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    QSR
    Earnings call· Dec 2024(Q4 FY24)

    Restaurant Brands International Inc. QSR

    Feb 12, 2025 Source

    Executive summary

    Restaurant Brands International Q4 FY24 — Strong AOI Growth and Franchisee Profitability Improvements

    Restaurant Brands International delivered strong organic adjusted operating income growth in 2024, driven by robust performance at Tim Hortons and International segments, alongside strategic investments in franchisee profitability and restaurant modernization. While facing some macro and geopolitical headwinds, the company is focused on operational excellence, menu innovation, and unit expansion, particularly in high average restaurant sales markets, to achieve its long-term growth algorithm and 8%+ AOI growth in 2025.

    Highlights

    7

    • Achieved 9% organic adjusted operating income growth in FY24, exceeding the 8%+ long-term target.

    • Tim Hortons Canada delivered 4.3% comparable sales growth in FY24 and 2.5% in Q4, significantly outpacing peers and marking 15 consecutive quarters of positive traffic growth.

    • International comparable sales grew 3.3% in FY24 and 4.7% in Q4, with 6.1% net restaurant growth despite headwinds.

    • Popeyes U.S. secured commitment from 85% of franchisees to amend agreements, increasing ad rates and committing to remodels, supported by a $10.5 million corporate investment.

    • Burger King U.S. completed 370 remodels in 2024, reaching 51% modern image, with remodels delivering mid-teens year 1 sales uplift.

    • Firehouse Subs more than doubled net restaurant growth to over 6% in 2024, with a stronger development pipeline for 2025.

    • Franchisee 4-wall EBITDA at Tims Canada exceeded CAD 305,000 (up from CAD 280,000) and Popeyes U.S. increased to over $255,000 (up from $245,000) in 2024.

    Concerns

    5

    • Burger King China experienced temporary headwinds from geopolitical pressures and net closures, leading to a potential $19 million year-over-year impact to 2025 AOI if the situation remains unchanged.

    • Firehouse Subs 4-wall EBITDA saw a step back to approximately $90,000 in 2024, largely due to broader sub sandwich category sales dynamics.

    • Q1 FY25 is anticipated to be the lowest absolute same-store sales and EPS quarter due to typical seasonality, tougher comparable sales lap, and a 100-basis-point leap day benefit in Q1 FY24.

    • Anticipate a nearly $15 million FX headwind to Q1 FY25 AOI and around $45 million for the full year based on current rates.

    • Restaurant Holdings segment (Carrols) expects 150-200 basis points of restaurant-level EBITDA margin compression in Q1 FY25 due to seasonality, increased ad fund levy, and higher commodity costs.

    Guidance & targets

    9
    CategoryTargetConfidence
    Organic adjusted operating income growth
    8%-plus
    high materiality
    High
    Net restaurant growth
    5%
    medium materiality
    Medium
    Burger King U.S. modern image
    85% plus
    high materiality
    High
    Popeyes U.S. modern image
    Most of the system
    medium materiality
    High
    Popeyes U.S. technology upgrades rollout
    All locations to feature cloud-based POS, digital drop charts, sticky label printers, order-ready boards, kiosks and upgraded back-of-house equipment
    medium materiality
    High
    Adjusted effective tax rate
    18% to 19% range
    low materiality
    Medium
    Adjusted net interest expense
    $500 million to $520 million range
    medium materiality
    High
    Total CapEx, TI and remodel incentives
    $400 million and $450 million
    high materiality
    High
    Tims supply chain gross profit margin
    around 19%
    medium materiality
    High

    Segment performance

    5
    SegmentRevenueYoYQoQMargin
    Tim Hortons Canada
    FY24 comparable sales significantly outpaced major peers (who declined 0.5% on average). Q4 comparable sales outperformed the industry (which was relatively flat). Growth primarily driven by traffic. Innovations include freshly cracked Canadian scrambled eggs and Flatbread Pizzas. Testing new espresso machines in ~100 restaurants. Expecting positive net unit growth in 2025.
    4-wall EBITDA: CAD 305,000Traffic growth: 15th consecutive quarter of positive growthMorning daypart sales: outpaced overall salesBreakfast sandwiches and wraps growth: high single-digitPM main foods growth: over 5%Cold beverages growth: over 6%Average weekday morning drive-through times: 28 secondsLocal charities raised: CAD 44 millionHoliday Smile Cookie raised: CAD 11 millionTraffic growth FY24: nearly 3%
    		—4.3%2.5%over $1 billion
    International
    FY24 comparable sales. Q4 comparable sales. FY24 organic AOI growth. Solid growth in Australia, Spain, U.K., and Brazil. Headwinds from geopolitical pressures and net closures in BK China. Focus on highest ARS markets. Popeyes expanded to 15 new markets since 2017.
    Restaurants: over 15,600System-wide sales: over $18 billionNet restaurant growth: 6.1%Burger King France ARS: $3.8 millionPopeyes U.K. ARS: nearly $3 millionPopeyes U.K. units: over 65Popeyes U.K. growth YoY: nearly 75%Burger King Spain ARS: $1.6 millionBurger King Italy ARS: $1.6 millionHungry Jack's Australia ARS: nearly $2.6 millionHungry Jack's Australia restaurants: 471Popeyes International restaurants: nearly 1,500Popeyes International system-wide sales: nearly $1.3 billionPopeyes International system-wide sales growth: 47%
    		—3.3%4.7%over 7%
    Burger King U.S. and Canada
    FY24 comparable sales. Q4 U.S. comparable sales. Q4 U.S. outperformed major burger QSR peers. Executing Reclaim the Flame plan. Focus on operational excellence, menu innovation (Wednesday's Whopper, Million Dollar Whopper, Melts), and modern image. Refranchising select Carrols locations in 2025.
    4-wall EBITDA: $205,000A operators 4-wall EBITDA: over $275,000Remodels completed in 2024: 370Carrols remodels completed in 2024: 60Modern image: 51%Remodel sales uplift: mid-teens year 1Modern image target: 85% plus by 2028Average restaurant sales: $1.6 million
    		—1%1.5%—
    Popeyes U.S. and Canada
    FY24 system-wide sales. Softer top-line results, but $6 Big Box value meal and 3 for $5 offering resonated in Q4. Easy to Love plan with increased media investment and unified restaurant image. Easy to Run initiative rolling out system-wide by end of 2026 (cloud-based POS, digital drop charts, etc.). Heightened focus on operational standards led to slight slowdown in development pace.
    4-wall EBITDA: just over $255,000Net restaurants growth: 3.7%Franchise agreement amendment commitment: 85% of restaurantsAd rates increase: 4.5% to 5% in year 1, up to 5.5% by year 3Royalty credit for participating franchisees: $4,000 per restaurantCorporate investment for royalty credit: $10.5 millionModern image target: most of system by 2030New restaurants opened in 2024: over 160Average restaurant sales: over $1.9 million
    		—4.2%——
    Firehouse Subs U.S. and Canada
    FY24 comparable sales. Q4 comparable sales. Q4 saw 5 points of sequential improvement. Driven by Hot Sauce Bar, Thanksgiving and French Dip subs, and strong Canada performance. Accelerated net restaurant growth in 2024, with a stronger development pipeline for 2025.
    4-wall EBITDA: approximately $90,000Net restaurant growth: over 6%Net restaurant growth last year: 3%Average restaurant sales: nearly $1 million
    		—declined about 1%flat—

    Operational metrics

    34
    Comparable sales growth
    2.3%
    FY24

    Outperformed most global QSR peers.

    Net restaurants growth
    3.4%
    FY24

    Affected by geopolitical pressures and Burger King China.

    System-wide sales growth
    5.4%
    FY24

    Excludes Restaurant Holdings segment.

    Organic adjusted operating income growth
    9%
    FY24

    Excludes Restaurant Holdings segment.

    Adjusted EPS
    $3.34up from $3.24 last year
    FY24

    Organic growth of 4.4%. 2023 adjusted EPS included a $0.12 per share net benefit from discrete noncash tax items.

    Adjusted EPS growth
    4.4%
    FY24

    Excludes Restaurant Holdings segment.

    Adjusted effective tax rate
    18%
    FY24

    For the full year.

    Adjusted net interest expense
    $554 million
    FY24

    Slightly better than prior guidance due to FX risk management.

    Liquidity
    $2.6 billion
    End of FY24

    Strong position.

    Net leverage
    4.5x
    End of FY24

    Met mid-4x net leverage target.

    Capital returned to shareholders
    over $1 billion
    FY24

    Via a healthy and growing dividend.

    Segment G&A
    $632 milliondecreased by $15 million in Q4
    FY24

    Primarily due to lower incentive-based compensation and benefits from cost initiatives.

    Tims supply chain organic gross profit dollars increase
    $20 million
    Q4 FY24

    Strong performance.

    Tims supply chain gross profit margin
    19.5%
    FY24

    Slightly ahead of guidance of around 19%.

    Net bad debt expenses
    $20 million
    Q4 FY24

    Primarily related to Burger King China.

    Q4 Adjusted EPS growth
    11%YoY
    Q4 FY24

    Strong growth.

    Royalty and franchise fee revenue from BK China
    $37 million
    FY24

    Before agreement termination.

    AOI from BK China
    $19 million
    FY24

    Reflected in AOI before agreement termination.

    Bad debt expense for BK China
    $18 million
    Q4 FY24

    For revenue recognized but not collected after agreement termination in October.

    Potential year-over-year AOI impact from BK China
    $19 million
    FY25

    If current situation (no resolution) continues.

    Potential year-over-year EPS impact from BK China
    $0.03
    FY25

    If current situation (no resolution) continues.

    Restaurant-level EBITDA margin compression
    150 to 200 bpscompared to Q4 margin of 12.3%
    Q1 FY25

    Expected for the Restaurant Holdings segment.

    Segment G&A for Restaurant Holdings
    $100 millionup from $59 million in 2024
    FY25

    Incorporates full year of BK Carrols and build-out for Popeyes China and Firehouse Brazil.

    Annual AOI impact per $0.01 change in USD-CAD
    $8 million
    Annual

    FX exposure sensitivity.

    Annual AOI impact per $0.01 change in USD-Euro
    $4 million
    Annual

    FX exposure sensitivity.

    FX headwind to AOI
    $15 million
    Q1 FY25

    Based on today's rates, assuming constant rates.

    FX headwind to AOI
    $45 million
    FY25

    Based on today's rates, assuming constant rates.

    Annual AOI impact from FX
    $38 million
    FY24 and FY23

    Historical impact.

    Leap day benefit to comparable sales
    100 bps
    Q1 FY24

    Contributed to tough comparable sales lap in Q1 FY25.

    Burger King U.S. ad fund levy
    4.5%up from 4%
    Beginning 2025 through at least 2026

    Increased after achieving 2024 Fuel the Flame franchisee profitability target.

    Burger King corporate advertising fund contribution
    $58 million
    FY24

    Will fall off in 2025, helping offset other drags.

    Incentive-based compensation reset
    $20 million
    FY25

    Stems from a lower bonus payout in 2024.

    Share repurchases
    $0.5 billion
    FY23

    No repurchases in FY24; deleveraging is current priority.

    Burger King U.S. remodels planned
    around 400up from 370 in 2024
    FY25

    To maintain pace towards 85%+ modern image target by 2028.

    Industry KPIs

    3
    MetricValueDetails
    Comparable sales comps2.3%%
    Global system wide sales5.4%%
    Net unit growth development pipeline3.4%%

    Product announcements

    10
    ProductTypeDetails
    Flatbread Pizzaslaunch
    Freshly cracked Canadian scrambled eggslaunch
    Wednesday's Whopper (Addams Family menu)launch
    Million Dollar Whopper campaignlaunch
    Melts platformlaunch
    $5 Duos and $7 Trioslaunch
    $6 Big Box value meallaunch
    Protein-only 3 for $5 offeringlaunch
    Hot Sauce Barlaunch
    Thanksgiving and French Dip subslaunch

    Deals & partnerships

    4
    Carrols Restaurant GroupAcquisition of Carrols Restaurant Group, which comprises Burger King restaurants.

    Closed on May 16, 2024.

    Popeyes ChinaAcquisition of Popeyes China business.

    Closed on June 28, 2024.

    Popeyes U.S. franchiseesAmendment to franchise agreements to drive sales through increased media investment and unified restaurant image.$10.5 million3 years

    Roughly 85% of Popeyes restaurants committed. Participating franchisees receive a $4,000 royalty credit per restaurant.

    Tim Foley and John KaufmanAcquisition of 30 additional Burger King restaurants from an underperforming franchisee.

    Acquired 30 more restaurants in the Carolina region.

    Risks & headwinds

    6
    Geopolitical pressures and net closures in Burger King ChinaFY24, FY25

    100-basis-point year-over-year headwind to net restaurant growth in 2024. Potential $19 million year-over-year impact to 2025 AOI or $0.03 on an EPS basis if current situation continues.

    Mitigation: Active discussions for a resolution; expect an update soon.

    Broader sub sandwich category sales dynamicsQ3 and Q4 FY24

    Firehouse Subs 4-wall EBITDA saw a step back to approximately $90,000 in 2024.

    Mitigation: Successful launch of Hot Sauce Bar and new menu innovations (Thanksgiving and French Dip subs) led to 5 points of sequential improvement in Q4.

    FX translation riskQ1 FY25, FY25

    Nearly $15 million FX headwind to Q1 FY25 AOI and around $45 million for the full year FY25, based on current rates.

    Mitigation: Proactive FX risk management through cross-currency swaps (upsized USD-CAD swap to $5.7 billion, extended maturities through 2030).

    Q1 seasonality and tough comparable sales lapQ1 FY25

    Q1 FY25 anticipated to be the lowest absolute same-store sales and EPS quarter. Q1 FY24 included a roughly 100-basis-point leap day benefit.

    Mitigation: Year-over-year comparisons expected to ease into the summer months.

    Restaurant Holdings (Carrols) EBITDA margin compressionQ1 FY25

    150 to 200 basis points of restaurant-level EBITDA margin compression in Q1 FY25 compared to Q4 FY24 margin of 12.3%.

    Mitigation: Driven by normal Q1 seasonality, stepped-up ad fund levy, and higher commodity costs (beef). Company plans to refranchise select locations.

    Increased commodity costsFY24, Q1 FY25

    Inflationary environment on the commodity cost side in the U.S. (Burger King), primarily related to beef for Carrols.

    Mitigation: Tims uses forward-buying strategy for coffee (6-18 months) to smooth volatility; expects 19% supply chain margin for FY25.

    What to watch in Q1 FY25

    5

    Burger King China resolution

    Relatively soon
    CurrentActive discussions, agreement terminated in October 2024
    TargetResolution announced, potential implications on NRG targets updated

    Why it matters

    Resolution will clarify the 100 bps headwind to NRG and potential $19M impact to 2025 AOI, affecting overall growth targets.

    While we don't have an update on BK China today, we're optimistic we'll have a resolution relatively soon, and Sami will provide you with a few financial details on the business shortly.

    Q&A highlights

    5

    What same-store sales range is assumed for the 8%+ AOI growth target in 2025, and are there additional cost efficiencies?

    Sami Siddiqui stated that the 8%+ AOI growth target for 2025 is firm, but the company will not provide specific top-line components. He noted that the algorithm is a 5-year outlook, and some years will be on/off target. He expressed confidence in marketing programs and operational improvements to deliver the AOI growth.

    “We're not going to get into the specifics of the top line components of what that looks like on a year-to-year basis. But we do feel good about the AOI bottom line guidance that we provided of 8%-plus growth this year.”

    asked by Brian Bittner · answered by Sami Siddiqui

    2 min read6 chapters

    Detailed Narrative

    01

    Franchisee Profitability & Operational Excellence

    RBI emphasized its commitment to enhancing franchisee profitability, citing improvements in 4-wall EBITDA for Tims Canada (CAD 305k, up from CAD 280k) and Popeyes U.S. ($255k, up from $245k) in 2024. The company is actively transitioning underperforming franchisees to stronger operators, exemplified by the success of Tim Foley and John Kaufman at Burger King, who more than doubled their 4-wall EBITDA to $325k. Operational excellence, including improved drive-through times at Tims Canada (28 seconds), is a key focus across all brands, contributing to sales and traffic momentum.

    02

    Restaurant Modernization & Development

    Significant progress was made in modernizing Burger King U.S. restaurants, with 370 remodels completed in 2024, bringing 51% of the system to modern image. These remodels deliver mid-teens year 1 sales uplift, net of control. Popeyes U.S. franchisees committed to a remodel schedule aiming for a modern image by 2030, supported by a $10.5 million corporate investment. Firehouse Subs achieved over 6% net restaurant growth in 2024, up from 3% last year, with a stronger development pipeline for 2025.

    03

    Strategic Menu Innovation & Value

    Brands continued to drive sales through menu innovation and compelling value offerings. Burger King U.S. leveraged the Whopper and flame-grilling with campaigns like Wednesday's Whopper and the Million Dollar Whopper, alongside new $5 Duos and $7 Trios. Tim Hortons saw high single-digit growth in breakfast sandwiches and over 5% growth in PM main foods, fueled by Flatbread Pizzas and cold beverages. Value offerings like Popeyes' $6 Big Box meal and protein-only 3 for $5 resonated with guests in Q4.

    04

    International Growth & Market Focus

    The International segment continued to be a strong growth engine, with 6.1% net restaurant growth and 10% system-wide sales growth in 2024. The focus is on high Average Restaurant Sales (ARS) markets like France ($3.8M ARS), Australia ($2.6M ARS), and the U.K. ($3M ARS for Popeyes). Popeyes International grew system-wide sales by 47% in 2024, expanding to 15 new markets since 2017 and growing from 500 to nearly 1,500 international restaurants.

    05

    Burger King China & Restaurant Holdings

    The company is awaiting a resolution for Burger King China, which caused a 100-basis-point headwind to NRG in 2024 and a potential $19 million impact to 2025 AOI. The newly introduced Restaurant Holdings segment, comprising Carrols and Popeyes China, is not intended for permanent ownership, with plans to refranchise Carrols units ahead of schedule. This segment is expected to see 150-200 basis points of Q1 FY25 EBITDA margin compression and increased G&A to $100 million in FY25.

    06

    Financial Outlook & Capital Allocation

    RBI delivered 9% organic adjusted operating income growth in 2024 and targets 8%+ for 2025. The company generated $1.5 billion in free cash flow, ending 2024 with $2.6 billion liquidity and 4.5x net leverage. Capital allocation priorities include high-ROI investments in the business, returning capital via a healthy and growing dividend, and continued deleveraging. CapEx is guided at $400-$450 million for 2025, primarily for remodels and development, an increase from over $330 million in 2024.

    AI-generated summary of the company’s earnings call. Not investment advice.