Eduardo Lima/The Canadian Press
Sales at both Tim Hortons and Burger King slowed in the second quarter as other fast-food and café chains also grappled with sluggish business amid political uncertainties, terrorist threats and stiffer competition.
Restaurant Brands International Inc., the parent company of Tim Hortons and Burger King, said on Thursday that even while its profit jumped in the quarter, sales at existing stores – a key retail measure – slowed from earlier in the year and from the previous year.
"We did see things slow down a bit in the second quarter," Daniel Schwartz, chief executive officer at RBI, based in Oakville, Ont., said in an interview. "We're still very confident in the strategy."
Over the past few weeks, fast-food chains have called out weaker consumer sentiment amid unsettling political and economic times. Now executives at Tim Hortons and Burger King are signalling a similar sluggishness as the company looks to expand globally.
Executives at Starbucks, McDonald's, Dunkin' Brands, which owns Dunkin' Donuts and Baskin-Robbins, and YUM Brands (KFC, Pizza Hut and Taco Bell) have pointed to consumers going into something of a funk in the quarter. Howard Schultz, chairman and CEO of Starbucks, said last month it saw a "profound weakening in consumer confidence."
Still, RBI's Mr. Schwartz said on Thursday it doesn't like to get caught up in quarterly macro-economic and political trends. He said the company is continuing to push forward with global growth after it signed its first international franchise agreement to take Tim Hortons to the Philippines.
And he said Tim Hortons's business in Canada got a boost late in the quarter – in June – when it introduced potato wedges and salads to give customers new side-menu items to purchase along with their main lunch sandwiches. It also launched some iced beverages.
RBI said its profit for common shareholders soared to $90.9-million (U.S.) or 38 cents a share in the three months ended June 30, from $11-million or 5 cents an RBI share in the second quarter of 2015. Revenue stayed about the same at $1.04-billion, including $759.8-million from Tim Hortons and $280.4-million from Burger King.
But same-store sales at existing outlets, which excludes the effects of annual store openings and closings, rose just 2.7 per cent at Tim Hortons compared with 5.5 per cent a year earlier. Those sales inched up 0.6 per cent at Burger King in the latest quarter, compared with a 6.7-per-cent increase the previous year.
At Tim Hortons, same-store sales rose 2.3 per cent in Canada and 5.9 per cent in the United States, which is a small portion of the Tim Hortons business. Mr. Schwartz noted that the company has a catch-up job to do in the U.S., where it has signed four major franchise deals aimed at bolstering that business.
Its strategy overall is to roll out fewer but more impactful menu items, such as grilled hot dogs at Burger King, he said.
The company said revenues were pinched by currency shifts and would have been higher than last year if foreign exchange rates were constant. Last year's profit was reduced by one-time costs associated with RBI's acquisition of the Tim Hortons restaurant chain.
Excluding those and other items, RBI's adjusted net income was $192.4-million or 41 cents a share, up from $141.0-million or 30 cents a share a year earlier.
Revenue was in line with analyst estimates but profit was above expectations. Analysts had estimated 31 cents a share of net income and 34 cents a share of adjusted earnings.
Mr. Schwartz said that when RBI was created in late 2014 with the Tim Hortons takeover, the company was determined to expand Tim Hortons globally, borrowing a page from the playbook of Burger King. The company is controlled by Brazilian-based investment firm 3G Capital, which is known for its prowess in cutting costs and running efficient operations. It has slashed expenses at its other acquisitions, such as Heinz and Kraft Foods.
"We have a strategy we developed and we like to stick to it," Mr. Schwartz said. "Despite some of the industry softness, we're still able to grow our business."
With files from The Canadian Press