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Restaurant Brands International Inc. QSR has announced that its Popeye’s Louisiana Kitchen segment signed a master franchise agreement with Kuya J Holdings Group, Inc. to expand its brand presence in the Philippines. Noticeably, this marks the company’s first major expansion in Asia.
The move underscores Restaurant Brands’ consistent efforts to expand its brand footprint and strengthen franchise relationships. The company’s growth potential lies in leveraging the power of its three strong brands. Restaurant Brands’ quick service restaurant (“QSR”) segment continues to see strong growth and enjoys high demand of franchisees. Subsequently, the company’s shares have gained 4.9% in the past six months, outperforming the industry’s collective growth of 3.8%.
Consistent Focus on Expansion & Development of Franchise Relation
The move is in line with Restaurant Brands’ continuous efforts to expand presence in existing markets as well as new ones. The company continues to evaluate opportunities to speed up the international development of all the three brands by establishing master franchisees with exclusive development rights as well as joint ventures with new and existing franchisees.
Restaurant Brands has already entered master franchise and development agreements in a number of markets across these regions, including Japan, France, Russia, Brazil, Spain, Belgium, China, Turkey and Korea. The company believes that it has growth opportunities to be realized in 2018 and beyond, in the above-mentioned regions and others.
By strengthening franchise relations, Restaurant Brands is also trying to curb its expenses. Given that almost 100% of the company’s current system-wide restaurants are franchised, its expenses are considerably low. Since the company signs franchise agreements for all the restaurants instead of operating those itself, this puts the cost burden on the franchisees that operate the businesses. Thus, the reduced capital requirements facilitate earnings growth and ROE expansion. Alongside, free cash flow continues to increase, allowing reinvestment for increasing brand recognition and shareholders’ return. The fully-franchised business model also allows the company to use other people's money to expand the brand more rapidly into various markets. Notably, Restaurant Brands have witnessed year-over-year earnings growth in each of the trailing four quarters.
Bottom Line
We believe, by expanding Popeye’s in Asia, Restaurant Brand is likely to boost the segment’s revenues and overall profit. In the second quarter of 2018, Popeye’s reported revenues of $102.3 million, up 53.4% from the year-ago quarter. Moreover, system-wide sales rose 10.7%, owing to net restaurant growth of 7.5% and comps growth of 2.9%. We believe the positive trend in revenues of the segment to continue in the days ahead.