Restaurant Brands Rides On Unit Expansion Amid Competition

Restaurant Brands International Inc. (NYSE:QSR) banks on various sales-building efforts, menu innovation, digitalization and expansion strategy. Supported by these initiatives, the company’s shares have gained 28.6% so far this year compared with the industry’s 17.4% rally.

However, greater dependence on franchisees and intense competition are potential headwinds. Let’s delve deeper into the factors that substantiate its Zacks Rank #3 (Hold).

Expansion Efforts — Key Growth Driver

Restaurant Brands believes that there is a huge opportunity to grow all its brands around the world by expanding presence in existing markets and entering new markets. It continues to evaluate opportunities to speed up international development of all the three brands by establishing master franchisees with exclusive development rights, and joint ventures with new and existing franchisees.

Currently, the company has more than 26,000 restaurants worldwide, which includes in excess of 18,000 restaurants at Burger King. System-wide sales grew approximately 8% in the last reported quarter.

Restaurant Brands is encouraged by long-term prospects of the Tim Hortons brand and remains committed to keep up with the international growth strategy of expanding the brand around the world. In this regard, it formed master franchise joint venture partnerships for the brand in Mexico and Spain. Moreover, the company is optimistic about the major expansion opportunity that lies ahead for the brand in the United States. The regions where the company has signed development agreements include Cincinnati, Columbus, Indianapolis, Minneapolis, Cleveland and Youngstown.

During the third quarter, the company reinvented the donut lineup with premium donuts that include maple bacon dream donut and the PB&J dream donut. It also plans to roll out these dream donuts across Canada.

Meanwhile, Restaurant Brands is investing heavily in technology-driven initiatives like digital ordering to boost sales. Furthermore, Restaurant Brands launched Burger King mobile order and pay app in the United States. The company continues to expand the size of its delivery program, with availability in nearly 3,500 restaurants in the United States and more than 8,700 restaurants worldwide.

Concerns

Although the company’s fully-franchised model has a lot of positives, it also has its share of drawbacks and risks. Under this business model, the company’s prospects depend on the ability to attract new franchisees for all brands, and the willingness of franchisees to open restaurants in existing and new markets.

Competition among fast-casual, quick-service and casual dining segments of the restaurant industry is expected to remain fierce with respect to price, food quality, service, location and concept, which may adversely impact Restaurant Brands’ revenues.

Earnings estimates for the current year and 2020 have been revised 0.4% and 0.7% downward, respectively, over the past 30 days.

Key Picks

Some better-ranked stocks in the same space include Chuy's Holdings, Inc. (NASDAQ:CHUY) , Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) and Dunkin' Brands Group, Inc. (NASDAQ:DNKN) . While Chuy’s and Cracker sport a Zacks Rank #1 (Strong Buy), Dunkin’ carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Chuy, Cracker Barrel and Dunkin’ have an impressive long-term earnings growth rate of 17.5%, 10% and 9.8%, respectively.

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