The restaurant industry has had a year of strong recovery as lockdowns have eased and people have resumed more normal lifestyles.
Fast food chains have been beneficiaries of these trends, including McDonald’s and Restaurant Brands International, which owns Tim Hortons and Burger King. Some of this has been pent-up demand after long periods with limited movement and social interaction. Another part is that these brands offer the comfort of familiar products and routines.
Both companies used the pandemic to sharpen their focus by slimming down menus, speeding up drive through times and improving online ordering. Both have increased their dividends.
Here’s an update:
McDonald’s (NYSE: MCD) Recent $245.55 (All figures in U.S. dollars.)
Background: McDonald’s is the largest and best-known fast-food franchise in the world with 37,000 restaurants in 120 countries. Almost half of its outlets are in Asia, or other emerging markets, although the US remains its largest single market.
Performance: At the time of writing McDonald’s stock is up 14.4% year-to-date and 14.2% in the past 12 months.
Recent developments: McDonald’s shares are trading near their 52-week high as global reopening, new menu options and higher prices add to its bottom line. In the three months ending Sept. 30, revenue rose 14% to $6.2 billion year-over year. Net income of $2.15 billion, or $2.86 per share, was up 22%.
On other fronts, finding staff remains a challenge which has slowed drive through times, but it has countered by increasing wages. This has led to price increases, which has not slowed growth. McDonald’s has entered a strategic partnership with IBM to help automate and speed up its drive-throughs an area where it feels it has an edge over its competitors.
McDonald’s plans to add 650 net news stores this year, after closing 325 at US Walmart stores. The company’s loyalty program launched in July has enrolled more than 21 million members, with 15 million active users.
Dividend: In September, McDonald’s announced a dividend increase of 7% to $1.38 per share and the resumption of its share repurchase program. The increase is payable Dec 15 and is the 45th consecutive year of increase. It yields 2.13% at current prices.
Restaurant Brands International (TSX, NYSE: QSR) Recent C$70.07 and US$56.64
Background: Restaurant Brands is the third-largest global fast-food operator with $32 billion in system wide sales annually and operations in more than 100 countries. It has 27,000 stores, of which 70% are Burger Kings and 19% are Tim Hortons. The other 11% are Popeye’s Louisiana Kitchen locations.
Performance: The stock has been the poorest performer of the Big three this year. (YUM’s has been best.) The Canadian shares are down 9.9% year-to-date and down 1% in the last 52 weeks.
Recent developments: Restaurant Brands reported mixed third quarter results with revenue down, but profit up. Like McDonald’s, it is struggling with labor challenges. As a result, 40% of Popeyes locations have closed dining rooms, shifting to takeout and delivery.
Excluding extraordinary items, RBI’s sales rose 11.8% to $1.5 billion in the quarter. It earned $221 million or 76 cents per share, up from $145 million a year ago.
Tim Hortons’ sales grew 8.9%, a sign of improvement for the chain. All of its product categories, excluding coffee, are back to pre-pandemic levels or higher.
Burger King’s same-store sales climbed 7.9%. Burger King was the first chain to come out with meatless burgers and is now working with Impossible Foods to test meatless nuggets in several US. markets.
RBI continues to expand and will add 200 Tim Hortons stores in China by the end of the year. It is also planning to spin them off into a separate company as Yum! did with its Chinese operations.
Dividend: RBI increased its dividend by 1 cent in February. The $2.12 annual dividend yields 3.73% at current prices.