Restaurant Brands International Inc. (QSR Quick QuoteQSR - Free Report) is likely to benefit from strong comps growth, menu innovation and Tim Hortons business. Also, the focus on strategic acquisitions bodes well. However, elevated expenses and general softening in the consumer environment are a concern.

What Makes the QSR Stock Attractive?

Restaurant Brands continues to impress investors with solid comps growth. In the second-quarter 2024, the company’s consolidated comparable sales were 1.9% compared with 9.6% reported in the prior-year quarter. Comps in Tim Hortons and Popeyes were 4.6% and 0.5% compared with 11.8% and 4.4%, respectively, reported in the prior-year quarter. The upside was driven by the strengthening of core offerings and enhanced restaurant operations.

The company has taken steps to position itself for long-term success by completing two significant acquisitions: Carrols (a large Burger King franchisee in the United States) and Popeyes China. These acquisitions are strategically designed to strengthen QSR’s brand positioning in the United States and to capture the rapidly growing Chinese fast-food market. They offer potential for long-term growth as well. QSR plans to franchise Carrols' 600 restaurants after remodeling them, opening the door for more efficient operations and profitability.

QSR’s commitment to innovation in the digital space positions it well for future growth. The focus on digital platforms not only increases convenience for customers but also enhances efficiency and reduces operating costs for franchisees. The company is also leveraging innovation in its menu offerings. Tim Hortons’ introduction of new products like flatbread pizzas and Popeyes’ expansion of its wings platform are initiatives placed in the right direction. These menu innovations are designed to drive traffic during traditionally slower periods and offer more family-oriented dining options.

The company focuses on Tim Hortons's positioning in Canada to drive growth. During the second quarter of 2024, Tim in Canada achieved a 4.9% increase in comparable sales, outperforming the broader industry. Growth across each of its breakfast, lunch and coffee shares, supported by new products, is driving incremental sales at Tim Hortons restaurants. Coming to modernization, the company has added a new order and pickup channel for its various restaurant types. These include developing a walk-up order window, a dedicated curbside pickup area and a drive-through conveyor system. The company remains optimistic in this regard and expects to roll out to more restaurants in the upcoming periods.

Factors Marring Growth of QSR Stock

Restaurant Brands, which shares space with BJ's Restaurants, Inc. (BJRI Quick QuoteBJRI - Free Report) , The Cheesecake Factory Incorporated (CAKE Quick QuoteCAKE - Free Report) and Yum China Holdings, Inc. (YUMC Quick QuoteYUMC - Free Report) in the Zacks Retail - Restaurants industry, has been facing an uncertain macroeconomic environment.

In the second quarter of 2024, the company faced adverse effects on its performance, owing to the softer consumer backdrop in China, deceleration in pricing in markets in Western Europe and the repercussions of the conflict in the Middle East. Looking ahead, the company approaches this situation with caution.

Restaurant Brands has been continuously shouldering increased expenses, which have been detrimental to margins. In the second-quarter 2024, total operating costs and expenses were $1,417 million, compared with $1,221 million reported in the prior-year quarter. During the quarter, company restaurant expenses increased to $286 million from $61 million reported in the year-ago quarter. The upside was driven by increases in company restaurant expenses due to restaurant acquisitions from franchisees in 2023 and 2024, including the Carrols Acquisition.

For 2024, the Burger King commodity basket is anticipated to see low single-digit inflation, driven by beef, along with some other items. Labor costs are also expected to experience low single-digit inflation, similar to trends across the industry.

A Brief Review of the Other Stocks

BJ's Restaurants is benefiting from productivity and margin enhancement initiatives and operational excellence across its restaurants. Also, the company’s expansion, remodeling and digital initiatives are encouraging. As of the second-quarter fiscal 2024, the company completed 19 remodelings and expects to complete approximately five more by the 2024 end. In the long term, it aims to achieve a 5% net unit growth, with comparable restaurant sales in the low to mid-single-digits.

Cheesecake Factory is gaining from strong demand and sales performance of new restaurant openings. Improvements in food efficiency, labor productivity and wage management are added benefits. Furthermore, expansion efforts, rewards programs, menu innovation and digitalization are encouraging. We believe that a boost in customer count, coupled with targeted off-premise marketing, is likely to drive growth in the upcoming periods.

Yum China is benefiting from robust total system sales growth, attributable to net new unit contributions. Moreover, its focus on value-for-money and innovative new products, automation and AI accompanied by favorable pricing and lower delivery fees. bodes well. Also, its expansion initiatives, loyalty program and long-term growth plans are encouraging. For 2024, the company expects to open approximately 1,500 to 1,700 net new stores.