Restaurant Brands International Inc (QSR) 2017 Q2 法說會逐字稿

Good morning, and welcome to the Restaurant Brands International Second Quarter 2017 Earnings Conference Call.

(Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Markus Sturm, Head of Investor Relations.

Please go ahead.

Thank you, operator.

Good morning, everyone, and welcome to Restaurant Brands International's earnings call for the second quarter ended June 30, 2017.

A live broadcast for this call may be accessed through the Investor Relations web page at investor.rbi.com, and a recording will be available for replay.

Joining me on the call today are Restaurant Brands International's CEO, Daniel Schwartz, and CFO, Josh Kobza.

The team will be available to answer questions during the Q&A portion of today's call.

Today's earnings call contains forward-looking statements which are subject to various risks set forth in the press release issued this morning and in our SEC filings.

In addition, this earnings call includes non-GAAP financial measures.

Reconciliations of non-GAAP financial measures are included in the press release available on our website.

Let's begin with the agenda for today's call.

Daniel will start by discussing highlights for the quarter at Restaurant Brands International and will then review the performance of Tim Hortons, Burger King and Popeyes Louisiana Kitchen.

Josh will then review consolidated financial results for the quarter, following which Daniel will share some concluding remarks before opening the call up for Q&A.

I'll now turn the call over to Daniel.

Thanks, Markus, and good morning, everyone.

Thanks for joining us on today's call.

I'm pleased to update you on the progress we've made in the second quarter.

Our focus on providing a great restaurant experience for our guests and the hard work from our franchisees and their teams all around the world to deliver that experience enabled us to achieve continued systemwide sales and profitability growth at all 3 of our iconic brands; Tim Hortons, Burger King and Popeyes Louisiana Kitchen.

This quarter, we grew our adjusted EBITDA to $531 million, up 9% on an organic basis versus the prior year's combined results of RBI, including Popeyes.

The inclusion of Popeyes in our combined results in the second quarter of 2017, combined with continued growth at Tim Hortons and Burger King, contributed to our adjusted diluted EPS of $0.51 per share, up from $0.41 per share in the prior year period.

At Tim Hortons, we grew systemwide sales by 2.6% for the quarter, largely attributable to accelerated net restaurant growth of 4.3% on the trailing 12 months.

While we're pleased with the performance of certain initiatives, which contributed favorably to same-store sales growth this quarter, including our recently launched espresso-based beverage platform, softness in certain product categories contributed to overall Tim Hortons comparable sales of negative 0.8%.

We had a particularly strong second quarter at Burger King having grown our systemwide sales on a constant currency basis by 10.6%.

This growth was the result of both comparable sales growth of 3.9% and 6% growth in restaurant count on year-on-year.

At Popeyes, we grew systemwide sales by 3.3% in the second quarter, which was largely driven by net restaurant growth of 5.3% for the trailing 12-month period.

Increased competitive activity in the quarter combined with the lapping of a successful promotion in the prior year period contributed to Popeyes comparable sales of negative 2.7% in the second quarter.

We remain confident in our long-term strategies to improve the sales and profitability for all 3 of our iconic brands for many years to come, and we look to build on Burger King's momentum, while improving comparable sales growth at Tim's and Popeyes into the second half of 2017.

Let's first review the results for Tim Hortons.

In the second quarter, we achieved $281 million in adjusted EBITDA, up by 4.7% on an organic basis versus the prior year, driven primarily by our growth in total revenue.

On a same-store sales basis, we had a softer quarter at Tim's in Q2, where we experienced worldwide comparable sales of negative 0.8%, and this result was primarily driven by our performance in Canada, where we experienced comparable sales of negative 0.6%.

This quarter, we saw some softness on year-on-year in our baked goods and lunch categories in Canada, where some of our limited-time offers were not as effective as in prior years, such as our Nutella baked goods and our summer cold beverage lineups.

We also rolled off of our Perfect Pairings lunch promotion in the second quarter, which had an impact on overall lunch daypart sales volumes.

And despite the softness in the quarter, we remain very confident in our strategies to grow comparable sales growth in the long run, and we're encouraged by our plans to drive improvements in the second half of the year, including through our espresso- based beverage platform.

We launched this new platform in Canada in late April, upgrading a key platform that supplements our brewed coffee business and which we believe will be a growth catalyst in the months and many years to come.

We're encouraged by the platform's growth in its 2 short months since the launch, during which we've seen average volume per restaurant of espresso-based beverages build each week.

By the end of the second quarter, we more than doubled espresso-based beverage unit sales and we continue to see increasing sales volume in customer adoption as more and more customers try our great products.

We anticipate that this platform will continue to grow, particularly given the meaningful innovation we can introduce around our base products such as our recently launched iced lattes.

In the second quarter, we had our annual Camp Day at Tim Hortons restaurants across Canada and the U.S., and we're proud to have raised a record CAD 13.7 million for our Tim Hortons Children's Foundation.

Thanks to the generosity for our guests, franchisees and their team members, approximately 20,000 kids from low-income families will be given the opportunity to participate in a life-changing camp experience.

At the end of the second quarter, in celebration of Canada's 150th anniversary, we also launched a series of special promotions, products and packaging as tributes to Canada, including a late June, early July addition of Roll Up the Rim.

Our Canada 150 campaign resulted in Tim Hortons being named the #1 brand that most positively impacted the country's anniversary celebration and also positively contributed to comparable sales growth.

Both our strong Canadian heritage and our community involvement are 2 of the most important attributes of Tim Hortons, and we're excited to have made a meaningful impact of both this quarter.

We're also excited to have launched our Tim's mobile app a few short days ago, with our app now open to all of our guests in Canada and the U.S. Over the past few months, we have worked closely with our franchisees who, with the help of their restaurant teams, have tirelessly tested the app and completed in-restaurant training to ensure operational readiness.

We look forward to hearing guest feedback, especially during this initial rollout phase.

Our digital team is dedicated to continuously improving the application for all of our guests.

We're really excited about the long-term prospects of our mobile app as we believe it will be an important avenue to interact with our guests for many years to come.

We made good progress this quarter on the Tim's development front having grown our restaurant count by 4.3% year-on-year over the trailing 12-month period, primarily driven by growth in Canada.

In the second quarter, our partner in Great Britain also opened their first restaurant, located in Glasgow, Scotland.

We're very encouraged by the performance of our first restaurants in the Philippines and Great Britain thus far and are confident in our international partners and their ambitious expansion plans.

This morning, we announced an agreement with our existing Burger King partner to develop the Tim Hortons brand in Spain, marking our fourth such international development agreement for Tim Hortons.

As one of the largest café markets in Europe, we believe that Spain is an attractive growth market and is well-suited to the unique offerings available at Tim's, including our high-quality coffee and fresh food at great value.

Let's now review results for Burger King.

We had a particularly strong quarter at Burger King with overall systemwide sales growth of 10.6% driven by net restaurant growth of 6% and comparable sales growth of 3.9%.

Our growth in the top line contributed to total Burger King adjusted EBITDA of $217 million this quarter, up 9.7% on an organic basis versus last year.

We had good sales results in the U.S. this quarter with comparable sales growth of 3%.

Throughout the quarter, we maintained a balance of premium products, value offerings and limited-time offering traffic drivers across product platforms and dayparts.

In the premium category, we saw continued strength in our BACON KING burger as well as related products that were innovated around the platform, including our STEAKHOUSE KING and the MUSHROOM & SWISS KING.

Similarly, our improved Crispy Chicken sandwich has continued to perform well, and we recently launched further innovative products around that platform, including the Chicken Parmesan Sandwich.

On the value side, our 2 cheeseburger promotion and our $0.89 pancake promotion continued to perform well.

We also launched a FROOT LOOPS Shake and LUCKY CHARMS Shake and reintroduced Mac n' Cheetos, each of which are fun, tasty products that resonated positively with our guests and helped drive traffic into our restaurants.

We will continue adhering to our strategy of maintaining a balanced menu architecture with operationally simple product launches to drive further sales and traffic in our restaurants for years to come.

Internationally, we also delivered positive comparable sales growth in most of our large markets, including China, Russia, Brazil and Turkey, partially offset by some softness in Korea.

In China, our comparable sales growth continued to benefit from the successful product launches and promotions as well as the expansion of our delivery business, which has been a consistent driver of the business in recent quarters.

Strength in Russia was driven by the launch of our Chicken Fries platform as well as our BACON KING; 2 products that we've also had success with in other markets around the world.

In Brazil and Turkey, our strength was largely attributable to our successful value promotions.

Burger King has come a long way over the past few years thanks to the hard work that our franchisees and our marketing teams have put into furthering the brand's global positioning.

Their great work is also increasingly being recognized by third parties.

In addition to being named the 2017 Creative Marketer of the Year by Cannes Lions, which we announced last quarter, we also won 29 unique Lion awards, representing a record accomplishment for our brand.

In terms of restaurant development, we ended the first half of the year with net restaurant growth of 6% on a trailing 12-month basis, representing a meaningful acceleration for Burger King globally.

Our improvement in net restaurant growth versus the prior year occurred in most of our high-growth countries all around the world.

In the first half of this year, China, Russia and France, each of which are MFJVs, were our largest contributors to growth.

We also opened our first 2 restaurants in Belgium recently, including our first Quick conversion in the country, and we're extremely pleased with the results thus far.

We remain encouraged by our development pipeline for 2017 and beyond and are excited by our meaningful expansion potential in both the U.S. and abroad.

Now let's review results for Popeyes.

This quarter, we grew our systemwide sales by 3.3%, primarily driven by net restaurant growth partially offset by comparable sales of negative 2.7%.

Our global same-store sales primarily reflect comparable sales in the U.S. of negative 3.3%.

This quarter, our same-store sales reflected increased competitive activity in the U.S. where there was a focus on value bundling as well as the lapping of our successful $5 Big Box promotion in the prior year period.

When we acquired the business in late March, many of the marketing plans for the second quarter had already been set and were less focused on value in comparison to the prior year and compared to some of our competitors.

In the last few months, our marketing team has worked closely with our franchisees to test a number of promotions and product launches and to revise the marketing calendar for the balance of the year.

We remain confident in our ability to improve comparable sales growth and thus grow restaurant-level sales and probability over the long-term.

On the development front, in the second quarter, we grew restaurant count by 5.3% on a trailing 12-month basis.

Our expansion continued around the world, with particular strength in the U.S., Turkey and Canada.

Last month, we opened our first restaurant in South Africa, and we're encouraged by the guest feedback and sales performance thus far.

South Africa was a natural entry point into Africa for Popeyes as our authentic bold and spicy flavors are a natural fit with local South African tastes.

We made good progress on our integration efforts this quarter, during which we announced the brand leadership team and reorganized the business to align with our priorities for the brand and to provide career opportunities for our top talents.

While we continue to manage the Popeyes brand separately, our common culture of ownership and the implementation of 0-based budgeting have helped drive efficiencies in the second order.

Through both this systemwide sales growth and effective cost management, we grew Popeyes' adjusted EBITDA to $33 million this quarter, which represents 54% organic growth compared to the prior year results.

We continue to be excited about the long-term potential for the brand, and we're encouraged by the results so far.

Now I would like to turn the call over to Josh.

Thanks, Daniel.

Before reviewing our financial results for the quarter, we wanted to clarify that Popeyes' revenues and segment income from March 28, 2017, through June 30, 2017, are included in our consolidated statement of operations for the 3 months ended June 30, 2017.

Also, since Popeyes formerly followed a different fiscal calendar, prior year results for Popeyes may not be comparable.

However, we have provided these quarterly results for informational purposes only.

Our continued systemwide sales growth at both Tim Hortons and Burger King, as well as the inclusion of Popeyes in the second quarter results of 2017, allowed us to grow adjusted EBITDA to approximately $531 million in the second quarter.

This represents a consolidated year-over-year growth of 8.8% on an organic basis versus prior year combined results, as if RBI had owned Popeyes in the prior year period.

Adjusted net income increased to approximately $242 million versus prior year results of $192 million, primarily as a result of growth in adjusted EBITDA.

Our adjusted diluted EPS for the quarter was $0.51 versus $0.41 in the prior year period.

Neither the adjusted net income nor the adjusted diluted EPS figures quoted for the 2016 period include the results of Popeyes, given the acquisition occurred in March of 2017.

I would note that interest expense for the second quarter includes the full quarter impact of the $1.3 billion incremental financing we raised for the Popeyes acquisition as well as a partial quarter impact of the interest expense related to the $1.75 billion of debt that was raised in May.

Starting in Q1 2017, our tax rate and weighted average shares outstanding reflected the adoption of new accounting standards related to the tax impact from equity-based compensation.

This accounting standard resulted in a positive impact on our effective tax rate for the second quarter.

Further details pertaining to this accounting standard can be found in our Form 10-Q.

Let's now discuss our cash generation and capital allocation during the quarter.

In May, we issued $1.5 billion of first lien senior secured notes at an interest rate of 4.25% and also increased our existing term loan facility by $250 million.

We expect to use the proceeds of the senior notes and the incremental facility, together with other sources of liquidity, to redeem all or a portion of our outstanding 9% preferred shares.

In the second quarter, we generated free cash flow of approximately $209 million, calculated as the sum of cash flows from operating activities and cash flows from investing activities, excluding the $763 million received in connection with the settlement and termination of our previous Canadian dollar cross-currency swap.

We also paid a total of approximately $151 million in preferred and common dividends in partnership exchangeable unit distributions.

As of June 30, 2017, our ending cash balance was approximately $3.4 billion, our total debt balance was approximately $11.8 billion and our net debt was $8.3 billion, all of which reflect the proceeds from our May note offering and incremental term loan as well as approximately $0.8 billion received from the termination of our previous cross-currency swap.

We replaced the swap with a new Canadian dollar swap that more closely matches our current cash flow mix and capital structure maturity profile.

Finally, I'm pleased to share that on August 2, 2017, the RBI Board of Directors declared a dividend of $0.20 per common share and partnership exchangeable unit of RBI LP, payable on October 3, 2017.

Now I'll hand the call back to Daniel for concluding remarks.

Thanks, Josh.

This quarter, we continued to grow systemwide sales and profitability for all 3 of our iconic brands, Tim Hortons, Burger King and Popeyes.

While comparable sales growth for Tim's and Popeyes were softer this quarter, we believe we have the right strategies in place to grow sales per restaurant in the long run for both brands.

Both our espresso-based beverage platform and the launch of our digital app excite us about the growth potential for the Tim's Canada business, and we continue to make good progress expanding the brand all around the world, now including with a partner in Spain.

We had a particularly strong quarter at Burger King with improving comparable sales growth and accelerating net restaurant growth.

We also made good progress integrating Popeyes this quarter and continue to be excited by the long-term potential for the brand.

We very much appreciate the hard work from our franchisees and their teams to deliver a great restaurant experience for our guests, and we're confident in our ability to create further value for all of our stakeholders for many years to come.

We look forward to updating you on our progress next quarter.

Thanks, everyone, for joining us this morning.

And we'll now open up the call for Q&A.

Operator?

(Operator Instructions) Today's first question comes from John Glass of Morgan Stanley.

This is Courtney on for John.

I just wanted to dig in a little bit more on the weakness at Tim Hortons.

It sounded like a lot of it was coming from the lunch daypart and from your baked goods sales.

Can you just comment on how the beverage platform is doing, and if you're seeing positive comps, at least on that daypart?

And then also just a little bit more on the espresso-based platform.

You did say that you doubled your -- doubled the espresso-based beverage unit sales.

But just wanted to get a sense the ROI that franchisees are seeing on that, and especially, given the marketing push that you had on it this quarter?

And then -- sorry, if I could also, just on weakness that you talked about in the Western part of the country that you've seen in prior quarters, if that's continuing to push your sales lower?

Yes, Courtney, it's Daniel.

Yes, as you mentioned, we had slightly negative same-store sales in our Tim Hortons brand this quarter.

And we did see some softness in the baked goods and lunch category, where some of the LTOs, like for instance the Nutella platform, weren't as effective as they were in the prior year.

And we -- as you mentioned, we did launch the espresso-based beverage platform at the end of April, and we're very pleased with the results thus far.

We've seen volumes, as you mentioned, not only double, but really build each week.

We're very happy with the product quality, the feedback that we've been getting from our guests, from our owners as well, and it's something that we can innovate around with future innovative beverages around the latte platform.

So we're really pleased with that.

Based on the results we've had thus far, this equates to a very good payback and a very good return on our franchisees' capital, which is, obviously, something we prioritize when we look to launch new products and platforms.

And a lot of good things going on in the quarter in Canada.

I think we had mentioned in the prepared remarks that we'd done a special 150th -- Canada 150th anniversary promotion launching our -- what's normally our annual Roll Up the Rim campaign, which resonated really well with our guests in Canada and enabled us to really win this place of the brand that best activated Canada's 150th anniversary.

We also raised a record $13.7 million for our Camp Day.

And most recently, we launched, together with the great work from our restaurant owners, we were able to launch our Tim's mobile app just a few days ago, and we're looking forward to building on that.

With respect to the trends by region, as you had mentioned, the Western part of the country was a little bit weaker in the past.

We've seen that improve based on some of the actions that we've taken together with our local restaurant owners out west based on the marketing plans we put in place.

We've actually seen the results there improve sequentially through the year.

So we're pleased with the performance so far, and we're going to look to continue building on it.

And our next question today comes from Mark Petrie of CIBC.

I actually just wanted to follow up on the Tim's business in Canada, and I guess, 2 other topics.

First, looking ahead to next year, we're going to see some pretty material minimum wages increases in key regions of Canada, particularly Ontario.

How do you look at the net impact to your business, particularly in the context of a challenging growth environment?

And then second, NRG was pretty modest in the quarter, much stronger LTM, but modest in the quarter.

And we would just sort of appreciate hearing your expectations for how the rest of the year will play out.

Yes.

Sure.

It's Daniel.

I'll take the first question.

I'll pass to Josh to talk on the development front.

Look, our business faces cost pressures from time to time.

In certain years, wages will rise faster than others.

And in certain years, we'll have commodity inflation.

At the end of the day, it's our job together with our restaurant owners to drive growth in sales.

And the more sales growth we can drive, the better our ability and our restaurant owners' ability to offset these cost inflations.

So our top priority has, is and will continue to be driving sales growth.

And if you look at where we're spending our time together with our franchise owners, it's on building the platforms and products that are going to enable us to drive that sales growth for many years.

If it's building the espresso-based beverage platform, if it's launching mobile -- Tim's mobile app for ordering prepay.

So a lot of these really positive initiatives that we're working on collaboratively with our franchise owners in Canada, those are what's going to enable us to positively drive sales for many years to come to offset whatever cost pressures the business may face from time to time.

I think, maybe Josh, do you want to comment on the development front and some of the exciting things we have going on around the world?

Yes.

I think with respect to net restaurant growth, I think if you look at where we are on a year-to-date basis through the first half, we're in a relatively similar place to where we were in the prior year.

But I think what's really exciting to us is, in particular, what we see happening in the Tim's International business.

What we've said over the last couple of years is one of the things we're most excited about is making Tim's a truly global brand, and we've really made a lot of progress there over the last 12 to 18 months.

We set up a number of new partnerships in the Philippines, U.K. and Mexico, and now we've have had a chance to open up some of our first restaurants in the Philippines and the U.K. And those have been really successful.

We've been really pleased with those restaurants and the reception that they've have had in Manila and Glasgow.

And I think we had a another very exciting announcement today that we're going to -- we signed up our fourth new project where we're going to take Tim Hortons to Spain.

So I think we've made a lot of great progress that's really, I think, setting the foundation for making Tim's a truly global brand and opening up some very high-quality restaurants that have shown us that the Tim Hortons brand really does resonate with guests all around the world.

So I think we're seeing some very good signs for the future of net restaurant growth at Tim's.

And our next question today comes from Patricia Baker of Scotiabank.

And sort of, again, hit on the Canadian weakness at Tim's and the indication that it would be the lunch daypart where you saw some softness.

Are there some specific efforts and focus for the rest of the year for you to try and sort of regain the momentum on the lunch daypart?

Yes.

It's Daniel.

I tell you, look, we're always, together with our restaurant owners, we're always focused on driving all the dayparts.

And there are some good plans in place and new products that we plan to launch.

We're obviously not going to talk about them on the call.

But what I'd say is, when you kind of look at our performance through the quarter, we were pleased to mention that -- pleased to share that we did see, for instance, we did see some of the things that we were doing, like the espresso-based beverage, we did see that building throughout the quarter.

And some of the positive momentum that we had around the annual -- or the special edition of the Roll Up the Rim -- our Roll Up the Rim campaign, we did see really some good momentum around that at the end of the quarter.

And look, we're -- obviously, we're always trying to deliver that best-in-class Tim Hortons experience for all of our guests, and we do have a positive outlook for the balance of the year across multiple dayparts.

And our next question today comes from Gregory Francfort of Bank of America.

Just one question for Daniel and one for Josh.

Daniel, do you think the publicity from the franchisee dispute in Canada is having any impact on sales?

Is it possible to measure that in any way?

And then maybe, Josh, can you talk about the underlying minimum cash needs for the business today with the brands that you have?

And what the right capital structure might be and what your current thoughts on capital structure are?

Yes.

No, on the first question, we don't want to speculate on any of that.

And what I'd say is that, our focus, our strategy on delivering a great guest experience, working collaboratively with our restaurant owners to continue growing the brand, innovating things like espresso, mobile app, none of that changes based on this other stuff.

And we have a positive outlook for the brand for the balance of the year and for many years.

We're more excited about the potential for Tim's Canada today probably than ever before and looking forward to working with our franchisees and our franchise-elected advisory board to continue building the brand and doing great things in Canada.

Yes.

Greg, thanks for the question on cash and capital structure.

I think it's a relevant question as I'm sure you'll know this, we ended the quarter with about $3.4 billion of cash on the balance sheet.

I think as I look out at the remainder of the year, I think the most -- kind of the most relevant capital structure discussions that we're having are around the first redemption date of the preferred shares.

And as we've talked about, we obviously have a large cash balance as we're looking towards the potential redemption of the pref.

And I think, we've -- we'll look to hopefully redeem part or all the preferred shares.

And I think after that, we can take another look at what the right cash balance is and the right capital structure going forward.

And our next question today comes from Brian Bittner of Oppenheimer & Company.

As you look at the Popeyes business holistically here, how quickly will you be able to turn up that unit growth engine?

We, obviously, saw what you did with the Burger King brand after you took it over in 2010.

I mean, do you have the infrastructure in place and does the brand have the opportunity in place to be opening hundreds more of these per year going forward?

And then I do have a follow-up.

Brian, it's Josh.

It's an interesting question.

I think as we've said since we first started talking about Popeyes, the growth opportunity for the brand is the thing that -- the #1 thing that had us most excited about the opportunity to make Popeyes a part of RBI.

And I think what's exciting about it in particular is that there's an opportunity both in the U.S. and around the world.

We're already growing at a fast pace in the U.S., and we think there's an opportunity to do even more there, and perhaps even more around the world.

The chicken category globally is a very attractive one, and we see no reason why we can't be growing much, much faster.

We're already having discussions with a number of potential partners in a number of very large markets around the world.

So we see a big opportunity to be growing much, much faster than we are today.

And we're obviously working hard to make that possible as fast as we can.

And then the Burger King business, just with the strong same-store sales there, I mean, what is really, in your minds, causing you to stand apart from the competition at a time when your largest competitor is also performing so well?

What is it internally that you're seeing that's really driving these strong sales?

Yes.

It's Daniel, and thanks for the question.

What we've said about Burger King in prior quarters, and really regardless of how strong the performance is, the strategy that we've implemented, which has now been nearly 7 years, has been consistent the whole time.

And we're -- if you look in the U.S., I think our restaurant owners have done a great job renovating, improving the image of the restaurants, improving quality of operations.

We've continued to come with a balanced approach delivering -- always making sure we deliver great value every day for our guests, but also with a nice balance of premium products, things like the newly introduced improved chicken sandwich or the BACON KING.

So a nice balance of value and premium.

At the same time, driving continued improvements in guest experience, both with respect to operations and store renovations.

And internationally, where our partners in places like China, Russia and Brazil are also doing a good job executing on their marketing plans driving continued sales per restaurant and same-store sales growth.

So we're really pleased to see this performance across the U.S. and our key international markets.

And I'd say we probably -- we've come a long way on the marketing front, not just with respect to sales, but also the recognition that the brand is getting.

We'd mentioned earlier that the brand was awarded the Cannes Lions Creative Marketer of the Year.

It won 29 Cannes Lions awards all around the world, the U.S. and some important international markets as well.

So a lot of good things going on in the Burger King system enabling our restaurant owners to deliver great results all around the world.

And our next question today comes from Andrew Charles of Cowen and Company.

I've got 2 questions on the numbers.

The first one is that we simplistically model Tim's distribution sales growth as Tim Hortons same-store sales plus Tim's net unit growth and the FX impact to distribution sales.

And when you use this method, it's just there's some elevated piece of mix of pricing or some other component that's driving the sales growth.

Can you help explain the delta we should be thinking about that impacts distribution sales growth?

And then my second question is that Tim's G&A continues to show pretty high growth versus 2016 levels.

Last quarter, you guys talked about some increased hires and some technology spend.

Is there any other incremental spend we should be thinking about that's driving the 50% increase in Tim's G&A?

Yes, Andrew, it's Josh.

Thanks for the question.

On the first one, there's a few factors driving the sales increase.

The first one, as you pointed out, is the growth in systemwide sales, but there is also growth in retail sales, which are growing faster than systemwide sales, and also the launch of espresso that's influencing the growth of the sales line item there.

So those 2 factors are driving a little bit faster growth in that line item.

In terms of the G&A, as I think we've talked about a couple of times, I think it's more helpful to look at the overall kind of average number from the prior year versus the first and second quarters due to some changes that we had in the allocations amongst the segments at the end of last year.

And so that will give you a better run rate from last year.

And our next question today comes from Karen Holthouse of Goldman Sachs.

A question on Popeyes, and I guess it kind of relates to Burger King.

We've heard from some other companies that are so concentrated in the Southeast concerns about just sort of overall economic conditions there and consumer sentiment.

Do you think there's anything to that for maybe why Popeyes results are a little bit softer?

And maybe tie that into any regional commentary for outperformance or underperformance at Burger King.

Thanks, Karen.

No, I think what we've seen at Popeyes, and we did see a little bit more competitive activity during the quarter, and I think if we look at kind of what we were focused on this quarter relative to last year in the same quarter, where we were lapping a little bit more promotional activity from ourselves last year as well.

And we're very working collaboratively with our restaurant owners there as well to make some adjustments to the marketing calendar to ensure that we drive a positive momentum forward.

We're pretty optimistic about the outlook for the Popeyes brand not just for the balance of this year, but for many years to come.

And we're really excited for it to be part of Restaurant Brands International.

We have a positive outlook with respect to our ability in the long run, together with our restaurant owners, to grow sales per restaurant and grow the number of restaurants, as Josh had mentioned, not just internationally, but here in the U.S. as well.

And our next question today comes Will Slabaugh of Stephens Inc.

I wondered if you could talk about the value propositions at Tim's and Popeyes individually?

It seems like that's been a big component of BK's success in recent years.

And I'm curious on either consumer scores you're seeing at the other brands versus BK or if you generally think there is an opportunity to improve that value message at Tim's or at Popeyes.

Yes.

What we've said from the beginning when it comes to marketing, and I guess, perception of value would be a subset of that, we manage our brands -- our brands are all very different, and we manage them very differently.

At Tim's, we always deliver great value every day for all of our guests, and that's what Tim's has been known for over the last 50 years and what it's going to be known for the next 50 years.

So I don't think there's things that we're going to borrow from the brands to take.

And with respect to Popeyes, as we had mentioned before, we do offer a good mix of premium and value.

I think this quarter, we had a little less value compared to the amount of value we had last year, but that will fluctuate from time to time.

And whatever we do, we're going do to -- whatever changes or enhancements we make to the calendar, we'll do it together with our franchise owners.

And anything we do, obviously, we always look through the lens of is this good for our guests, and is this good for restaurant owners.

And that's generally what guides our decisions.

And our next question today comes Dennis Geiger of UBS.

You've highlighted what an important driver improving operations and reduced operational complexity has meant for the Burger King U.S. system.

But can you talk generally about the international opportunities that still exists for BK to improve operations?

And then, I guess, at Tim Hortons, how much opportunity still exists around operations?

And very high level, what could that potentially mean for the business and results going forward?

Yes.

No, on the Burger King front, obviously, we're always looking, we're always striving to improve our operations, even when we -- when we do improve, we always look at things that we can do better.

Our partners all around the world work collaboratively with us.

We get guest feedback on a consistent basis.

We analyze it and we prioritize, and I think different markets have different areas of opportunity based on where they are kind of in their development phase.

So I think that answer will differ from market to market, but obviously, operations is always a priority for us.

Running great restaurants, modernizing our restaurants, and that goes across all brands, all geographies and 365 days a year.

And our next question today comes from Jordy Winslow of Crédit Suisse.

This is Jordy on for Jason.

I want to circle back on a lot more stores being opened at BK than at Tim's.

But I appreciate that the percentage growth is somewhat similar.

So what is the right way to look at that?

And in your view, is there anything holding back growth at Tim's?

Jordy, it's Josh.

Thanks for the question.

Yes, I think the way that I would look at this is with respect to Burger King, we're really pleased with where we are.

I think if you look back in history, we're now growing about 6% of our restaurant base and about 900 restaurants over the last 12 months, which is the fastest pace I think we've ever achieved of growth.

And it's really exciting, and it's something we're really proud of from all of the team and our partners' hard work in a lot of geographies all around the world.

And that's due to a lot of work that's been done over the last 6 years or so.

And a lot of time, a lot of work has been put in over a long period of time in a lot of geographies around the world.

And in Tim's I feel like we're about 2.5 years into a similar journey.

You see that with us just opening up our first restaurants with some of our new partners in places like the Philippines and the U.K. And today, we announced another further project in Spain with a really high-quality local partner we've worked with and has over 20 years of experience in his local market.

So I feel like with time, we'll open more and more great restaurants with the Tim Hortons brand, and hopefully replicate more and more the success that we're now seeing with Burger King.

And our next question today comes from Peter Sklar of BMO Capital.

On the master franchise or arrangement in Spain, can you talk a little bit about what the time line would be -- what your anticipated time line would be to restaurant openings?

And I know Spain is a large market.

Do you have any idea of what the unit potential would be in that market?

Yes, Peter.

It's Josh.

As I said, we're really excited about the fact that we've announced now our fourth project to take Tim's to another really exciting QSR market.

As you mentioned, it's a very large quick-service restaurant market, which makes it a really exciting one for us.

We don't disclose what our targets are, but I think, as we've said about other markets, anywhere we go, we want to be one of, if not the, largest players in the market.

So we have pretty ambitious goals for what we want to do.

And we'll be looking to open as soon as we can, and we'll let you know as soon as we do.

And this concludes our question-and-answer session.

I'd like to turn the conference back over to Daniel Schwartz for any closing remarks.

Thank you, and thanks to everybody for joining us today.

We really appreciate it.

And we look forward to updating you all on our results next quarter.

Thanks a lot.

Have a great day.

And thank you, sir.

Today's conference has now concluded.

And we thank you all for attending today's presentation.

You may now disconnect your lines, and have a great day.