in the past.
What we tried to do here is we take into account.
Obviously pressures that we're seeing from a commodity standpoint and other areas.
Areas of the P&L and wage inflation as well as utilities.
We look at the competition and then we take into account the consumer.
Where they are in the journey and so.
We were very thoughtful about this we use third parties to help us assess the.
Situations by market by brand by.
By locale as well.
And then we work with the franchisees to ensure that they.
They do.
The best they can to price and the best way possible to ensure that we don't get too far ahead of the consumer that we're mindful of traffic and flow through of these price increases, but that we were also mindful of the impact on the P&L. So that's the broad.
General approach to it which we've shared in the past we tend to.
To stay in line with CPI.
In North America, there is a gap in CPI between.
U S and Canada about 200 basis points.
And our pricing has been roughly in line with CPI.
I think coming back to the second question, which is around 10.
We're really excited about the progress we shared this kind of pivot from back to basics and fixing the core too.
Two accelerating growth through through opportunities in PM food through opportunities in and expanding the definition of beverage to include specialty and cold. In addition to our kind of historical and core brewed coffee offering.
We've seen strength in the business across platforms, we saw.
In the second quarter. This year, we drove 2% comp sales versus 2019.
And overall, obviously, 14% comparable sales in the quarter, which at which the bulk of which came from <unk>.
Our offerings.
We saw really strong performance in <unk> with our Lotus platforms, and extensions and cold beverages, some of which drove.
Check outperformance.
Our goal for the business at Tims in Canada, and it's the same objective and goal for <unk> and for BK as well as for firehouses to grow in a balanced way driving new customers into the restaurants driving more frequency from existing customers through great offerings, Great service and great digital.
<unk> and driving healthy check growth that doesn't scare people away and so we will continue to have that focus.
And I think Tim in the quarter is a good example of how we can continue to drive growth by by being great at the basics and by offering exciting.
Kind of improvements and modifications that bring bringing new folks for different day parts and for different occasions. Thanks again for the question, Matt you want to say something that Dennis I mean, just to put maybe a couple of other data points on what Jose was just describing I think we have some really great highlights in the quarter in terms of our progress.
On the second phase of our back to basics plan in terms of innovating for growth.
Seeing.
Increasing proof of concept there in terms of how we're how we're executing that plan. So on the main food side looking on a three year basis versus 2019.
We were up 30%.
And Jose also mentioned, a big category for us being cold beverages, and specialty beverages in the quarter, we were up double digits, 12% or so on cold beverages versus 2019.
And we also we also saw some some really good diverse.
Growth across day parts as well.
<unk> launch being up 9% versus 2019, so I think we're starting to see some really good response from the market in terms of.
How we are driving forward, our plan and innovating our products and our menu and.
Delivering for our guests in Canada, and we're excited to continue that.
Our next question is from Brian Nolan of Deutsche Bank. Your line is now open. Please go ahead.
Thank you just sticking with Tims in Canada, a question on the PM day part opportunity. The Investor Day, you said it was an $8 $5 billion market growing at a 5% CAGR you only have 4% market share today. So.
Outside looking in it seems like there is a tremendous potential for growth there with your brand your asset base.
Question is can you just talk about the roadmap here what is realistic from a market share perspective, how are you thinking about this internally sort of goal to get to extra cent share over Y years. For example, just anything that can inform investors about your ambitions for the state part as you continue to execute on your plans.
<unk>.
Sure.
Yes.
Ryan Thanks for the question.
We shared at Investor day.
It's obviously, a big opportunity for us given the ubiquity and presence that tims has throughout Canada, we have.
Already a decent share.
For the lunch day part.
It was mostly in it continues to be mostly beverage driven and so we're seeing growth in PM food and growth in lunch day part on the food side.
As Matt touched on with with some data points there.
We have aspirations internally in terms of where we want to get too.
We haven't shared those.
Publicly but we do believe this is a massive opportunity the shift and how we think about the many of the fact that we've brought in culinary expertise over the last 18 months or so folks.
Specialize.
And developing craveable products.
That people love and want to come back for more and more the fact that we have.
Tremendous strength in terms of value for money perception and Canada, even if we're addressing some near term pressures from a commodity standpoint, and the fact that we are Canada's most loved brand I think all of these favorite well and our ability to be able to capture share the focus and the.
The key will be our ability to prioritize our ability to execute well for disease and we're.
We're looking forward to share more over time, but we have big aspirations for our lunch and dinner business and we're just getting started and maybe just one other quick one to add to that I think just on dinner.
In the quarter.
Looking back to 19, I think we saw that dinner day part as the largest sequential improvement in terms of sales performance. So another good indicator for us in terms of the progress that we're making.
On the food side and expanding further into the PMA parts.
Thanks for the question.
Okay.
Our next question is from Chris <unk> of RBC capital markets. Your line is now open. Please go ahead.
Thanks, Good morning.
So I wanted to ask about BK U S can.
Can you, perhaps expand a bit more on what youre seeing in the underlying demand trends today, that's giving you confidence that the time is right to move forward on the strategy you are planning to share with franchisees in September the <unk>.
Trends are pointing to improving stability in the business and thats encouraging.
But was hoping you could provide any additional color on what youre seeing more recently as you and franchisees prepare to take the next steps here with the brand.
Yes, Chris Thanks for the question.
Look I think overall, we're seeing obviously the consumer in the U S.
Feeling a ton of pressure, whether it's commodity fuel inflation.
Interest rate hiking, so there is definitely pressure out there.
We've been very thoughtful with the Burger King business.
As well as the other brands, but we've been very thoughtful.
On making sure that any price increases that we take we're taking.
And with the consumer in mind, and ensuring that we don't get too far ahead of them as I mentioned earlier and ensuring that there is flow through for the franchisees. We've also taken some steps around operation improvement simplification, we've taken some steps on on mix.
Moving water around core discount all of which has helped address margin pressures, even if we've seen tremendous volatility over the last.
Six months or so.
Our our confidence in the long term.
Improvements in the business and kind of in kind of the roadmap that we have in front of us that we're working through with the franchisees franchisees.
It gives us the.
The certainty that investments in the business around marketing advertising as well as restaurant image and ensuring better throughput and capacity in our drive throughs.
That's the work we're doing now and Thats. The work we plan to share in detail with our franchisees at the at the beginning of September and that we'll share with the rest of the.
And a broader audience in the coming in the coming month or so.
The underlying performance of the business even in difficult circumstances.
Is the kind of the barometer of why we believe long term and the ability to drive that VK business.
From a sales and profitability standpoint, so more to come on that.
<unk> with the progress we've made.
But there's much more to come with the BK business and excited about the team that we're building and the progress that we're making with the franchisees.
Great. Thanks, so much thanks for the question.
Our next question is from Jeffrey Bernstein of Barclays. Your line is now open. Please go ahead.
Okay.
Great. Thank you very much.
One follow up to an earlier question and then a separate question.
Jose just on the unit growth for the system.
Which you addressed earlier I'm just wondering.
Your expected growth for this year and your ability to accelerate for next year.
It does seem like I think you mentioned <unk> is going to get back to historical and then Tim's and popeyes are going to accelerate so I'm. Just wondering how you think about it relative to the historical 5% long term target.
Alright.
A question for Matt in terms of G&A and no. There is no formal 'twenty two guidance, but.
Any directional thoughts you can share on spend I know you mentioned a couple of point headwind to EBITDA in the second quarter and a modest ramp in the second half, but I'm just wondering what your thoughts are on the back half spend or whether you look at it as growth versus revenue targets or whatnot. How do you think about G&A in the back half. Thank you.
Yes, Jeff Thanks for the.
Two questions on unit growth, just kind of I don't want to reiterate exactly what I said earlier, but.
So we feel good about the pipeline and the development plan.
Plan for for 'twenty, two and we believe there is a path to accelerate.
This year and next year.
And beyond.
We've got really strong franchise partners internationally for all brands, we've seen acceleration to high single digits.
In terms of unit growth for Popeye's we've.
We've seen.
Tim is get to kind of mid mid to high single digits as well in BK. Historically has had tremendous strength internationally from a development standpoint as I mentioned there is one market that we're focused on to get back to historical levels.
And we're also working on new partnership deals and new development deals.
Across international markets for Pompe is for Tim Hortons, we've seen new.
Development deals and master franchises.
Pop up in places like the UK for pump Mexico for Popeyes.
We've talked about others as well middle East and a few others and those are those take a little bit of time to ramp up those take a little bit of time.
To build pipelines, but the confidence long term.
For us in terms of the pipeline and our development goals are is quite strong and we will continue to share details on that each quarter.
We look forward to those updates thanks, so much yes.
Yes, Jeff just jumping in here quickly on your question related to G&A I think for US. It's all about investing in areas that are critical to driving long term results and we've talked about some of those key investments that we've been making over the past year or so in areas like technology and operations and marketing.
And we also see that many of those investments are starting to pay off if you look at some of the progress we are starting to see accelerated.
At Tims in Canada.
So we're confident that we're prioritizing the right things in investing in the right areas to drive the business.
And that's always how we approach.
G&A and how we spend.
Spin our G&A and how we focus it is bottoms up it's prioritizing our dollars, where we think they'll make the biggest impact for the business.
And that's how we'll continue to manage it I think in Q2, the G&A was a bit softer than expected as a result of some timing that we would expect to reverse in the second half that I mentioned, that's why we will see the quarterly G&A figure ramp up modestly as we move through the second half and we continue to.
We continue to fully load those investments that we're making as we head towards the end of the year. Thanks.
Thanks for the question.
Thank you.
Our next question is from Brian Bittner Oppenheimer. Your line is now open. Please go ahead.
Thanks, Good morning.
Want to revert back to the Tims business clearly.
The results were very impressive this quarter, it's great to see you puncture through those 2019 sales levels as you execute this back to basics plan.
What I'm trying to understand is how much potential traffic upside is left in the tank as we move past this quarter. So the question is do you believe just overall consumer mobility in Canada.
Already back to pre pandemic levels.
Or is there room to go on improving mobility in Canada, and therefore room to go as you flex your share gains and what I also wanted to ask is just can you talk about your outlook on the Canadian consumer we don't really get a good beat on the current state of the Canadian consumer maybe how that shapes your view.
On whether this 2% trend versus 19 is sustainable in the Tims, Canada business as we move through the rest of the year.
Thanks, Brian I appreciate the question Yeah look.
On the mobility question.
If you recall, we were in a pretty strong restrictions and lockdowns.
Almost 100% of our restaurants are franchised and we also given how big our international businesses I think I would also take into account. The fact that we're structured with the master franchisee framework internationally.
So we feel good about the investments that we've been making and where we're bringing the business to and as I mentioned.
We will expect to see a modest increase in a run rate basis quarterly through the second half of the year.
And then from there I think we'll continue to be thoughtful in our approach to G&A investments in.
We will make investments, where we see an opportunity to grow the business and drive.
Sales and profitability for the company here. Thanks for the question.
Yes.
Our next question is from Sara Senatore of Bank of America. Your line is now please go ahead.
Thank you.
I wanted to ask quickly about the cash.
A couple of things one is for Ken I know you had coffee with maybe the only exception I was curious.
Are you seeing at trade substitution in your existing customer base versus bringing in new customers.
That may be fine because the profitability I suspect is better.
But just underlying dynamics there and then also.
Update on loyalty and whether that's evolved.
Let's start there.
Okay.
Hi, Sarah Thanks for the question I'll touch on the.
The mix question briefly and then I'll pass it over to Josh on loyalty on mix.
So we did mentioned in prepared remarks that the hot coffee.
Segment is the one area that we haven't seen growth versus 19, yet we do.
We have we are seeing that the shift that's taking place to specialty in cold beverage and some cases through our loyalty data.
Some cases thats.
Thats, a shift happening with with existing customers that either are adding an additional beverage that is either specialty or cold.
Or in some cases.
Transitioning altogether to new products and then we're also bringing in new customers as well through these platforms. So that's why it's so exciting and it's similar to kind of the evolution that we've seen in the coffee business in the U S and in some of the international markets as well where.
There's kind of there's been a base.
Traditional definition of what what coffee is and it kind of expands and its modernized.
As consumer behaviors change and as brands can provide.
Innovation to the consumers to try different different products for different occasions, and so our confidence in the long term.
This transition.
During up the core and also providing innovation and offers and opportunities for different occasions, with cold beverages, and specialty gives us confidence that we'll be able to bring in new customers as well as drive more frequency.
With our existing base. Thanks for the question.
Josh you want to touch on loyalty.
Yes.
Thanks, Sarah I hope you're doing well.
Just as a reminder, we are now at just over a third of our system wide sales in Canada are digital including loyalty and we've seen a lot of great progress and we're continuing to innovate and evolve both the mobile app and some of our in store touch points and how some of those digital and loyalty guests interact with the restaurant.
Continued progress in both in store loyalty and mobile order and pay our in store loyalty sales grew double digits year on year, and our mobile order and pay was actually up about two times year on year. So we're seeing a lot of a lot of progress there, we're really happy with it and the team is thinking of even more innovative things that we can do with how we evolve the app over the rest of this year and into next.
Year to drive even more engagement from the royalty base.
Our final question is from Gregory transport.
Your line is now open. Please go ahead.
Hey, thanks, Thanks for the question.
Appreciate the details in the plan that's coming next month on the Burger King U S side can you maybe talk just a little bit about.
Franchisee profitability and maybe.
As you've looked at trimming the portfolio in the U S side.
Kind of how big.
That could be as a portion of the store base.
Any way, we can ring fence that would be it would be helpful. Thanks.
Hi, Greg Thanks for the question.
I mentioned in prepared remarks, and we've touched on quite a bit we're working closely side by side with the franchisees to develop.
A really strong and thoughtful plan to accelerate sales growth.
Became the U S and also in <unk>.
During that.
We're focusing on the guest experience and their franchise profitability and.
And as part of this we've been doing a deep dive on our on our restaurant portfolio.
And what investment opportunities exist and we're going side by side I think.
From what we've done in the past, we're going to site by site to determine the best path for each restaurant, we're considering remodels.
<unk> Street.
Scrape and rebuilds versus relocations are offsets and this is centered on kind of the guest experience on digital and also enhancing our throughput or the capacity for us to serve more guests in our restaurants.
Ongoing closures.
As a natural part of this process in a natural part of the business as we look at portfolio optimization.
From where we stand today and based on a lot of work that the team's done a lot of.
Discussions in collaboration with franchisees, we do not expect significant shifts from historical closure levels, which over the last five years have averaged just under 200 per year.
I'd note that many of the closures include trademark trade market repositioning or relocations as I said earlier, which means that in certain trade areas, where our closure will be offset with Randy opening which is like a remodel only better.
So so the Gulf from from any closures is to continue to drive a healthier overall portfolio to improve guest experience and to drive franchise profitability. So we're working closely with franchisees on this.
But to give you a kind of.
A framework on how we're thinking about it and what we think the impact will be.
Hopefully that provides some.
Some color thanks again for the question.
Yes.
Alright. Thank you everyone for your questions and I appreciate everyone joining the call as I mentioned earlier, the second quarter with truly action packed we're incredibly proud of the meaningful progress made across many fronts. Our performance reflects the direct benefit from our investments across a number of important areas of the business.
As you can tell we're excited about the momentum at Tims, Canada, driven by the success of our back to basics plan and the continued strength from our BK International business. We're encouraged with the steady improvements at Burger King U S and look forward to sharing more details in September and how we plan to accelerate growth of the business I'd like to close by thanking our team our franchisees and their team members for their.
<unk> focus and dedication as we work towards our Big Dream of building. The most loved restaurant brands in the world. Thanks, again for joining us and have a great day.
Yes.
This concludes today's call. Thank you for joining you may now disconnect your line.
Okay.
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Okay.
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