New-Look Restaurant Brands Serves Up In-Line Results

Recently appointed chair Patrick Doyle’s first impact was felt at Restaurant Brands International with the announced departure of CEO Jose Cil, whose unit development pedigree was overshadowed by declining four-wall profitability at the firm’s largest brands during his four-year tenure. Doyle, who as CEO spearheaded Domino’s tremendous run in the 2010s, appears to be driving RBI’s priorities toward operational excellence and heightened attention to franchisee profitability, replicating the playbook from his time leading the pizza chain. Cil will be replaced by Joshua Kobza, who has been with Restaurant Brands as both COO and CFO over the past 10 years. We see no reason to change our Standard Capital Allocation Rating in the immediate term.

RBI’s fourth-quarter results were effectively in line with our expectations, with $1.69 billion in sales and $0.72 in adjusted EPS lining up closely with our $1.67 billion and $0.73 estimates, respectively. Strength was particularly notable in the Popeyes and Tim Hortons brands; the former posted strong 10.4% unit growth on the back of a handful of international development agreements, while the latter enjoyed 11% same-store sales growth in Canada (8.8% over pre-COVID-19 levels), suggesting that segment turnaround efforts continue to bear fruit. As we digest results, we see little that would affect our $65/CAD 88 fair value estimate.

With little to glean from management commentary regarding 2023 expectations, we continue to expect low-single-digit top-line growth (3%) and mid-single-digit operating profit growth (5.6%) in the year to come. With elevated food cost inflation and consumers already spending an outsize share of disposable income on food away from home, we expect a much tougher pricing and traffic environment industrywide in the year to come, suggesting that recapturing margin may take multiple years.