Tim Hortons parent reports Q4 profit and revenue up but warns of ‘softening’ in China

TORONTO — Restaurant Brands International Inc.’s fourth-quarter income more than doubled from a year ago, but the brand is warning of “softening” in China, where it says it and its partners will need to spend more if the company’s stable of brands is to keep growing.

The Tim Hortons, Burger King, Popeyes Louisiana Kitchen and Firehouse Subs parent company, which keeps its books in U.S. dollars, revealed Tuesday that its net income totalled US$726 million or $1.60 per diluted share, up from US$336 million or 74 cents US per diluted share during the last three months of 2022.

Revenue totalled US$1.82 billion, up from US$1.69 billion in the same quarter a year earlier.

The Toronto-based company attributed the increases to a larger income tax benefit and higher income from operations, partially offset by higher interest costs.

But executives from the company also used the earnings release to temper expectations, especially around China. RBI had once expected net restaurant growth — a metric that takes into account locations both opening and closing — to climb by at least five per cent between 2023 and 2024.  

“A key factor to delivering this level of growth was our expectation that our development in China would accelerate in 2024 off of 2023 levels,” RBI chief executive Joshua Kobza told analysts.

“We now believe that outlook is less certain and have updated our outlook to reflect a lower level of net unit additions in China this year.”

The company expects its consolidated global net restaurant growth in the mid-four per cent range this year before the figure accelerates in 2025.

The prediction came as consumer spending in China has been weak in recent months, contributing to a slowing economy.

But that’s not deterring RBI from the market.

“We have a strong belief in China as an attractive growth market for our brands,” Kobza said.

“Given the incredible geographic scope and population of the market, success there requires a serious long-term capital commitment from our partners, a long-term time horizon and a commitment to grow the brand in the face of tough competition.”

Burger King China has almost 1,600 restaurants in China and is profitable, but “we’re going to need to grow further to compete effectively with the largest players in this market,” he added. 

TH International Limited, which operates Tim Hortons coffee shops and Popeyes restaurants in China, will need to “commit more capital to grow that business in an exciting way and we believe it’s critical that they do,” he said.

“We’re working with them both to lay the foundations needed to meet the growth aspirations that we know we’re capable of.”

Tims said in 2018 that it planned to open 1,500 stores in Asia over the next decade. 

However, the brand is still finding its footing. While it has some full-scale locations, hundreds of the other Tims restaurants are smaller locations, which don’t get counted in RBI’s net restaurant growth.

“The partner there has seen those as an opportunity to very quickly build the brand in a dense way,” chief corporate officer Duncan Fulton said in an interview.

“So that’s something I think we and they are going to be looking at over the course of the next little bit.”

Tims will also spend 2024 marking its 60th anniversary, an occasion it is using to bring back retro doughnuts — the Dutchie, sugar twist, blueberry fritter and walnut crunch. So far, the walnut crunch is the bestseller among the four.

As it celebrates its milestone year, it will be pursuing more afternoon and evening sales at the brand, which typically performs best in the early morning or during coffee breaks. 

Tims says its p.m. food sales growth across the fourth quarter grew by seven per cent from last year, giving the company a nine per cent share of the market.

Sales across that part of the day will face increased competition in the coming year as U.S. burger giant Shake Shack and sandwich brands Jersey Mike’s and Jimmy John’s enter the Canadian market.

Asked whether RBI is worried about such expansions, president of Tim Hortons Canada and U.S. Axel Schwan said, “we are really focused on the opportunities that we have as a brand here in Canada.”

This report by The Canadian Press was first published Feb. 13, 2024.

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Tara Deschamps, The Canadian Press