Restaurant Brands (NYSE:QSR) Misses Q3 Revenue Estimates

Max Juang /
2023/11/03 6:37 am EDT

Fast-food company Restaurant Brands International (NYSE:QSR) fell short of analysts' expectations in Q3 FY2023, with revenue up 6.43% year on year to $1.84 billion. Turning to EPS, Restaurant Brands made a non-GAAP profit of $0.90 per share, down from its profit of $0.96 per share in the same quarter last year.

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Restaurant Brands (QSR) Q3 FY2023 Highlights:

  • Revenue: $1.84 billion vs analyst estimates of $1.87 billion (1.67% miss)
  • EPS (non-GAAP): $0.90 vs analyst estimates of $0.85 (5.84% beat)
  • Gross Margin (GAAP): 41.5%, up from 40.4% in the same quarter last year
  • Same-Store Sales were up 7% year on year (slight miss)
  • Store Locations: 30,375 at quarter end, increasing by 407 over the last 12 months

"During 2022 and year-to-date 2023, there were increases in commodity, labor, and energy costs partially due to the macroeconomic impact of both the war in Ukraine and COVID-19. This has resulted in increases in inflation, foreign exchange volatility and rising interest rates which may be exacerbated by the conflict in the Middle East and could have an adverse impact on our business and results of operations if we and our franchisees are not able to adjust prices sufficiently to offset the effect of cost increases without negatively impacting consumer demand."

Formed through a strategic merger, Restaurant Brands International (NYSE:QSR) is a multinational corporation that owns three iconic fast-food chains: Burger King, Tim Hortons, and Popeyes.

Traditional Fast Food

Traditional fast-food restaurants are renowned for their speed and convenience, boasting menus filled with familiar and budget-friendly items. Their reputations for on-the-go consumption make them favored destinations for individuals and families needing a quick meal. This class of restaurants, however, is fighting the perception that their meals are unhealthy and made with inferior ingredients, a battle that's especially relevant today given the consumers increasing focus on health and wellness.

Sales Growth

Restaurant Brands is one of the most widely recognized restaurant chains in the world and benefits from brand equity, giving it customer loyalty and more influence over purchasing decisions.

As you can see below, the company's annualized revenue growth rate of 5.76% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was mediocre, but to its credit, it opened new restaurants and grew sales at existing, established dining locations.

Restaurant Brands Total Revenue

This quarter, Restaurant Brands's revenue grew 6.43% year on year to $1.84 billion, missing analysts' expectations. Looking ahead, the analysts covering the company expect sales to grow 6.63% over the next 12 months.

While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Number of Stores

When a chain like Restaurant Brands is opening new restaurants, it usually means it's investing for growth because there's healthy demand for its meals and there are markets where the concept has few or no locations. Since last year, Restaurant Brands's restaurant count increased by 407, or 1.36%, to 30,375 locations in the most recently reported quarter.

Restaurant Brands Operating Retail Locations

Taking a step back, Restaurant Brands has rapidly opened new restaurants over the last eight quarters, averaging 5.02% annual increases in new locations. This growth is much higher than other restaurant businesses. Analyzing a restaurant's location growth is important because expansion means Restaurant Brands has more opportunities to feed customers and generate sales.

Same-Store Sales

A company's same-store sales growth shows the year-on-year change in sales for its restaurants that have been open for at least a year, give or take. This is a key performance indicator because it measures organic growth and demand.

Restaurant Brands's demand within its existing restaurants has generally risen over the last two years but lagged behind the broader sector. On average, the company's same-store sales have grown by 8.7% year on year. With positive same-store sales growth amid an increasing number of restaurants, Restaurant Brands is reaching more diners and growing sales.

Restaurant Brands Year On Year Same Store Sales Growth

In the latest quarter, Restaurant Brands's same-store sales rose 7% year on year. This growth was a deceleration from the 9% year-on-year increase it posted 12 months ago, showing the business is still performing well but lost a bit of steam.

Key Takeaways from Restaurant Brands's Q3 Results

Sporting a market capitalization of $22.1 billion, more than $1.31 billion in cash on hand, and positive free cash flow over the last 12 months, we believe that Restaurant Brands is attractively positioned to invest in growth.

It was encouraging to see Restaurant Brands slightly top analysts' EPS expectations this quarter. That really stood out as a positive in these results. On the other hand, its same store sales slightly missed analysts' expectations, leading to revenue below Wall Street Consensus. Overall, the results could have been better. The stock is flat after reporting and currently trades at $69.8 per share.

Restaurant Brands may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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The author has no position in any of the stocks mentioned in this report.