Restaurant Brands International (QSR) reported Q3 earnings of $0.93 per share, missing analyst expectations of $0.95 by $0.02. Revenue came in at $2.29 billion, a 24.7% year-over-year increase but still below the $2.35 billion consensus. Despite the strong revenue growth, the slight EPS miss and revenue shortfall underscore the challenges the company faces in meeting elevated market expectations.
Shares of QSR are testing key support at the $66 level. This has been a key support level throughout 2024.
Consolidated comparable sales rose by only 0.3%, a deceleration from the 7% growth seen in the prior year, indicating flat performance across its established restaurant base. System-wide sales were $11.4 billion, slightly underperforming analyst forecasts. Same-store sales performance was mixed across brands, with Tim Hortons up 2.3%, Burger King down 0.7%, and Popeyes down 4%.
Among its core brands, Tim Hortons, primarily based in Canada, was a bright spot with 2.3% growth in comparable sales. Burger King and Popeyes, which have a strong U.S. presence, saw declines in comparable sales, likely due to higher U.S. inflation and changes in consumer spending. Firehouse Subs also struggled in the U.S. market, reflecting similar trends in consumer preference for value-based dining.
QSR’s restaurant count grew by 3.8% year-over-year, reaching 31,525 locations. The franchise model facilitates this rapid expansion, as franchisees primarily handle new openings. This approach enables QSR to expand its footprint with lower capital investment, but the impact on organic growth was limited as same-store sales remained flat, raising questions about demand in existing locations.
For 2024, QSR reaffirmed its expectations for adjusted interest expenses between $565 million and $575 million and capital expenditures around $300 million. Over the next five years, QSR targets average growth rates of 3%+ in comparable sales, 5%+ in net restaurant growth, and 8%+ in system-wide sales, with adjusted operating income expected to keep pace with system-wide sales growth.
QSR faced a significant decline in margins, with gross margin dropping from 41.5% to 34.8% and operating margin declining to 25.2% from 32.7%. The EBITDA margin also fell, down to 32.6% from 38% in the same quarter last year. The company attributed these declines to inflationary pressures, heightened labor costs, and competitive discounting, which affected profitability.
CEO Josh Kobza emphasized that in addition to value offerings, novel promotions, such as Burger King’s Addams Family-themed purple Whopper, are important for attracting customers. Kobza pointed out that discounts alone aren’t sufficient, and that unique, themed offerings could help reinvigorate customer interest. Popeyes' low-single-digit comparable sales growth early in Q4 reflects a slight rebound as value-focused offerings resonate with customers.
Following the earnings miss, QSR shares dropped 4.7% in pre-market trading. The stock has struggled this year, down approximately 10% in contrast to the S&P 500’s 20% gain. With increased costs and slower-than-expected growth in the U.S. market, QSR’s valuation may face further pressure if the company cannot reaccelerate same-store sales growth or improve margins.