Restaurant Brands International: Navigating Headwinds with Strategic Resilience

Restaurant Brands International (QSR) delivered a mixed first-quarter 2025 report, underscoring the challenges of operating in a volatile global economy. Despite soft sales and margin pressures, the company's long-term strategies—particularly its Burger King turnaround, Tim Hortons operational improvements, and refranchising progress—suggest a path to sustainable growth. Here's why investors should consider QSR as a resilient play for the long term, even amid near-term turbulence.

Q1 2025 Results: A Crossroads of Progress and Pressure

QSR's Q1 earnings reflected a tug-of-war between strategic execution and macroeconomic headwinds. While consolidated system-wide sales grew 2.8%, global comparable sales dipped to 0.1% (adjusted to 1% excluding Leap Day effects). Income from operations fell 20% to $435 million, driven by higher costs and refranchising-related expenses. However, Adjusted Operating Income (AOI) held steady at $539 million, reaffirming management's focus on cash flow resilience.

The Burger King segment faced headwinds, with comparable sales down 1.3%, but the company is doubling down on its “Reclaim the Flame” initiative. A $143 million investment (out of a $700 million plan through 2028) has already begun modernizing restaurants and boosting marketing—critical for reversing the brand's slide in the U.S. market. Meanwhile, Tim Hortons saw supply chain cost pressures, but margin improvements (excluding FX impacts) signaled operational discipline.

Strategic Initiatives: The Path to Long-Term Value

1. Burger King's Turnaround:
   The $700 million “Reclaim the Flame” plan targets restaurant upgrades, digital innovation, and marketing spend to reignite U.S. sales. Early investments are laying groundwork for a rebound, though results may take time. The refranchising of Carrols-operated restaurants—a move to reduce company-owned locations—will further align the brand with its franchise-led model, boosting margins over time.

2. Tim Hortons' Operational Focus:
   While Canadian sales stagnated, TH's supply chain efficiency and cost management (excluding FX) offer hope. The brand's international expansion, particularly in Asia, remains a growth lever, though FX volatility (notably the Canadian dollar) continues to weigh on margins.

3. Refranchising Progress:
   Refranchising Carrols Burger King locations and seeking partners for Popeyes China and Firehouse Subs Brazil aligns with RBI's goal of maintaining a 95%+ franchised business model. This reduces operational costs and shifts risk to franchisees, a key margin driver. The Restaurant Holdings segment, which houses company-operated stores, reported its first positive AOI in Q1 ($7 million), hinting at successful integration of acquired assets.

Risks: FX, U.S. Sales, and Execution

• Foreign Exchange (FX): TH's margins were hit by a $12 million FX drag, and the International segment's AOI fell 2.8% due to currency fluctuations. With 30% of revenue tied to Canada and 40% to international markets, RBI remains exposed to volatility.
• Slowing U.S. Sales: BK and Popeyes' U.S. comparable sales fell 1.3% and 4.0%, respectively, raising concerns about consumer spending fatigue.
• Execution Risks: The “Reclaim the Flame” rollout and refranchising timelines could face delays, squeezing near-term earnings.

Valuation: A Buy at Current Levels?

As of June 5, 2025, QSR's stock trades at $71.39, with a 3.5% dividend yield and a P/E ratio of 22.45. Analysts' average 12-month target of $75.91 suggests 6.4% upside, while institutional ownership (82.3%) signals confidence.

The stock's recent dip below $72 presents an entry point, especially if Q2 sales rebound. Historically, buying QSR five days before earnings and holding for a month has delivered an average return of 3.8%, with a 65% hit rate, underscoring resilience during earnings events. Key catalysts include:
- Burger King's U.S. sales recovery post-rebranding.
- FX stabilization in key markets like Canada and Europe.
- Progress in refranchising Carrols locations, reducing operational drag.

Investment Thesis

QSR's near-term struggles are well-flagged, but its long-term roadmap—driven by refranchising, brand revitalization, and disciplined cost management—aligns with its 8%+ organic AOI target through 2028. While risks like FX and U.S. consumer trends persist, the dividend yield and undervalued stock price make QSR a compelling buy for investors with a 3-5 year horizon.

Recommendation: Hold with a Buy bias. Monitor Q2 sales trends and refranchising progress. Consider adding to positions on dips below $70, with a long-term price target of $80–$85 by 2026.

In a world of economic uncertainty, Restaurant Brands' strategic bets on franchising and brand renewal position it to outlast the storm—and emerge stronger.