Does a Struggling Tim Hortons Make Restaurant Brands International Inc. (TSX:QSR) a Strong Sell?

Restaurant Brands International Inc (TSX:QSR)(NYSE:QSR) stock is down year to date, but can it recover?

| More on:
question marks written reminders tickets

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn moresdf

Tim Hortons used to be a brand that Canadians were proud of, but recently the fast-food chain’s image has suffered. Not only has its reputation consumers fallen, but it has had public spats with franchisees as well. Most recently, news has come out that one of its Timbits and bagels contained a cancer-causing chemical that is used to kill weeds.

It has gone from bad to worse for the coffee chain, which has struggled to generate growth for parent company Restaurant Brands International Inc. (TSX:QSR)(NYSE:QSR). In its most recent quarter, Tim Hortons showed no growth in its existing stores, although that was still an improvement from last year, when it declined by 0.8%.

Opening more stores has helped grow its overall sales by more than 2%, but a lack of organic growth should be a big concern for Restaurant Brands and investors.

Should the company be focusing on expansion amid so many concerns at home?

One way Restaurant Brands is looking to solve the growth problem is by expanding Tim Hortons into new international markets, with China being the latest destination. Last year, it was announced that the coffee shop would be expanding into Spain.

While it’s good to grow a successful brand like Tim Hortons, I can’t help but wonder if it’s a good time to do so amid all of these problems. After all, this may simply multiply the severity of the problems and present even bigger ones in the process. The company could be sacrificing profits for the sake of sales.

The issues in its home market simply aren’t going away anytime soon, which could result in losses that more than offset any gains made across the ocean. Investors should keep a close eye on these developments, as we’re likely to see Restaurant Brands costs rise as the expansion gets underway, and it’ll be interesting to see how much sales growth is gained in return.

While we have seen Canadian brands find success in international markets, it’s always a risk that the expansion falls flat, which could compound the company’s current problems.

Takeaway for investors

From an investor’s standpoint, the problem that Tim Hortons presents for Restaurant Brands is a big one. A merger between two of the biggest fast food brands should have made the stock unbeatable, but that hasn’t been the case. The stock has grown by an impressive 90% late 2014, but in the past year it has declined by 2%, as it hasn’t been able to generate much momentum, and it’s easy to see why.

Tim Hortons should have been an easy brand to grow, but with a heavy-handed focus on costs and managing franchisees, it’s clear that what Restaurant Brands has been doing hasn’t worked. And in order for the company to be successful, it’s going to need more than Burger King and Popeyes to generate growth.

Investors who own Restaurant Brands should consider selling the stock, as there’s little reason to expect things to get much better from here on out.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of RESTAURANT BRANDS INTERNATIONAL INC.

More on Investing

Investing

KM Throwaway Post

Read more »

Investing

Carlos Test Yoast Metadata

Read more »

Investing

KM Ad Test

This is my excerpt.

Read more »

Investing

Test post for affiliate partner mockups

Updated: 9/17/2024. This post was not sponsored. The views and opinions expressed in this review are purely those of the…

Read more »

Investing

Testing Ecap Error

Premium content from Motley Fool Stock Advisor We here at Motley Fool Stock Advisor believe investors should own at least…

Read more »

Investing

TSX Today: Testing the Ad for James

la la la dee dah.

Read more »

Lady holding remote control pointed towards a TV
Investing

2 Streaming Stocks to Buy Now and 1 to Run From

There are streaming stocks on the TSX that are worth paying attention to in 2023 and beyond.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Stocks for Beginners

Top Recession-Resilient TSX Stocks to Buy With $3,000

It's time to increase your exposure to defensives!

Read more »