Restaurant Brands shares rise as Tim Hortons parent unveils plan for revamp

Restaurant Brands International Inc. announced a plan Tuesday for improving the customer experience and sales at its Tim Hortons operations, which were the weak spots during an otherwise strong first quarter for the company.

Tim Hortons saw comparable same-store sales growth a key industry metric measuring performance of stores that have been open a year or more fall 0.3 per cent in the company's first quarter. The brand suffered from intense competition, problems with its annual 'Roll Up the Rim' promotion and negative media coverage generated by a group of dissident franchise owners, RBI chief executive Daniel Schwartz told analysts.

Schwartz announced the new "Winning Together" plan, which he said would help improve profitability for the company's restaurant owners. He said the plan centres on improving the restaurant experience, product excellence and brand communications.

The initiative also includes more customer use of a Tim Hortons app, a new marketing campaign extolling the virtue of connecting with neighbours over a coffee and a $700 million initiative to renovate restaurants.

The strategy is intended to counter negative attention brought to the brand by dissident franchisees and position the company for long-term growth, Schwartz added.

"Needless to say, we're not pleased with the narrative in the media," he told analysts in a conference call.

"The environment is competitive and the fact that there's a tonne of negative media created by this group of franchisees is also hurting the guest perception."

Shares of the Restaurant Brands gained ground in the wake of the news, rising 4.3 per cent, or $2.98, to close at $72.04 on the Toronto Stock Exchange.

Although Schwartz didn't mention the GWNFA dissident group by name or indicate there has been a truce with its members, he stressed that an advisory board elected by franchise owners recently expressed support for RBI.

"We've made good progress on building a strong and a positive agenda with the restaurant owners," he said. "The relationships with the owners weren't where they needed to be but we have been making improvements."

In particular, he said "hundreds" of franchise owners had signed up to refurbish the interior and exterior of their restaurants with the "welcome image" that's part of RBI's plan for improving relationships with customers.

"We really want to work with our owners to accelerate the pace of renovations and the quality of the restaurant image in Canada," Schwartz said.

"We're really encouraged by the initial results that we've had, both quantitative and qualitative, in testing with our guests."

RBI's previously announced $700-million renovation plan to spruce up its restaurants is one of the factors in its feud with GWNFA, which claims to represent more than? half of all the franchisees.

The franchisees say that the company has effectively changed the rent and royalty structure by saddling franchisees with increasing costs and requiring them to renovate stores at their own expense.

The dissident franchisee group was quick to point out it believed the plan was ill-conceived and would cost individual restaurant owners about $450,000.

During the conference call, however, Schwartz said "we have managed to increase average franchise profitability in Canada by a significant amount since we first acquired Tim Hortons."

The company, which keeps its books in U.S. dollars, earned $147.8 million US or 59 cents per diluted share for the quarter ended March 31. That compared with a profit of $50.2 million US or 21 cents per diluted share a year ago. Revenue totalled $1.25 billion US,up from $1 billion US in the same quarter last year.

On an adjusted basis, Restaurant Brands, which also owns Burger King and Popeyes, says it earned 66 cents per share for the quarter, up from 36 cents per share a year ago.

Analysts on average had expected a profit of 56 cents per share, according to Thomson Reuters