Q3 2024 Restaurant Brands International Inc Earnings Call
Good morning and welcome to the restaurant brand International Third Quarter 2020 4 earnings conference call. Or participants will be in this and only mode. Should you need assistance? Please signal a constant specialist by pressing the star key followed by zero.
After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your telephone keypad. You will hear a tone to confirm that you are in the queue.
To exit the question queue, you may press star and then to all corners will be limited to one question. Please note this event is being recorded. I would now like to turn the conference over to Kendall Peck. I'll be eyes ahead of investigations. Please go ahead.
Kendall Peck: Thank you, Bailey. Good morning, everyone. And welcome to Restaurant Brands International's earnings call for the third quarter ended September 30, 2024.
Kendall Peck: As a reminder, a live webcast of this call can be accessed on the Investor Relations webpage at rbid.com forward slash investors. And a recording will be available for replay.
Kendall Peck: Joining me on the call today are restaurant brands and international executive chairman, Patrick Doyle, CEO, Josh Kobza, and CFO Sami Siddiqui.
Today's earnings call contains forward-looking statements, which are such a serious risk set for it in the press release issued this morning and in our SEC filing.
In addition, this earnings call includes non-gap financial measures.
Reconciliation of non-gap financial measures are included in the press release and trending schedules available on our website.
As a reminder, following our acquisition of Carol's Restaurant Group, which closed on May 16, 2024, and our acquisition of Popeyes China, which closed on June 28, 2024, we introduced a sixth reportable segment, Restaurant Holdings.
This segment includes results from operations of Popeyes China Business and the Burger King restaurants acquired as part of the Carol's acquisition. The consolidated growth metrics discussed during the prepared remarks, including organic adjusted operating income growth and organic adjusted EPS growth, exclude results from our restaurant holdings segment.
and now I'll turn the call over to Josh.
Josh Kobza: Thanks, Kendall. Good morning, everyone. Thank you for joining us today.
Josh Kobza: Our teams and franchisees are doing a nice job navigating difficult macro and competitive environments in the U.S., Canada, and many of our international markets.
Josh Kobza: The brands winning today are consistently executing the fundamentals. They are serving fresh, delicious food and beverages in modern restaurants and providing excellent value to every guest on every occasion.
We see the power of great fundamentals and great value in our own businesses, including Tim Hortons and our International Division, which drove nearly 70% of our adjusted operating income.
Tim Hortons for example remains number one value for money in Canada and is one of the only major QSR brands in the market with positive traffic growth in the year to date.
Josh Kobza: and our international business continues to outperform many of our largest global peers.
Kendall Peck: Our goal is for all of our businesses to provide compelling value to guests the right way with quality products, exceptional service, and unmatched convenience.
Kendall Peck: If we can do this, we'll outperform the competition and deliver sustainable growth for our franchisees and our shareholders.
Kendall Peck: Turning now to our results, comparable sales were relatively flat, up 0.3% year over year, and net restaurants grew 3.8%, which translated into system-wide sales growth of 3.2%.
Kendall Peck: Our cost discipline helped offset softer system-wide sales growth, resulting in organic adjusted operating income growth of 6.1%.
Kendall Peck: We've been encouraged to see the business accelerate in October, with consolidated comparable sales up low single digits, led by improvements in International, Burger King, and Popeyes.
Kendall Peck: With only two months remaining in 2024, and year-to-date system-wide sales growth of 5.3%, we believe full-year system-wide sales growth will come in slightly below the expectations we laid out for you in August.
Kendall Peck: That said, our year-to-date Organic Adjusted Operating Income growth is over 7.5%, and the great work Sami and team are doing is keeping us on track to exceed 8% AOI growth for the full year of 2024.
Speaker Change: Thank you. Thank you. Thank you.
I'll take a few minutes to walk through the performance of each of our business segments, starting with the largest contributor to AOI, Tim Hortons.
Speaker Change: Thank you. Thank you.
Speaker Change: Tim drives 43% of AOI, and Axel and team continue to demonstrate the power of having high quality food and beverages at a great everyday price, excellent restaurant level execution, unrivaled convenience, and dedicated restaurant owners.
Speaker Change: Tim's in Canada delivered a 2.7% increase in comparable sales, primarily driven by traffic growth.
Speaker Change: While we continue to see a softer consumer environment impact the broader QSR industry in Canada, Tim's number one restaurant brand love and number one value positioning allow us to maintain our leading market share in coffee, baked goods, and breakfast sandwiches and wraps.
Speaker Change: Morning day part sales grew in line with overall sales, anchored by mid single digit growth in breakfast sandwiches and wraps.
Speaker Change: We offered a hot breakfast sandwich for $3 with any size coffee purchase, which delivers great value for Canadians and was incremental to both traffic and gross profits for our restaurant owners.
Speaker Change: Thank you. Thank you. Thank you.
Speaker Change: We continue to make progress in our PM food journey with our Loaded, Anytime Snacker, and Flatbread Pizza platforms and group PM main food sales 5.2% year-over-year.
Speaker Change: Flatbread pizzas are giving Canadians another reason to visit their local Tim's, boosting restaurant traffic during historically slower day parts and driving higher average check.
Speaker Change: We've seen nearly 70% of flatbread pizza sales occur after 2pm or on weekends, and the platform is generating 2.5 times higher average checks than non-flatbread tickets.
Speaker Change: We're balancing PM food extensions with a strong beverage line up as well.
Speaker Change: Cold beverage sales represented 43% of total beverage sales this quarter, with some weeks reaching 50%.
Speaker Change: This is remarkable for a brand that is loved for its hot brewed coffee.
Speaker Change: We continue to innovate around our cold brew and ice cap offerings to bring Canadians fresh and exciting new options.
Speaker Change: Following the success of our tiramisu innovation, we introduced a Nutella collaboration which contributed to a 7% year-over-year increase in cold beverage sales this quarter.
Speaker Change: An important driver of our performance, in addition to our strong marketing calendar, is strong operations.
Speaker Change: Matt Moore, his team, and our restaurant owners delivered another quarter of year-over-year improvements in drive-thru speed of service. It is truly impressive to visit a drive-thru in Canada on a weekday morning and watch the car stack move so quickly.
Speaker Change: Our ongoing improvements and operations, coupled with our marketing initiatives, remain a consistent driver of traffic growth, and I'm proud to see the dedication of our TIMS teams and restaurant owners driving positive sales growth and industry outperformance.
Speaker Change: Thank you.
Speaker Change: Moving now to the international segment which drives 25% of our adjusted operating income.
Speaker Change: We saw comparable sales in international grow 1.8%, with net restaurant growth of 7.6%, and system-wide sales growth of 8.0%.
Speaker Change: While a bit slower than earlier in the year, our results were nicely ahead of some of our largest global peers, and reflect some great work from our partners around the world.
Speaker Change: Burger King remains the largest driver of our international business and grew in key markets like Australia, Spain, Korea, the UK, and Japan, each of which accelerated from Q2.
Speaker Change: This helped offset softer results in France and continued pressures from the difficult operating environment in China and the conflict in the Middle East.
Speaker Change: I recently joined Tiago, Tom, and about 20 of our country-level Burger King leaders capturing over 80% of the brand's global system-wide sales for a CEO summit in Italy.
Speaker Change: It was a very engaging and interactive forum for our top CEOs to connect and share marketing, development, franchising, and operations best practices.
Speaker Change: It's clear that while Burger King is already established around the world, we still have a long runway for growth and tons of appetite from our master franchisees to deliver the best burger in each of their markets.
Speaker Change: While overall development in 2024 is going to be below our long-term target of 5%, which Sami will address in a bit, I want to give some perspective on where our international net restaurant growth will come from in the years ahead.
Speaker Change: There is so much opportunity to capture, and one of the best examples is Japan, which I visited two weeks ago.
Speaker Change: Our performance has improved dramatically in Japan over the past few years, and we are now the clear winner for best burgers in the market.
Speaker Change: I tried some amazing local Whopper innovations there, and it's clear why they're doing so well.
Speaker Change: We now have almost 250 locations in Japan, with enormous runway, and are growing between 40 and 50 locations per year.
Speaker Change: We're also working to accelerate development in many of our Popeyes markets, and Popeyes UK is a fantastic example.
Speaker Change: We recently spent time with Tom Crowley and his team in the UK and tried some of the best Popeye's chicken I've eaten anywhere in the world.
Speaker Change: They're operating beautiful, modern restaurants with exceptional service and are generating great sales and returns.
Speaker Change: Popeyes UK already has over 55 restaurants in just three years and drives over $130 million dollars in system-wide sales on a trailing 12-month basis. They have a lot of room to grow.
Speaker Change: And then there's China, where you've seen us take meaningful steps on Tim Hortons and Popeyes this year.
Speaker Change: We're also actively working to find the right long-term path for Burger King. We know the consumer is momentarily pressured in China, but we are positive on the mid- and long-term opportunity for each of our brands in the market.
Speaker Change: Andrew Strelzik, Andrew Strelzik, Andrew Strelzik, Andrew Strelzik,
Speaker Change: Turning now to Burger King in the U.S. and Canada. Burger King U.S. comparable sales were down 0.4 percent and net restaurants declined by 1.6 percent resulting in a 1.5 percent decline in system-wide sales.
Speaker Change: Sales were softer than we'd like this quarter and were impacted by a tough consumer environment over the summer.
Speaker Change: Our calendar initiatives, including Fiery, were unable to cut through all the value messages in the market, and were less impactful than our Royal Crispy Chicken Wraps launch in the prior year.
Speaker Change: As a result, we saw our gap versus the industry take a slight step back beginning in August, after several quarters where we'd been outperforming Berger QSR peers.
Speaker Change: As we've moved into October, performance has shifted, particularly with the great success of our Adam's Family Meal, including Wednesday's Whopper, and helped us to return to same-store sales outperformance relative to the burger QSR industry again.
Speaker Change: Taking a step back, there's a lot going well at Burger King, and it's clear the business is in a much healthier place today than when we launched Reclaim the Flame in September of 2022.
Speaker Change: At convention last week, Tom and team updated franchisees on the important foundational progress we've made over the past two years that is setting us up for long-term success.
Speaker Change: We have a new discipline in operations that our franchisees have embraced in our executing, which has driven notable improvements in operations.
Speaker Change: Our focus on quality remodels is paying off, with mid-teens uplifts, net-of-control, and even better improvements in franchisee profitability.
Speaker Change: We're on track to accelerate our pace of remodels and move towards our goal of 85 to 90% modern image by the end of 2028.
Speaker Change: Accelerating the modern image of our system is one of the primary motives behind our acquisition of Carroll's, aside from creating new franchise opportunities for existing and new operators when we move to refranchise those restaurants over the next few years.
Speaker Change: Furthermore, our $120 million investment into the Ad Fund allowed us to break a difficult cycle, significantly increase our share of voice, start regaining the market share, and drive a positive trailing 12-month same-store traffic gap versus the industry for the first time in a very long time.
Speaker Change: The enhancements our digital team has made to our app and delivery capabilities are also driving strong growth in digital sales, which now represent nearly 20% of total sales, up from around 10% in Q3 of 2022.
Speaker Change: As you know, our ultimate scorecard is franchisee profitability.
Speaker Change: We're in a completely different and better place than where we were two years ago. We said on this call two years ago that our goal was to reach $175,000 of four-wall EBITDA by the end of this year.
Speaker Change: We achieved far more than that, reaching $205,000 by the end of last year.
Speaker Change: We expect average franchisee profitability to be flattish to slightly up for 2024. A pretty great result considering the labor, commodity, and top-line sales pressures facing the industry this year. And we have our sights set on reaching $230,000.
Speaker Change: by the end of 2026 with a longer-term commitment to drive the system to $300,000 in four-wall EBITDA.
Speaker Change: Tom and team delivered a powerful message at convention, underpinned by incredible progress over the past couple of years.
Speaker Change: Our time together at convention really highlighted the optimism, excitement, and confidence the franchisees share in Tom and his team's leadership to take us forward to great success.
Speaker Change: Turning now to Popeyes. Popeyes U.S. grew net restaurants by 3.6% while comparable sales declined 3.8% resulting in a system-wide sales decrease of 0.8%.
Speaker Change: In a more value-sensitive environment this quarter, Popeyes calendar was missing some of the offers consumers were looking for, and this resulted in softer comps.
Speaker Change: Since September, we've reoriented our marketing strategy to better align with the needs of consumers today, while reminding guests what makes Popeyes so special, our delicious, freshly hand-battered and fried chicken.
Speaker Change: We know we need to provide better value, which we can deliver through better price points and a better experience.
Speaker Change: As an initial step, Jeff and his team introduced three pieces of chicken for $5.00 in mid-September and followed it in early October with a $6.00 big buck, leveraging a strong existing brand asset. We're already seeing both offerings drive traffic and sales improvements.
Speaker Change: Moving beyond the short-term, we know that Popeyes has to provide a better experience, and that will come from more consistent operations.
Speaker Change: Easy-to-run kitchens are one part of a multi-year opportunity to improve operations and enhance the guest experience.
Speaker Change: We've identified easier and faster ways to install the upgrades.
Speaker Change: And we'll continue to incorporate feedback to optimize this investment before scaling it across the U.S. system.
Speaker Change: We also need to make Popeyes easier to access, and we're exploring new formats to infill in key markets and improve build costs. In the meantime, we continue to enhance our digital capabilities and drive strong growth in digital sales, which were up 21% year-over-year and reached 28% of total sales.
Speaker Change: I'll wrap up my comments with firehouse subs in the U.S. and Canada.
Speaker Change: The team and our franchisees have done a good job navigating a difficult environment.
Speaker Change: While unable to offset industry headwinds this quarter, we did bring back a Firehouse fan and a personal favorite of mine, the Hot Sauce Bar, in mid-September. This is an incredibly unique and perfect brand fit for Firehouse, pairing 13 hot and flavorful sauce options with our hot subs.
Speaker Change: Overall, Firehouse saw system-wide sales decrease 1.3 percent, driven by a comparable sales decline of 4.8 percent, partially offset by net restaurant growth of 3.9 percent.
Speaker Change: Mike and team have been hard at work on new unit development and added 49 net new restaurants since Q3 of 2023. That's nearly 60% more than where we were this time last year.
Speaker Change: and we're on track to further accelerate development in 2025 with a strong pipeline of new and existing franchisees.
Speaker Change: In August, I spent time with many of our franchisees in Austin, Texas, celebrating the brand's 30th anniversary.
Speaker Change: There's a ton of excitement and energy in the system that will allow us to keep opening new restaurants and introducing our delicious, hot subs to more and more guests throughout North America.
Speaker Change: With that, I'll pass it to Sami to walk you through our financial results for the quarter. Sami?
Sami Siddiqui: Thanks, Josh, and good morning, everyone.
Sami Siddiqui: Our results this quarter highlight the stability and strength of our businesses and our team's ability to navigate a tougher consumer backdrop while staying focused on our long-term goals.
Sami Siddiqui: For the third quarter, global comparable sales were relatively flat, up 0.3% year-over-year.
Sami Siddiqui: We grew global system-wide sales by 3.2%, organic AOI by 6.1%, and organic adjusted EPS by 4.6%.
Sami Siddiqui: AOI growth, outpaced system-wide sales growth this quarter for a few reasons.
Speaker Change: First, segment G&A, excluding restaurant holdings, decreased 11% year-over-year to $146 million, with approximately $12 million of the decrease related to lower equity-based compensation.
Speaker Change: As I mentioned on our Q2 call, incentive-based compensation is expected to decrease year-over-year. We've also been working closely with our business leaders to drive operating leverage in our P&L, and you're seeing the benefits start to flow through this quarter.
Speaker Change: Second, we continued to work through lower average cost of inventory in our TIMS supply chain and CPG businesses, which contributed to an $8 million increase in organic gross profit dollars.
Speaker Change: Our Q3 supply chain margin was 20%, and we continue to expect our full year supply chain margin will be approximately 19%, meaning Q4 margins should be in the mid-18% range.
Speaker Change: These two factors, segment G&A and supply chain, were partially offset by incremental advertising expense at Burger King U.S. and net bad debt expenses in the quarter. We invested $7 million behind fuel-to-flame marketing at Burger King U.S. as compared to no direct investment in the prior year period.
Speaker Change: In addition, net bad debt expenses, primarily in international, were over $3 million compared to approximately $2 million of net bad debt recoveries in Q3 of 2023.
Speaker Change: https://www.youtube.com
Speaker Change: Shifting now to EPS.
Speaker Change: Our adjusted EPS was $0.93 per share, compared to $0.90 last year, representing an organic increase of 4.6% year-over-year, excluding an FX headwind of $0.02 per share and a $0.01 benefit from restaurant holdings.
Speaker Change: Our adjusted net interest expense increased approximately $18 million during the quarter, mainly driven by a higher debt balance following our Carol's transaction, which closed in mid-May.
Speaker Change: In addition, we saw an increase in adjusted income tax expense due to a higher adjusted effective tax rate, which had a $0.03 per share negative impact on earnings.
Speaker Change: Our adjusted effective tax rate this quarter was approximately 17% and we expect our full year tax rate to be in the 18 to 19% range.
Speaker Change: We ended Q3 with available liquidity of $2.4 billion, including $1.2 billion of cash, and our net leverage ratio was 4.8 times.
Speaker Change: We continue to expect to reach mid-4x net leverage by year-end, assuming a full year of Carol's results.
Speaker Change: In September, we issued $500 million of 5-5-8 First Lien Senior Secured Notes, due in 2029, and used the proceeds, together with cash on hand, to redeem our outstanding $500 million 5-3-4 notes, which were due in 2025.
Speaker Change: We feel good about our capital structure with no significant maturities until 2028.
Speaker Change: Turning now to free cash flow.
Speaker Change: We generated $485 million of free cash flow, excluding the benefit of our FX and interest rate hedges, which added approximately $46 million of positive cash flow this quarter.
Speaker Change: We continue to execute against our Reclaim the Flam plan at Burger King U.S., which is designed to engage new and existing Burger King fans, accelerate our path towards modern image, and drive franchisee profitability.
Speaker Change: This quarter, we spent $24 million on Reclaim the Flame investments, including $7 million on our Fuel the Flame marketing investment and $16 million towards Royal Reset. We have $41 million of Fuel the Flame marketing remaining in Q4.
Speaker Change: Since we are tracking well ahead of the 2024 Fuel to Flame franchisee profitability target, beginning in 2025, franchisees will increase their ad fund levy from 4 to 4.5% through at least 2026.
Speaker Change: And our advertising fund contribution, which has been $60 million per year over the last two years, will fall away.
Speaker Change: This will provide a nice tailwind to both AOI and adjusted EPS growth in 2025.
Speaker Change: and to close on our dividend.
Speaker Change: We returned $261 million of capital to shareholders through our dividends, which we declared for Q4 at $0.58 per common share and unit, with a full year total of $2.32 per share.
Speaker Change: Thank you. We appreciate it.
Speaker Change: I'll now wrap up with an update on our expectations for 2024.
Speaker Change: Considering Q3 comparable sales and system-wide sales growth came in lower than anticipated, we now believe full year 2024 system-wide sales growth will be in the five to five and a half percent range.
Speaker Change: slightly offset by tempered expectations for net restaurant growth to the mid 3% range, primarily due to Burger King China, as well as some of the impacts we're seeing from macro and geopolitical challenges.
Speaker Change: To be more specific, about 100 basis points of our energy shortfall this year, compared to our 5% long-term unit growth target, is attributable to a significant year-over-year deceleration in Burger King China energy.
Speaker Change: As many of you know, Burger King China has been struggling.
Speaker Change: We have recently sent termination notices to our master franchisee, which they have disputed, and we are currently in a dispute resolution process with them.
Speaker Change: At the same time, we were in active discussions with the Master Franchisee in an effort to reach an amicable solution.
Speaker Change: We believe this is a short-term situation and we are committed to the long-term success of the business in China. We will update you when we have more to share.
Speaker Change: Thank you.
Speaker Change: Overall we remain confident in achieving over 8% organic AOI growth this year.
Speaker Change: This confidence is driven in part by the improved top line results we saw in October, as well as our cost discipline initiatives.
Speaker Change: which have allowed us to tighten our 2024 segment G&A guidance to between $640 and $650 million, including equity-based compensation between $170 and $175 million.
Speaker Change: Finally, 2024 has obviously been a more complicated environment with more moving pieces than any of us had envisioned.
Speaker Change: As such, it's been important for us to provide more detail on shorter-term expectations for sales, NRG, and AOI than we normally would.
Speaker Change: As we look to 2025 and beyond, we're committed to achieving our long-term outlook of 3% plus comparable sales growth.
Speaker Change: 5% plus net restaurant growth.
Speaker Change: 8%-plus system-wide sales growth and 8%-plus AOI growth on average over the next five years, and we will keep you informed of our progress along the way. In the meantime, I am confident we will achieve our goal of at least 8% organic AOI growth for 2024.
Speaker Change: And with that, I'll hand it over to Patrick.
Patrick Doyle: Thank you. Thank you. Thank you.
Patrick Doyle: Thank you, Sami, and thank you to our teams and franchisees who are doing a terrific job delivering value to our guests through delicious products and improved experiences.
Patrick Doyle: One of my routines is to do a gut check from time to time. On average, are we doing a better job than we were a year ago?
Patrick Doyle: and I strongly believe that to be the case in each of our businesses.
Patrick Doyle: Our customers are getting better, more consistently made food with better service in a better environment for good value.
Patrick Doyle: That's what ultimately drives growth.
Patrick Doyle: And while we all understand those elements to be the foundation for all restaurants.
Patrick Doyle: I believe our progress on these customer benefits sets us apart and is what ultimately drives great returns for our franchisees and our investors.
Speaker Change: We all know the environment has been more challenging, but we are not allowing that to impact our plans.
Speaker Change: were outperforming our largest global peers.
Speaker Change: We are actively addressing the areas of our business that have fallen behind and we are protecting profitability for our franchisees and our company all while positioning our brands for lasting success.
Speaker Change: Thank you. Thank you.
Speaker Change: We have a remarkable business in Canada, one that I can't remind you enough generates over 40% of our adjusted operating income.
Speaker Change: Tim's continues to outperform the industry and deliver strong absolute results.
Speaker Change: The discipline Axel, his team, and our dedicated restaurant owners have had executing against the multi-year back-to-basics plan has been paying dividends for the past few years. I am confident it will continue to do so for years to come.
Speaker Change: International has many pockets of strength but there are few markets where we're struggling a bit. In some cases this is due to macro factors out of our control but in others there's more we can do to change our trajectory and we are tackling them head-on.
Speaker Change: You saw us take control of Popeye's China, you saw us invest in Tim's China, and I can tell you we're working on a solution for Burger King China.
Speaker Change: These two businesses, Tim's and International, drive nearly 70% of our earnings and have solidly outperformed the competition from a top-line perspective.
Speaker Change: In fact, they've outperformed the industry for many quarters. I think that gets lost on a lot of folks, but it's definitely not lost on me. And I'm very confident in our teams' and franchisees' ability to continue delivering great results.
Speaker Change: Now let's turn to the other 30% of our earnings.
Speaker Change: Burger King U.S., 18% of our business, is only two years into its multi-year plans.
Speaker Change: While we work hard to navigate the current environment, which has been more complicated than we expected entering the year, we need to take a step back and look at the bigger picture.
Speaker Change: We've already made a ton of progress in just two years.
Speaker Change: We have a lot more work to do, but I am confident we will get there.
Speaker Change: We have the right plans, the right teams, and dedicated franchisees.
Speaker Change: And RBI and our franchisees are committing the right resources. It is going to work. We are remodeling restaurants, improving service, and continuing to grill amazing Whoppers.
Speaker Change: Popeyes is fundamentally doing all the right things as well, improving operations, introducing quality menu innovation, enhancing its digital capabilities, and opening more restaurants. We simply need to entice more people to try our food.
Speaker Change: Firehouse's long-term value will come from opening more and more restaurants and Mike and the team are doing just that. They've accelerated growth meaningfully this year and their 2025 pipeline will bring another major step up.
Speaker Change: So overall, our business is trending in the right direction.
Speaker Change: Franchisee profitability is far stronger today than it was 18 months ago.
Speaker Change: Our year-to-date Organic Adjusted Operating Income growth is over 7.5%, which I view as great performance in this environment, and we are on track to deliver 8% plus growth for the year.
Speaker Change: While we are already seeing signs of improvement in the U.S. and overseas in October, it may take a few more quarters for the macro environment to even out and for us to see consolidated same-store sales track towards our 3% plus long-term guidance.
Speaker Change: But if you're invested in this company for the long term, like I am, I can assure you the fundamentals are better today than they have been in years.
Speaker Change: With that, I'll pass it back to the operator for questions.
Speaker Change: Thank you.
Speaker Change: Thank you. If you would like to ask a question please press star followed by one on your telephone keypad. If for any reason you would like to remove that question please press star followed by two. Again to ask a question please press star followed by one.
Speaker Change: Once again, all callers will be limited to one question.
Speaker Change: Our first question today comes from the line of Brian Bittner from Oppenheimer & Company. Please go ahead, your line is now open.
Speaker Change: Welcome to the Dunnigan House. I'm your host, Sami Siddiqui. I'm your host, Joshua Kobza.
Brian Bittner: Thanks, good morning. I wanted to ask my question on the international business and focus specifically on Burger King International where
Brian Bittner: You had almost a 2% positive comp, which is nicely above your global peer set, as you talked about in your prepare remarks.
Brian Bittner: Can you just unpack this outperformance versus your peers a bit?
Brian Bittner: related more to just a better market mix of exposures across international or do you actually believe you're taking share in most of your major Burger King international markets and and what do you believe is behind an improved international trend as we're as we're moving into the fourth quarter
Speaker Change: Thank you for watching!
Speaker Change: Brian, good morning. It's Josh and thank you for the question. You know, I do think our Burger King teams in a lot of our international markets, they're doing a fantastic job and that's leading us to take market share in many of those markets. I'll give you just a couple examples that, you know, I think for me really brought home how we win in some of these places.
Speaker Change: We were in Australia a couple months ago with the Hungry Jacks team led by Chris Green and Jack Cowan, who's run that business for a very long time.
Speaker Change: and they're just doing a fantastic job. They're getting all the basics right. They're really engaging their teams and their managers. They're delivering high quality products. They've been really focused on quality enhancements and the perception of quality and communicating that quality across the menu and really elevating the perception of the Whopper and they're outperforming by a healthy margin.
Speaker Change: I just I saw this again in Japan two weeks ago we were there and that's a fantastic example for us.
Speaker Change: You know, it was a market that was struggling if you go back kind of five, seven years. We had under a hundred restaurants.
Speaker Change: and the team just really got all the fundamentals right. They've really driven product quality. We follow a lot in our brand trackers of who has the best burger in the market and we win by a big margin in Japan.
Speaker Change: and I think that's the critical formula. You've got to get the operations right, have high-quality locations, and really win on product quality. And thankfully, we've got the best burger in the world with the Whopper. When we get that right and really land it well with consumers, we have the opportunity to outperform really meaningfully. So we've got a lot of markets like those two. Spain is another great example. Brazil is doing well. But some of our biggest markets, they're getting the basics right, and they're outperforming and taking market share, and I think that's what you saw.
Speaker Change: in the quarter.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: and many more. Thank you for watching. And I hope you enjoyed this video. If you did, please give it a thumbs up and subscribe to my channel. I'll see you in the next one.
Speaker Change: Our next question today comes from the line of John Ivanko and JP Morgan. Please go ahead, your line is now open.
John Ivanko: Hi, thank you. The question is on growing the Burger King U.S. franchisee base from 300 franchisees to 500 franchisees, which is obviously a very big change, especially considering I think you'll have a lot more than 200 new franchisees at the end of the system. So
John Ivanko: That's just kind of like, you know, the big theme but the specific question that I want to ask
John Ivanko: is specifically on, you know, the on the Carol's units that you presumably would have the most opportunity with, you know, if there is some discussion or plan or any further along of making general managers in a lot of cases actually more responsible to some of you for some of their specific units, which
John Ivanko: would really be more consistent with how other systems that I'll say remain nameless at this point, but other systems have become very successful in the U.S. is making people that formerly worked in the restaurants become franchisees. Thank you.
John Ivanko: Thank you for watching. Bye.
John Ivanko: Thank you. Thank you. Thank you.
Speaker Change: Hi John, good morning, and thanks for the question.
Speaker Change: You're right that there's a big change we're contemplating in the BKUS system in terms of the franchisee base and we do expect to have a lot of new franchisees. I think they'll come from a few different places and we're in the midst of a lot of these discussions. We've already started either discussions or we've done a few re-franchising already and there are a couple different profiles that we have. I think some of our new franchisees will be folks who are already on our teams. So some of our field team members within BKUS are on the corporate side or running some of our company restaurants.
John Ivanko: We have some of them who are interested in becoming franchisees and we're in discussions.
John Ivanko: for them to take over portfolios. We're also in discussions with some of the folks at Carol's. It could be a general manager, a district manager, a director of operations. Some of those team members have ambitions to run their own business and they might take over a smaller portfolio of two, five, ten restaurants.
John Ivanko: So we're having a lot of those discussions, and I think that's really exciting.
John Ivanko: how you compensate the general managers or having smaller franchisees who have ownership of the business or in the restaurants in the communities every day. I think there will be a lot of different versions of the exact form of that so there may be smaller and larger versions of how we accomplish that but it's very much front of mind to us.
John Ivanko: that having more local ownership in the business at the restaurant level is really the key to outsized performance and taking market share. And I think that you'll see that be a big piece of what we do over the next few years at Burger King in the U.S.
Speaker Change: Yeah, John, what I'd add to that, and obviously my past life, I know well what it's like to have the local owner operators in the restaurants, and it's a powerful thing, and if we continue to make the progress.
John Ivanko: on franchisee profitability and the returns that you get by building or buying Burger King restaurants and in fact all of our brands.
John Ivanko: The capital becomes easy, what's hard is the operations.
John Ivanko: and having great, dedicated, local owner-operators has to be the answer. I've said this before, but franchisees, people refer to them interchangeably as owner-operators.
John Ivanko: and the owner part of that.
John Ivanko: is relatively easy if the cash flows are there. The operating part is the critical part.
John Ivanko: and we're dedicated to that. And the best example of that, the reason...
John Ivanko: that we are the juggernaut that we are in Canada with TIMSS is the local ownership. Those owner-operators that we have in Canada are fantastic. They've done a great job for decades.
John Ivanko: and we take the learning from that. Now we're gonna have big franchisees that are gonna have success in the US. Those who are operated at a high level and there are many of them, we love having them in the system.
John Ivanko: But, you know, we've set a standard. You've got to be running your restaurants really well to have an opportunity to be part of the system.
Speaker Change: John, maybe just one last thought there. It ties a little bit back into Brian's question too. You know I mentioned the I mentioned the outperformance of Australia and one of the things that I think
Speaker Change: Jack and Chris and the Hungry Jacks team have been really focused on it and it's been a big drive of their results.
John Ivanko: is a program where they're doing a bigger profit-sharing program with some of their restaurant managers.
John Ivanko: And I think that's really powerful to engage and empower our restaurant owners. And some of that thought process is already starting to get into our company restaurants. So we've started more substantive profit-sharing programs.
John Ivanko: with some of the restaurant managers in our company restaurants at Burger King as well. And those restaurants are doing really well. Our company restaurants, especially the ones that we've acquired and run over the last few years, are really starting to outperform the system. So we're seeing some exciting things on that front, and we'll continue to take those learnings and expand them as they work.
John Ivanko: Thank you. Bye.
Speaker Change: The next question today comes from the line of Dennis Geiger from UBS. Please go ahead, your line is now open.
Dennis Geiger: Great morning. Thanks, guys. I wanted to ask a bit more on the UNIQLO Outlook. Maybe if you could speak to
Dennis Geiger: Any key considerations or notable impacts for the rest of 24 development beyond BK China, which you spoke to? And maybe just at a high level, that global unit growth opportunity, as we look ahead over those next few years and your ability perhaps to offset some of the BK China pressure with contribution from other market and brand combinations. Thank you.
Speaker Change: More Dennis, I don't think we have too much additional to add on 24 But just as we think about and you know looking out towards 2025 and beyond I'll highlight a few of the things that that we're working on and where we see some good progress
Speaker Change: First and foremost is Burger King in the U.S., we've seen a ton of progress there from a moment in time not too far back where we had a drag from net closures to where we're getting pretty close to flat here. And I think a lot of that's driven by the progress that we've seen on franchise profitability.
Speaker Change: As we mentioned earlier, we made a huge step forward last year, and we're still doing well this year. So I think that's been a big driver, and I think that will continue to be a tailwind as we look into 2025 and beyond.
Speaker Change: We've also been making progress in a couple of our other U.S. brands.
Speaker Change: Gil Firehouse
Speaker Change: is starting to pick up a lot. As I mentioned in my prepared remarks...
Speaker Change: You know, our trailing 12-month net restaurant growth is up 60%, and we expect to make even further progress through the balance of this year and into next year. So that's starting to become a more material contributor.
Speaker Change: And Tim's in the U.S. is starting to have more positive momentum. We think we'll have a good year this year. Kat and her team have put together a lot of new development agreements for that business, so we've got a good outlook for Tim's in the U.S.
Speaker Change: Just as important, or perhaps equally important, is TIMSS in Canada. You know, we've mentioned a couple of times that there's been a lot of population growth in Canada, which means that there's opportunity for more TIMSS. And there are particular pockets that the team's been going after, and I think you'll start to see some benefit from that next year. Places like Western Canada, where we just have lower density of units than we have in places like Ontario.
Speaker Change: I think we'll start to see some of those units get opened as we get into 2025.
Speaker Change: In addition to that, there are some exciting other areas of growth in our international business. You know, specifically places like India, which we think will be one of the biggest growth drivers over the next five to ten years. We're ramping up businesses like Popeye's there and Burger King keeps growing really well.
Speaker Change: But we're also making progress in countries like Mexico. Mexico has become one of our best growth drivers around the world. Our Tim Hortons business is doing fantastic there with great sales, great margins and a lot of restaurant growth.
Speaker Change: Japan I mentioned is a big positive story. UK, particularly around Popeyes, you know, we're building a lot of Popeyes in the UK and I mentioned it earlier but, you know, the average restaurant sales are fantastic, margins are good, so the returns on capital are compelling for our franchisees.
Speaker Change: There's a lot of good markets I would characterize, especially within Popeyes and the international business where we're getting ramped up on that development curve.
Speaker Change: And we're seeing really strong results on the sales side. So those are some of the things that we're working on to make sure that we pick up the pace of growth, even if we have a couple soft spots in other places.
Speaker Change: Thank you. Bye.
Speaker Change: The next question today comes from the line of David Palmer from Evercore ISI. Please go ahead, your line is now open.
David Palmer: Thanks. Just two areas that maybe you could make another comment on. With regard to China and Burger King China, I know that's going to be a situation that you have some limited ability to comment on.
David Palmer: You know, what is our best guess about, you know, you mentioned that 3.5% this year could have been the 5% without China being a drag?
David Palmer: It would be great to have that re-inflate as quickly as possible. How long a time do you think it could be before you get China growth back up to normal?
Speaker Change: where you want it to be.
Speaker Change: to fill that gap by itself.
Speaker Change: for Tim's Canada, you know, that's not one of the markets that you said accelerated in the fourth quarter, you had a 3% comp, which was still quite healthy given the world we're in right now, and traffic appears to be pretty good there, but you know, how do you feel about that brand market share outlook going forward initiatives for Tim's? Thanks.
Speaker Change: Hey, morning, David. It's Sami. I'll just tackle the first part of your question and a slight correction on China. Our long-term growth algorithm, as we've talked about, is 5% unit growth on average over the next five years.
Speaker Change: This year we talked about being around three, you know, mid threes in terms of unit growth.
Speaker Change: China represents about a hundred basis points so one point of that one and a half point roughly shortfall. So you know as I said we are actively working on an amicable solution there and we will update you when we have more to share. I'll turn it over to Josh to expand on a little bit more.
Josh Kobza: Yeah, just add a little bit to what Sami said.
Josh Kobza: I would tell you the business performance there has been challenging in the short run, but I tell you, we are all very committed and very excited about the long-term prospects for the Burger King business and all of our businesses, frankly, in China. It's the number two QSR market in the world. We think we have brands that have every right to win in that market, and we're going to make the right decisions to support that long-term growth.
Josh Kobza: I would ask for a little bit of patience and time, like you saw with Tim's and Popeye's. Sometimes the stuff takes a little bit of time for us to work through, and we'll keep giving you updates as soon as we have anything material to share on that front.
Speaker Change: Yeah, you know, I'm going to add a little bit of perspective on this. You know, it's interesting.
Speaker Change: The China business, if you look at our business and where it is, and frankly, all three of the brands,
Speaker Change: While we've got some scale, it is still relatively early in their journey.
Speaker Change: are bigger, um...
Speaker Change: competitors and peers there. If you look at the the businesses of, you know, Yum and Starbucks and McDonald's, they are kind of at a point where their cash flow and probably Domino's as well, they're at a point where the cash flow from their businesses
Speaker Change: is not only enough to manage their day-to-day, but to fuel their growth.
Speaker Change: We're in a position where we still need fresh capital to go into these businesses, to develop these businesses at the pace that we think we need to do to get them to the scale that we want for the long term. We are very bullish.
Speaker Change: on the medium and long term. But we've got some things that we've got to work through, and it still requires some capital. So I wish right now, as China became more complicated, that we were a little bit
Speaker Change: further along on that journey. But we're committed to getting there and we're gonna work through it. And one of the things I believe in strongly on everything is we are not just gonna talk about the things that are going well in our business.
Speaker Change: We're going to talk to you about the things where we think we need to make improvements.
Speaker Change: That's not only important for you to know, but it's important for, you know, franchisees and team members who are listening to this call to know that, you know, we talk about things we need to get better at, we're serious about it. And we're going to talk to you the same way we talk to everybody else about where we need to make improvements.
Speaker Change: The one thing, you asked about TIMSS, and I'll do that and Josh can add on as well on that. But, you know, what's changed in TIMSS is fundamentally ticket growth.
Speaker Change: The bulk of our growth in this quarter was from order count growth, from ticket growth, not from check growth.
Speaker Change: and and so it's it's a very healthy business we feel great about where Tim's
Speaker Change: is in Canada when we were putting up bigger numbers.
Speaker Change: You know, a year or two ago, a lot of that while it had, you know, good order count growth, a lot of that was also just from the inflation that was in the market, as inflation has worked its way out of the market.
Speaker Change: you're seeing what we think is a very sustainable growth path that involves bringing more customers into our restaurants day in and day out.
Speaker Change: Thank you. Thank you.
Speaker Change: Yeah
Speaker Change: Just to reinforce what Patrick mentioned, you know, what makes me feel so good about Tim's, both the current performance and the outlook, is they're doing all the basics right. We're, all the underlying fundamentals of the business, the operations are getting better, we're remodeling more restaurants, we're launching high quality products.
Speaker Change: I think that's what's been driving our results and the ticket growth, and as I look out into 2025, we have a great pipeline of new innovations, both on the food side and on the beverage side. So I think if we keep doing what we're doing, keep bringing new exciting innovations to Canada, we're going to keep seeing good results there, and that's why we feel good about that business.
Speaker Change: The next question today comes from the line of Gregory Frankfurt from Guggenheim Securities. Please go ahead, your line is now open.
Speaker Change: https://www.youtube.com or the link in the description below.
Gregory Frankfurt: Hey, thanks for the question. I just want to double click in on Popeyes. I think it's around 30% of your international growth.
Gregory Frankfurt: more than 100% of your domestic growth. Comps flowed in kind of both regions this quarter, and I'm just wondering maybe what happened, how you bridge back to improve comps, and then maybe a state of play on where cash-on-cash returns are for the brand. Thanks.
Speaker Change: Yeah, Greg, so on Popeye's same-store sales, they were a little softer in Q3. And as I mentioned, I think we probably had a little bit of a gap in terms of value offerings. And we saw that, and I think we fixed that as we got into September and October. And that's a meaningful part of what I mentioned in terms of the turn in global same-store sales performance going from about flat in Q3 to positive low single digits in October. So Popeye saw a meaningful uptick once we got those value offerings in. So I think we're back in a better place with Popeye's.
Speaker Change: as it pertains to Cash on Cash.
Speaker Change: returns that you know that's primarily driven by franchisee profitability and you know we reported a pretty big step up in franchise profitability last year we're also making a bunch of progress this year while sales have been a little bit softer in the last quarter we found a lot of good opportunities to be smarter on the cost side and so we're seeing a healthy uptick in franchise profitability and that's ultimately what drives cash on cash returns and that unit growth.
Speaker Change: that you've continued to see being pretty strong.
Speaker Change: The next question today comes from the line of Lauren Silberman from Deutsche Bank. Please go ahead, your line is now open.
Speaker Change: Thank you for joining us. Have a great day. I'll talk to you soon. Bye. Bye. Bye. Bye.
Lauren Silberman: Thanks very much. Just a follow-up on Tim's
Lauren Silberman: Can you just talk about the cadence of trends that you saw throughout the quarter and any changes perhaps that you're seeing in the competitive environment?
Speaker Change: Are you guys implying that we should see pretty similar trends in the fourth quarter versus what you saw in the third quarter?
Speaker Change: And then my larger question is just on the 2025 guide, you're rolling off for Claim the Flame, low single-digit benefit to op income. So as we think about 2025, should that be an outsized year? Just any thoughts on the puts and takes of underlying growth? Thank you.
Speaker Change: Thank you.
Speaker Change: Hey Lauren, thanks for the question. I'll take Tim's and turn it over to Sami on the 25 question.
Speaker Change: Thank you.
Sami Siddiqui: You know, we're not going to get too much into kind of the...
Speaker Change: Intra-quarter dynamics there, but you know, I would just reinforce we saw good healthy growth Throughout driven by transactions. So it's pretty good and you can tell you know within the that what we said about October Trends overall improved across the business More driven by improvement in BK and Popeyes so give you some sense in the aggregate of what's going on, but we'll probably wait to update on the kind of on the Specific business performance until we get to we get through the whole of q4
Speaker Change: Good morning, Lauren. So just with respect to Burger King U.S. and as you think about the implications of Reclaim the Flame on what the outlook looks like for next year. You're absolutely right. Going into next year, we will roll off the multi-year ad fund investment that we put in. As a reminder, it's around $60 million a year that we contributed this year, so that $60 million structurally will roll off. And because we did achieve – we actually achieved by a wide margin the franchisee profitability threshold, the franchisees will now take their ad fund contribution up from 4% to 4.5% for next year. So the aggregate ad fund will still –
Speaker Change: will still be in a good place, but structurally, that...
Speaker Change: investment will come off our P&L next year. I say the only other dynamic to keep in mind with Reclaim the Flame is the capital investments alongside the franchisees that we make around remodels. We do expect the remodels to accelerate going into 2025, so you'll see those investments hit cash flow and a smaller impact on the P&L as it's amortized over the course of the franchise agreement.
Speaker Change: and you'll see a bit in DNA. But the vast majority of it will be the roll-off of the $60 million going into 2025, which should be a nice tailwind for adjusted AY and EPS.
Speaker Change: Thank you.
Speaker Change: The next question today comes from the line of Danilo Gargiulo from Bernstein. Please go ahead, your line is now open.
Danilo Gargiulo: Thank you.
Danilo Gargiulo: I have a two-part question. First of all, on vertically in the U.S., I mean, some of your peers have been hinting toward expanding their value messaging into 2025 and even evolving the structure of their value menus.
Speaker Change: So I'm wondering how you might be responding to that change in competitive dynamics.
Danilo Gargiulo: and the second part is you were sharing healthy expectations on profitability for Burger King this year and next year. What's your expectation for other brands and maybe if you can dwell on the most positive feedback and the biggest state of opportunity that you are receiving from your franchisees on each of the brands. Thank you.
Speaker Change: Good morning, Danilo. First on Burger King in the U.S. You know, I think what we've seen, and I think this plays out especially in what's happened in October, is
Speaker Change: Burger King in the U.S. and really around the world, we do best when we've got the good value offerings and we have things like the $5 Yearway meal that we've had for a while. But we also pair that with relevant innovation and a big focus on the Whopper. And you saw that with what we did with Adam's family. We did a really cool Wednesday's Whopper with a purple potato bun and a lot of really innovative sides.
Danilo Gargiulo: And that's what really drove the business to perform the best it has in a fair while here. And I think that shapes a bit of our thinking as we look into Q4 and really into next year. We do need to have good value offerings. We think we have something right now that works.
Danilo Gargiulo: really well for the business. You know we may tweak it slightly into 2025 but I think we're pretty happy with it.
Danilo Gargiulo: overall, but as much as that, we want to make sure that we have relevant innovation and big Whopper focus, really elevating our flagship Whopper. When we have both of those things, I think is when we perform our best, and you'll see us try to balance those as we get into next year.
Danilo Gargiulo: In terms of franchise profitability, you know, I think the good news here is that in the three of our four kind of domestic businesses and the three biggest ones, we're making good progress. You know, we mentioned already that Burger King is doing well this year. We're kind of stable to slightly up already, and we're seeing progress in Popeyes, as I just mentioned, and of course with Tim Hortons. You know, we've had great sales, and that's, you know, that's been followed with some good progress in franchise profitability. So I think it really speaks to the focus we've brought to franchise profitability, that even in a year that's been a little bit more challenging on the sales side, we're continuing to make progress in making sure that the unit economics of our biggest businesses are healthy and improving.
Danilo Gargiulo: And I think that's really important to us and to our franchisees.
Speaker Change: The next question today comes from the line of Sarah Senatore from Bank of America. Please go ahead, your line is now open.
Sarah Senatore: Thank you. I've got some questions on Burger King U.S. and Canada, respectively.
Sarah Senatore: What I wanted to say about Burger King is...
Sarah Senatore: You know, you mentioned some stronger performance in October. I guess it seems like there's just been more movement back and forth, share shifts in the market than historically has been the case.
Sarah Senatore: essentially, you know, whoever has kind of the strongest tie-in.
Sarah Senatore: So, I guess, are you seeing any improvement in the overall demand for the category versus other perhaps other categories?
Danilo Gargiulo: or are you mostly just trading share back and forth? And if that's the case, I guess, how do you get comfort that the trend can persist?
Danilo Gargiulo: and that, you know, your franchisees can hit their EBITDA goals because it does seem like maybe, you know, you've harvested some of that low-hanging fruit, if you will, and so it's been a little bit more of a, I don't know, a street fight, if you will, you know, on the ground and with rather than kind of persistent share trends for any given brand.
Danilo Gargiulo: And I guess just, Tim, it's maybe a similar question, you know, you talked about strength in the afternoon, but I think we heard some of your competitors have had very strong breakfast businesses. So, you know, in aggregate, you know, are you kind of giving some ground and breakfast and maybe taking some ground in the afternoon? And then that effect is sort of, you know, kind of consistent with,
Danilo Gargiulo: the overall Canada fast food market. Thanks.
Danilo Gargiulo: Thank you.
Speaker Change: Thank you.
Speaker Change: Morning Sarah and thank you for the questions. First on Burger King in the U.S.
Speaker Change: I think there's a couple things going on there. Some are specific to things we're doing, and I think there are some signs of some improvement in the category.
Danilo Gargiulo: You know...
Danilo Gargiulo: I think it is the case that what we saw in October was some improved performance of some of our marketing initiatives. I mentioned the Adams family, that was a really great...
Danilo Gargiulo: kind of partnership that we did there that was very successful, both on the flagship Whopper, but also on some of the sides that really resonated, whether it was Things Rings or our new Churro Fries. Those did fantastic. So I think when we get the marketing right and when we really focus on the Whopper, we tend to do really well. And I think that helped us take some share.
Danilo Gargiulo: here in the near term.
Danilo Gargiulo: But I also do see some positive signs on the overall consumer. I think if you look at a few of the things
Danilo Gargiulo: that help our guests out.
Danilo Gargiulo: Things like inflation have been persistently trending down, gas prices have come down a little bit recently, and interest rates have started to come down.
Danilo Gargiulo: And I think you can start to see that reflected a little bit in things like some of the consumer sentiment indices. If you look at the University of Michigan one, for example, the last couple of months it started to trend upwards. So it's early, but I think there are some positive signs for overall industry demand as well that are a bit encouraging to us.
Danilo Gargiulo: And with respect to the TIMSS business,
Danilo Gargiulo: We're really doing pretty well across the business, you know, I would mention just on on both both the afternoon We already talked about but also on breakfast, you know, our breakfast food was up 5.8 percent year-on-year in the quarter so we're actually doing pretty well across the business and
Danilo Gargiulo: As I said, that's what gives us confidence as we go into Q4 and into 2025.
Patrick Doyle: Hey Sarah, it's Patrick. The one thing I would kind of add is Josh and I were both just out at the
Patrick Doyle: at the Burger King convention last week.
Patrick Doyle: and Tom and his team are doing an amazing job, but maybe more importantly, the franchisees are engaged and excited about the progress we're making.
Patrick Doyle: you know, while you may see some short-term back-and-forth.
Patrick Doyle: based on, you know, who's running what promo at which time.
Patrick Doyle: what gives us real confidence and what gives our strong operators in Burger King real confidence.
Patrick Doyle: is they're seeing systemic improvements.
Patrick Doyle: in service levels that are driving stronger sales. They're seeing still the kind of mid-team lifts as we do remodels.
Patrick Doyle: You know, we're seeing these fundamental things as our restaurants look better, as we give better service.
Patrick Doyle: that are driving sales for them. And we just need to continue to drive progress on those initiatives. And we frankly need to have more and more of our Burger King franchisees.
Patrick Doyle: joined the top half of our franchisees and drive those great results, and we're going to get where we need to go. But our big advantage...
Patrick Doyle: is we do have those core improvements that we can make in our business and that's gonna drive results.
Patrick Doyle: Which is what gives me some confidence that while you will see some short-term back-and-forth based on who's doing what
Patrick Doyle: We've got the ability to improve, continue to improve fundamentals, and that's what got us from underperforming the category a few years ago to performing kind of in line today, and it gives me confidence on how we can outperform into the future.
Speaker Change: Thank you.
Speaker Change: The next question today comes from the line of John Tower from City. Please go ahead, your line is now open.
Speaker Change: and many more. Thank you for joining us. We hope you enjoyed the rest of your day. We'll see you next time.
John Tower: Great, thanks. Just a couple quick ones for me on the Burger King U.S. business. First, I just wanted to confirm, you guys are still on track to launch the Million Dollar Whopper campaign. I think it was November 24 when you guys had initially gone after it.
Speaker Change: with the consumer. And then secondly, can you just speak to the returns you're seeing in the remodels? Obviously you're talking about the sales lift, but just the aggregate investment required so far and paybacks you're seeing today. Thank you.
Speaker Change: Thank you for watching. Bye.
Josh Kobza: Hey John, it's Josh. On the first one on Burger King U.S. and the Million Dollar Whopper, yes, that is still planned for November. And in terms of returns on the remodels,
Josh Kobza: You know, we underwrote those looking for sort of a low-teens uplift in sales, and as we've mentioned, it's coming a little bit better than that. So the realized returns on average are coming in a little bit better than we expected. And we usually target those for sort of a low-teens return on capital.
Josh Kobza: So, pretty happy with what we're seeing there so far.
Patrick Doyle: I would tell you, even some of the recent ones that we've seen, some of the new sizzle restaurants are really amazing.
Patrick Doyle: I'd really encourage everybody to check them out. They're beautiful, but also some of the sales results we're seeing on those have been really fantastic. We've done a bunch here in Miami with our company restaurants.
Patrick Doyle: with some tremendous results so far. So I am very excited to see more and more sizzles out there in the market as we get through the end of this year and especially into next year. I think it's a really transformative image that really elevates the brand in the market.
Speaker Change: Our final question today comes from the line of Christine Cho from Goldman Sachs. Please go ahead, your line is now open.
Christine Cho: Thank you. Thank you.
Christine Cho: Thank you for taking the question. So I was hoping whether you can shed some light on any trends or spending shifts you've seen across various income cohorts specifically
Christine Cho: I think in the last call you did mention the $5 meal deals are actually successfully driving trial and participation, particularly in the lower consumer cohort. But how does that look in terms of repeat and frequency, especially for that cohort? Thank you.
Speaker Change: Thank you for joining us. We will begin in five minutes.
Speaker Change: Yeah, Christina, I would say nothing too new to call out this quarter in terms of income cohort performance. Most of the trends have been pretty consistent over over the last few months there, so I don't have anything else particular to add there that we found notable.
Speaker Change: Dr. Pratik Patel, Dr. Pratik Patel, Dr. Pratik Patel, Dr. Pratik Patel,
Christine Cho: and many more. Thank you. Thank you.
Speaker Change: That concludes today's question and answer session, so I'd like to pass the call back over to Joshua Kobza for any closing remarks.
Speaker Change: Thank you.
Joshua Kobza: Great, well thank you all for your time today and all the great questions. We look forward to updating you again on our Q4 results in early 2025. Thanks and have a great day.
Joshua Kobza: and many more. Thank you. Thank you.