Executive Summary / Key Takeaways

• Restaurant Brands International Limited Partnership ($RSTRF) is executing multi-year strategic plans across its iconic brands (Tim Hortons, Burger King, Popeyes, Firehouse Subs) focused on operational excellence, modernizing restaurants, and enhancing franchisee profitability to drive sustainable long-term growth.
• Despite a dynamic macro environment and softer near-term sales trends, the company remains confident in delivering at least 8% organic adjusted operating income (AOI) growth in 2025, primarily driven by disciplined cost management, a significant reduction in corporate advertising contributions, and lower net interest expense.
• Near-term net restaurant growth (NRG) expectations for 2025 are tempered (plus/minus 3% range) due to the strategic cleanup of the acquired Burger King China portfolio, but the company maintains its long-term target of ramping back to 5% global NRG by the end of 2028.
• Increased capital investment ($400M-$450M in 2025/2026) is focused on accelerating high-ROI remodels, particularly at Burger King U.S., aiming to achieve over 85% modern image by 2028 and significantly boost franchisee profitability.
• Strategic portfolio management, including the acquisition and planned refranchising of Carrols (TAST) Burger King restaurants and seeking new partners for China and Brazil operations, is expected to simplify the business structure and reduce capital intensity over time.

The Foundation: A Multi-Brand Powerhouse Adapting to a Shifting Landscape

Restaurant Brands International Limited Partnership ($RSTRF), a Canadian limited partnership and subsidiary of Restaurant Brands International Inc. (RBI), stands as a global quick-service restaurant giant. Its portfolio, built through strategic acquisitions including Tim Hortons, Burger King, Popeyes, and Firehouse Subs, positions it across diverse segments: coffee and baked goods, burgers, chicken, and sandwiches. This multi-brand structure is a foundational strength, allowing the company to address varied consumer preferences and market niches worldwide.

The company operates predominantly through a franchised model, with over 90% of its system-wide restaurants owned by independent operators. This model provides capital efficiency and local market expertise, contributing to a lower operating cost structure compared to some peers like McDonald's (MCD), which operates a larger percentage of company-owned stores. However, this reliance on franchisees also necessitates strong alignment and support to ensure consistent operational standards and profitability across the system.

In the competitive QSR arena, RSTRF faces formidable rivals. McDonald's dwarfs RSTRF in overall scale and market share, particularly in the burger segment, and boasts superior profitability margins and return on capital employed, partly driven by its robust digital platforms and brand loyalty. Yum! Brands (YUM), another franchise-heavy multi-brand operator, competes across chicken (KFC vs. Popeyes) and other segments, demonstrating strong international expansion capabilities and comparable margins but higher ROIC than RSTRF. Wendy's (WEN) is a key competitor in the U.S. burger market, focusing on value and digital, while Starbucks (SBUX) dominates the coffee space, challenging Tim Hortons with its premium positioning and strong loyalty programs.

RSTRF's strategic response to this competitive environment centers on enhancing the fundamental guest experience: quality, service, convenience, and value. This involves multi-year plans tailored to each brand, focusing on operational improvements, menu innovation, digital acceleration, and modernizing restaurant images. A critical element underlying this strategy is the commitment to improving franchisee profitability, recognized as the engine for sustainable system growth and a key differentiator against competitors.

Operational Excellence and Technological Advancement: Driving the Fundamentals

A core tenet of RSTRF's strategy is operational excellence, supported by targeted technological investments. At Tim Hortons Canada, relentless focus on drive-thru speed has yielded consistent year-over-year improvements, reaching impressive average times and contributing significantly to traffic growth. The introduction of new ovens supports PM food initiatives like flatbread pizzas, boosting traffic during slower dayparts and increasing average check size. Future rollouts of new espresso machines aim to further elevate beverage quality and credibility.

For Popeyes, the "Easy to Run" initiative is a significant technological undertaking aimed at standardizing processes, enhancing technology, and introducing new kitchen equipment. This includes rolling out cloud-based POS systems, digital drop charts, sticky label printers, order ready boards, kiosks, and upgraded back-of-house equipment (like auto batter makers and improved hot holding units) across U.S. locations by the end of 2026. The stated goals are tangible and quantifiable: improving order accuracy, reducing driver wait times, and enhancing team member and guest satisfaction. While specific quantitative improvements from the system-wide rollout are yet to be fully realized, early testing in hub markets has shown promising results, and the initiative is seen as crucial for improving operational consistency and supporting franchisee profitability, particularly in remodeled restaurants which generate significantly higher EBITDA.

Burger King U.S. is also leveraging technology and operational focus as part of its "Reclaim the Flame" plan. Beyond marketing and remodels, the emphasis on operational discipline has led to improvements across key metrics, not just in underperforming stores but across the system. The goal is to transition restaurants to more engaged operators who prioritize operational excellence, as evidenced by A operators achieving significantly higher average four-wall EBITDA than the system average. Digital capabilities are also a key focus across brands, driving growth in digital sales mix, which enhances convenience and provides valuable customer data.

While RSTRF's digital platforms and operational technology are advancing, competitors like McDonald's and Starbucks have historically held an edge in seamless tech integration and loyalty programs, translating to faster order processing and higher repeat business. RSTRF's ongoing investments in areas like Easy to Run kitchens and digital platforms are aimed at closing these gaps and leveraging technology to improve efficiency and guest experience, thereby strengthening its competitive moat.

Recent Performance and Financial Resilience

RSTRF's recent financial performance reflects the dual reality of executing long-term strategic plans amidst a challenging macro environment. For the first quarter of 2025, consolidated revenue increased to $2.11 billion from $1.74 billion in Q1 2024, primarily driven by the inclusion of acquired restaurants, notably from the Carrols acquisition. However, income from operations decreased to $435 million from $544 million, impacted by unfavorable changes in other operating expenses (including foreign exchange losses) and FX headwinds, partially offset by improved segment income in Tim Hortons (excluding FX). Net income from continuing operations followed a similar trend, decreasing to $223 million from $328 million.

Segment performance in Q1 2025 showed varied results. Tim Hortons Canada delivered comparable sales of 0.1% (approximately 1.2% excluding Leap Day), while its AOI saw a slight decrease, primarily due to unfavorable FX impacts. Burger King U.S. comparable sales declined 1.1% (relatively flat adjusting for Leap Day) but outperformed the broader burger QSR category, though BK segment AOI decreased slightly. Popeyes U.S. and Canada comparable sales declined 4.0% (approximately -2.9% excluding Leap Day), following a strong prior year quarter, but the segment saw a modest increase in AOI. Firehouse Subs continued to outperform the sub sandwich category with comparable sales growth of 0.6% (nearly 2% excluding Leap Day) and increased AOI. The International segment delivered solid comparable sales growth of 2.6% (roughly 3.7% excluding Leap Day) and system-wide sales growth of 8.6%, although AOI saw a decrease driven by unfavorable FX and the absence of revenues from BK China (now in discontinued operations). The newly established Restaurant Holdings segment, reflecting company-owned operations from Carrols and Popeyes China, contributed $432 million in revenue and $7 million in AOI in Q1 2025.

Despite the mixed top-line results and pressures on operating income, RSTRF demonstrated financial resilience. Interest expense decreased in Q1 2025, benefiting from prior year debt refinancings and interest rate swaps, partially offset by increased debt levels. The effective tax rate increased due to discrete unfavorable impacts from new OECD guidance. Adjusted EPS saw modest growth, primarily driven by the reduction in adjusted net interest expense.

Liquidity remains a focus. As of March 31, 2025, RSTRF held $899 million in cash and cash equivalents and had $1.25 billion available under its Revolving Credit Facility. The company ended 2024 having met its mid-4x net leverage target (pro forma for Carrols) and intends to continue prioritizing deleveraging. Strong free cash flow generation ($1.5 billion in 2024) supports investments, debt service, and capital returns.

Strategic Momentum and Future Outlook

RSTRF is pushing forward with strategic initiatives designed to drive long-term value. The "Reclaim the Flame" plan for Burger King U.S. is accelerating, with a target of completing around 400 remodels in 2025. These remodels, particularly the new "Sizzle" image, are showing promising sales uplifts and are critical to achieving the goal of over 85% modern image by 2028 and significantly boosting franchisee profitability towards a target of $300,000 average four-wall EBITDA. The acquisition of Carrols is integral to this, accelerating remodels before refranchising to smaller, more engaged operators.

The "Easy to Love/Run/Access" strategy for Popeyes is gaining traction, with a significant step-up in national advertising beginning in April 2025 and a commitment from franchisees to reach a consistent modern image by 2030. The Easy to Run kitchen upgrades are rolling out, aimed at improving operational consistency and efficiency.

Firehouse Subs is focused on accelerating net restaurant growth, building on the momentum from 2024, with a strong pipeline for 2025. Tim Hortons Canada is also on track to return to positive net unit growth in 2025, targeting underpenetrated regions.

Internationally, the focus remains on expanding across brands, particularly Popeyes, in high-ARS markets and entering new territories. The strategic moves in China, including the BK China acquisition (now held for sale) and investments in Tims China (THCH) and Popeyes China (in RH segment), reflect a commitment to long-term potential despite near-term challenges and the need for portfolio cleanup and finding new partners.

Management is confident in delivering at least 8% organic AOI growth in 2025. This outlook is supported by expected benefits from cost discipline, including a reduction in segment G&A ($600M-$620M range for 2025, down from $640M-$660M in 2024 excluding RH), and the cessation of the $58 million annual corporate contribution to the BK U.S. ad fund as franchisees increase their levy. Lower expected adjusted net interest expense ($500M-$520M range) also contributes to the bottom line.

While the near-term NRG outlook is tempered (plus/minus 3% in 2025) primarily due to the BK China situation, the company maintains its long-term target of 5% global NRG by the end of 2028, driven by acceleration across all brands and regions once the China portfolio is repositioned. Capital expenditures are expected to be elevated in 2025 and 2026 ($400M-$450M) to fund remodels and development, before stepping down in later years as refranchising efforts progress.

Risks and Challenges

Despite the strategic momentum, RSTRF faces notable risks. The dynamic macro backdrop and consumer softness across key markets could continue to pressure comparable sales and traffic, potentially impacting franchisee profitability and system-wide sales growth. Competitive intensity remains high across all segments, requiring sustained investment in value, innovation, and the guest experience to maintain or gain market share.

Specific market challenges, particularly in China, pose risks to the international growth trajectory and near-term NRG targets. Geopolitical issues in certain regions can also impact operations and development. Litigation risks, including class action lawsuits related to franchise agreements and shareholder claims related to acquisitions, could result in unfavorable outcomes and financial liabilities. Changes in tax legislation, such as Canada's EIFEL rules, are expected to increase cash taxes. While mitigation efforts are underway, potential tariffs could impact commodity costs.

Management acknowledges these challenges and emphasizes cost discipline, strategic portfolio management (including addressing underperforming franchisees and markets), and focusing on operational fundamentals as key mitigation strategies.

Conclusion

Restaurant Brands International Limited Partnership is executing a clear, multi-year strategy centered on enhancing the core guest experience through operational excellence, technological advancements, and restaurant modernization, all aimed at driving sustainable franchisee profitability and system growth. While the current macro environment presents headwinds, impacting near-term sales trends and net restaurant growth expectations, the company's disciplined cost management and strategic financial initiatives provide confidence in delivering robust bottom-line growth, targeting at least 8% organic AOI growth in 2025.

The significant capital investment planned for the next two years underscores the commitment to transforming the Burger King U.S. system through accelerated remodels, a critical step towards improving unit economics and attracting engaged operators. As strategic acquisitions are integrated and company-owned assets are refranchised, the business structure is expected to simplify, potentially reducing capital intensity and enhancing free cash flow generation over the long term. Achieving the ambitious long-term NRG target of 5% hinges significantly on successfully repositioning the China portfolio and accelerating development across all brands in key markets. Investors should monitor the execution of these strategic initiatives, particularly the progress on remodels, operational improvements, and the resolution of the China situation, as key indicators of RSTRF's ability to translate its foundational strengths and strategic plans into sustained value creation amidst a competitive and evolving global QSR landscape.