Restaurant Brands International Inc (QSR) 2021 Q1 法說會逐字稿

Good morning, and welcome to the Restaurant Brands International First Quarter 2021 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Stephen Lichtner, BRI's (sic) [RBI's] Head of Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to Restaurant Brands International's earnings call for the first quarter ended March 31, 2021. As a reminder, a live broadcast of 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, Jose Cil, COO; Josh Kobza; and CFO, Matt Dunnigan.

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.

Throughout the call today, we will be referencing 2-year comparisons for system-wide sales growth and comparable sales to provide a cleaner indication of how the business is trending versus a more normalized period. These 2-year comparisons are calculated on a geometric stacked basis by using the 2020 and 2021 disclosed growth metrics.

And now I'll turn the call over to Jose.

Good morning, everyone. Thank you for joining us on today's call for the first quarter of 2021. I hope everyone is doing well. On many fronts, our first quarter signaled several positive performance indicators that are so important to our long-term business and growth model.

Before getting into the quarter, let me take a moment to highlight the foundational elements of our business model and then tie together the indicators that are giving us confidence that we're getting back on track as we emerge from more than a year of COVID impacts.

RBI is a fully franchised global business with 3 amazing iconic brands. Our growth model relies on stable year-over-year comparable sales growth from our existing restaurants, in addition to expanding our restaurant footprint around the world at a healthy pace. In the years leading into 2020, comparable sales averaged about 2% to 3% on a global basis, while we grew our restaurant count about 5% annually.

At our Investor Day in May 2019, we shared our aspiration of growing to 40,000 restaurants within 8 to 10 years. And we remain committed to that aspiration despite a year of flat growth in 2020 because of COVID disruptions and our proactive strategic closure program.

Foundational to our global growth strategy is unlocking the substantial opportunity to grow our brands in many countries where we're underpenetrated today versus our top competitors and that we attract stable, well-capitalized and experienced operators and investors in the QSR space to deliver on multiyear growth commitments in order to achieve that unlock. In fact, this is exactly what you've seen from our recent global expansion announcements in Q1, and I'll speak about that in a few minutes.

The revenue we earned from this comparable sales growth and expanding portfolio of restaurants converts efficiently into strong free cash flow because of the scalability of our model, methodical management of expenses and deliberate approach to capital allocation. We strive to balance responsible management of cost and capital with a recognition that we need to invest in core areas of the business to drive the strong growth that we want to achieve.

This has included investing more G&A in technology and digital as well as other important areas in the business as we talked about in detail last quarter: investing in our supply chain; attracting top talent from around the world; and most recently, announcing CAD 80 million of support behind the Tim Hortons marketing program in Canada, where we believe we have tremendous opportunity for growth as the leading QSR brand in Canada emerging from COVID. The resulting free cash flow, even after these thoughtful investments in the business, gives us significant optionality in our capital allocation over time, including returning capital to shareholders as we've done through an industry-leading dividend and opportunistic repurchases to provide our investors more participation in our long-term value creation.

There are 2 additional and emerging parts of our business model that you will increasingly hear us talk about. The first is our resolve to build a global sustainable business for the long term. And that means using our global purchasing power and brand influence to do the responsible and right things when it comes to the food we source and serve, the impact we have on the planet through our packaging and our carbon footprint and supporting the communities where we operate as well as all the hard-working good people who work for our brands all around the world.

This is foundational to our business model for one simple reason: because it's important to our guests. Our 2020 Restaurant Brands for Good progress is on our website, and we'll have much more to highlight in our progress throughout the year.

Second, we believe you will find our experience and progress in digital will also increasingly become part of our business model. We'll get into some detail of our Q1 digital successes today that will give you a good sense of what we're talking about.

I'll start with a few headlines of the quarter. As Stephen mentioned at the start of our call, we're monitoring our 2-year comparisons as we look through COVID and focus on returning our business to growth across the board. The first headline is that in the first quarter, our global system-wide sales grew by 1.4% compared to 2019 as a result of having 3 strong brands diversified around the world, with dedicated teams driving a return to growth in their respective markets.

In our home markets, comparable sales growth at Popeyes was up 30% versus 2 years ago. Burger King was flat versus 2019 and showing positive 2-year performance in the last month of the quarter. And Tim Hortons Canada was down 14% on a 2-year basis. We saw a number of positive trends in the Tims business in Canada and are encouraged by our opportunity to return to positive sales growth as we look through the near-term headwinds of COVID and a return of mobility across Canada.

Q1 was also an important quarter for us from a development standpoint, and that's the second headline. In our view, Q1 is a strong early indicator of our return to meaningful growth with 148 net restaurant growth in the quarter, falling just short of our best ever Q1 of 152 net restaurant growth in 2018.

Q1 is historically our lowest contributor to annual NRG performance, so we still have a lot of work ahead of us. But this is a promising way to pivot out of 2020 and reinforces the confidence we've shared over the past few quarters on our path back to 2018 and 2019 levels of growth this year.

Kudos to our developing franchisees out there. They do such a great job and are also committed to growing their businesses in their markets. In the last number of weeks, we also entered into agreements to expand Popeyes to the U.K., India, Mexico and Saudi Arabia, totaling more than 1,000 restaurants over the next 10 years.

Our development teams continue to have meaningful conversations with strong operators and investors around the world, building our pipelines for future expansion. A great example of how impactful these partnerships can become is Tim Hortons China. Along with our lead partner there, Cartesian Capital Group, we announced in the quarter an exciting new round of funding from existing investor, Tencent, and new investors, Sequoia Capital and Eastern Bell, to support opening more than 200 new Tim Hortons restaurants in China this year alone and upwards of 1,500 over the initial term of the agreement. We're excited to have such successful, experienced partners supporting the Tim Hortons brand and its expansion in one of our biggest market opportunities globally.

The third important headline of the quarter is the exciting progress that Tim Hortons in Canada delivered in digital, a core underpinning of our business plan in Canada moving forward. Across the company, we measure digital sales as the percent of overall sales that come through digital channels. This allows us to build a more direct relationship with our guests, improving our ability to understand our guest purchase preferences and then engage them with exciting offers that are relevant to them. At Tim Hortons in Canada, over 30% of all sales in the quarter came through our digital channels, nearly doubling the levels of Q1 2020 and representing the largest quarter of digital sales yet for any of our 3 brands in their home markets.

The biggest impact for Tims came from a redesigned Roll Up To Win contest, the all-digital redesign of our former and loved Roll Up The Rim contest. We saw an incremental 2 million downloads of our app in March, twice the downloads that we saw last year during the contest and significantly higher than a typical month.

Engagement on our app also hit an all-time high with over 40% digital sales during the peak of Roll Up and just over 50% of transactions through our loyalty program that same week. With more guests than ever on our app, we're able to deliver our over 45,000 unique offer sets, delivering an incredibly personalized experience.

Overall, the Tims Rewards program had another quarter of positive sales contribution. We find this to be very exciting for future traffic and sales opportunities, and we're still very much in the early days of what we think we can accomplish with this program, over time.

Josh is going to share a wider view of our digital journey this morning. But our digital performance at Tims in Q1 gives us a picture of a brighter digital future in Canada as well as what we want to achieve at Burger King and Popeyes.

Let's shift now to performance for each of the 3 brands. You likely have our press release with the numbers in front of you, so I'll focus more on sharing some color and reflections on the quarter.

I'll start with Tim Hortons, particularly in Canada. There's no doubt that the biggest factor affecting our performance at Tims is the continued lockdown of a large majority of the country, significantly affecting mobility. Americans are experiencing a very different path out of COVID than Canadians today.

Canada continues to face strict lockdowns in much of the country, with mobility severely restricted. As we sit here today, Ontario, which is where nearly 40% of Canadians live and where nearly 50% of our restaurants exist, is in a mandatory stay-at-home order until at least May 20, and there's a real possibility of that being extended.

Offices are closed. Retail is restricted to curbside pickup and 25% capacity limitations at essential locations. Restaurant dining rooms are totally shut down. Transit mobility today is down 60% from pre-COVID levels, and Ontario just opened up first dose availability for those 40 years old and up, with second doses for most not available until late summer or early fall.

We're clearly seeing that where Canadians are permitted to have more normal routines, they're coming back to Tim Hortons. The comparable sales performance of restaurants in rural and suburban areas was flat to slightly positive year-over-year during the first quarter. The mobility restrictions continue to affect our morning daypart the most, with the single largest drag in our sales coming from our regular routine morning coffee guests.

With that said, we remain disciplined and encouraged by the underlying progress we're making. The Back to Basic strategy we've talked about for more than a year is now working as we intended.

We continue to take the necessary steps to develop a strong product innovation pipeline, making sure we're addressing opportunities in our menu offering in areas of the market where we believe we can expand our leadership to drive long-term incremental sales in the business. For example, the launch of our dark roast coffee has been a success, resulting in a renewed attention and love for our coffee offering. This, coupled with our investments in fresh brewers and water filtration which we shared previously, has helped drive 2% growth in overall coffee incidence in the quarter. This growth in incidence, with percentage of transactions, including in coffee, is the largest increase we've seen in 3 years.

Our bolder, richer formulation of our dark roast has proven to have a significantly better flavor profile that our guests have been asking for. And our consistent execution of the Tims original blend, along with greater marketing attention on the coffee category, undoubtedly contributed to our growth in coffee in the quarter.

The launch of our freshly cracked egg in the quarter is our single biggest change in our morning daypart menu in years and has been warmly and enthusiastically embraced by Canadians. We launched the fresh egg in early February, and by the end of February, our breakfast food category delivered positive year-over-year and 2-year comparable sales growth. We also saw a positive year-over-year growth in the overall morning daypart in the last few weeks of March, with the 2-year comp remaining low single digits negative during the same stretch at the end of March.

The freshly cracked egg, in addition to the other quality improvements we've introduced over the last year, are undoubtedly meaningful changes to our breakfast offering. And the team has further innovation around this product and others already lined up for later this year.

More importantly, the breakfast food category and the morning daypart moving into positive territory in the quarter is a strong indicator for us. This is Tim's heartland, and we must own it on the beverage and food front.

We're excited to continue to build on the credentials we've established and are now well positioned to recapture guests with an enhanced guest experience as mobility returns. We've also successfully extended this Back to Basics approach into lunch and snacking with our craveables lineup continuing to show momentum with our guests, driving high average check with high incrementality.

Craveables are a key step in our quality journey. The delicious roast beef build has notched the highest product satisfaction score of any main food item on our menu. The team will soon be launching new innovation in craveables, and our success in the lunch daypart has led us to longer-term innovation planning to further grow this segment as we move into early next year.

Overall, the momentum in our menu innovations as well as our strong pipeline of new innovations planned for the back half of the year and well into 2022 gives us a lot of confidence that our Back to Basics plan is working as we intended. We view the timing of these many innovations that are generating such positive reaction from our guests to be very important as the Canadian economy reopens later this year and Canadians return to more normal routines.

And despite the mobility challenges in Canada I mentioned, our network of roughly 2,700 drive-thru locations -- remember, we have 1,000-plus more drive-thrus than our nearest competitor, and these drive-thrus have been a big strategic advantage as Canadians have been limited in their ability to access food and beverages when they're out in the road. In Q1, our drive-thru sales were up 23% year-over-year, recognizing that only about 15 days of the quarter were impacted by COVID last year. This reflects not just the strong sales performance, but a great operational achievement, with our focus on enhanced ops procedures and menu simplification, all of which help meet the needs of the increased number of guests using the drive-thru today.

With Tim Hortons being a brand with such strong emotional ties in Canada, we make sure to measure and track a metric we call brand closeness rigorously. Brand closeness scores also happened to be a key driver of visit intention for the brand. Based on our latest data from a third-party provider that runs surveys across the country, the brand closeness measure is the highest it's been in over 3 years, which we believe speaks to all of the brand love initiatives and community activations we've engaged in over the last year, as well as the perception of our improving product quality.

We believe that our large footprint of 4,000 restaurants, one restaurant for every 9,000 Canadians, the digital success we've seen in the last few quarters, fundamental improvements to the quality of our menu and a more transparent, improved working relationship with the Tims owners, all position Tim Hortons to lead the Canadian market recovery. This is what led us to partner with our restaurant owners to invest even more behind our plan. Our commitment of CAD 80 million, combined with the 50 basis points of increased ad fund contributions from our owners, will allow us to supercharge our advertising throughout the year and into the future and continue advancing our digital and overall guest experience.

Wrapping up on franchise profitability generally. As we discussed in February, our franchisees ended 2020 in a solid financial position in terms of 4-wall EBITDA, which has continued through Q1. New category expansion like cold beverages and craveables that come with a higher check; engagement through digital, which has proven to drive incremental visits and sales; and a more strategic approach to pricing across the country have all contributed, on average, to solid franchise profitability that positions the system well to weather the remaining short-term impact of reduced mobility as well as some of the macro commodity increases we've seen recently and that are projected to remain challenging in the coming quarters.

Let's turn the discussion to Burger King. For a number of quarters, you've heard us discuss the importance of striking the right balance of flagship products and a desirable everyday value menu offering. In the U.S., we saw in Q1 the impact of layering our long-term initiatives centered around high-quality, great-tasting food and the introduction of a compelling dollar value proposition result in nominal monthly sales per restaurant, reaching their highest levels in recent history. This drove solid improvement in visitation year-over-year and versus the industry in March, which we believe sets us up well for sales growth in the coming quarters and beyond.

We believe the $1 Your Way menu is a solid foundation to deliver our guests a consistent, everyday value proposition featuring great-tasting, flame-grilled products that only Burger King can offer. It has become a valuable part of our offering, closing part of the gap that we've had in value for some time.

That said, while we made up some ground in sales in March, we still have an opportunity with our average check. That's where our focus on menu innovation and quality improvements comes in. This quarter, we brought back historically strong product innovations to the menu that our guests love and crave, the Sourdough King and Cheesy Tots, achieving the highest AUVs we've ever seen on these products.

In terms of major product innovation, we started rolling out our delicious hand-breaded chicken sandwich, which is now in half of our restaurants in the U.S. It's such a great product. But don't just take my word for it, listen to the many food bloggers who've commented on it. Or better yet, go try it.

The team took the time to test the product, pricing and operational procedures, making no compromises on quality and ensuring we execute it consistently. We're continuing to roll out this new great-tasting sandwich, and we'll have the product available nationally this summer. We believe the sandwich will drive visits, and check will be incremental and will provide an important opportunity for further innovation.

In terms of another long-term growth opportunity in the U.S., breakfast is top of mind. It's already a decent size part of the Burger King business, contributing roughly 13% of overall sales, with much of that tied to our delicious sandwich.

Now I know what you're thinking. We've mentioned the breakfast opportunity at Burger King to you several times in the last 12 months, but frankly, haven't made much progress. That's because we prioritized other more immediate initiatives.

The Burger King U.S. team now has this breakfast opportunity square in their sites and are working closely with a group of talented franchisees to build a long-term plan with quality food and beverage offerings at its core and with the ambition to make Burger King the preferred breakfast destination in our space. There's still so much more we can do on top of the existing breakfast business in terms of menu expansion, food and beverage innovation, product quality, everyday value and awareness.

And while our long-term plans for breakfast will take some time to develop, test and launch, we're not standing idle. For example, we recently introduced the delicious french toast sandwich in the last week of the quarter that is showing promise as a check driver. We also have plans to make our iconic sandwich an even more powerful anchor of the breakfast business with product quality upgrades that we'll introduce later this year.

Driving elevated awareness, consideration and repeat visitation for our breakfast offering at Burger King is a strategic priority going forward. A great way to drive these metrics across the menu is through our digital channels. And on that front, our new Royal Perks loyalty program is now available across the country on digital channels and later coming to more of our ordering and service modes.

During the first quarter, total sales coming through digital channels were about 9%, up nearly 40% versus this time last year. This is a good start, and you'll see us increase our digital focus at Burger King in the coming quarters, with the benefit of everything we're learning from the Tim Hortons experience in Canada.

Finally, franchise profitability, on average, was in a solid position entering the year. And while recent media reports mentioned pressures in commodities and wages, we continue to work closely with our franchisees focusing on driving traffic and sales growth, strategic procurement, efficient service through our digital drive-thru and off-premise channels, all of which we're confident will help our franchisees continue to drive improved 4-wall profitability in their business.

Internationally, we're continuing to see a recovery in many markets across APAC as case counts in most of the region remain low, though our EMEA and Latin America regions remain under near-term pressure. Temporary closures increased slightly in EMEA, with 92% of the system fully open over the quarter and at the end of it. APAC improved versus the fourth quarter, with 96% fully open over the quarter and 97% at the end of it. And Latin America temporary closures increased slightly, with 92% of the system fully open over the quarter and 84% fully open at the end of the quarter.

The ability our international markets and franchise partners have demonstrated to bounce back after restrictions are lifted gives us confidence that our international business will return to providing consistent growth in 2021 and in the coming years. And we see that in some of our markets, we're already fully back to growth.

For example, Australia and Korea comparable sales are up plus 10% and plus 13%, respectively, on a 2-year basis. In EMEA, Russia has returned to growth with plus 3% comparable sales on a 2-year basis. In Latin America, we have several countries that are back to comparable sales growth on a 2-year basis, including Puerto Rico, Mexico and Chile.

A big part of our growth story at Burger King over the last 10 years has come from our international business. With solid performance returning across much of the world, our partners are just as excited as we are to get back to it, opening beautiful new restaurants, building out and sharpening digital capabilities and driving sales by delivering high-quality products and an excellent experience to our guests.

Let's turn our attention to Popeyes. The single biggest highlight at Popeyes is a solid, continued performance that our chicken sandwich is driving for the business. This resulted in year-over-year comparable sales in the U.S., up 1% in Q1 and up 30% on a 2-year basis. And while the sandwich has undoubtedly been a game changer for the brand, it's also contributed to broader consumer awareness and trial, resulting in growth across other major parts of the menu, including bone-in, boneless and seafood.

With the success of the Popeyes chicken sandwich, the team is motivated to continue the long-term menu innovation pipeline. You saw us launch the Cajun Flounder Sandwich in Q1 that proved to be a great complement to our chicken sandwich, with guests adding on the sandwich to their orders and both new and existing guests creating an additional visit to Popeyes for this Lent-driven sandwich innovation. We believe there's plenty of room to innovate in the broader chicken category, which we're excited to get into later this year.

The substantial increase in awareness of the Popeyes brand and our amazing products have been a great way for us to introduce many new guests to the brand. Our research shows that Popeyes shoots to the top of the list and preference once the guest has tried our products.

Our digital channels and off-premise business, therefore, represents a big opportunity to grow the brand. In Q1, Popeyes had 17% of its sales come through our digital channels, more than double the level from this time last year.

Adding to our digital environment, we recently launched the pilot of our new digital first loyalty program at Popeyes in the quarter, and we're excited to use this connection with our guests to drive incrementality through targeted offers and campaigns to improve our lower-frequency, higher-check relationship with our guests.

The strength over the past year has established a new baseline for Popeyes. On average, 4-wall profitability is at an all-time high, and franchisees are excited about what's to come. We think this great brand is incredibly well positioned for a long runway of growth in both the U.S. and internationally. And clearly, developers, restaurateurs and business owners think so, too.

Without providing too much detail into our pipeline, there's an amazing appetite to put capital behind Popeyes, both in the U.S. and internationally. This first quarter, we delivered strong net openings of plus 25, our best first quarter performance at Popeyes U.S. since 2017. At this point, we're focused on selecting the best partners and the best locations with our partners that will make the brand even more convenient and accessible while driving traffic sales and profitability over the long term.

I'll now hand things over to Josh to update us on our digital journey across the company.

Thanks, Jose, and good morning, everyone. I want to take just a couple of minutes to revisit our digital strategy, a great example from the quarter and how we can learn from it to strengthen targeted conversion within our marketing funnel across all of our businesses today and into the future.

If you imagine the nondigital guest experience for a moment, we rely on a powerful, recognizable brand and memorable advertising to attract you to our restaurants. We focus on a few famous core products that are differentiated from our competitors. We entice our guests with visual menu boards and point-of-purchase materials at the restaurant that highlight deals we think our guests will value.

We focus on providing a positive interaction with our team members and serving you hot, delicious food in a timely and accurate way. And we do panel studies, one-on-one interviews and samples of guest feedback to understand how our guests react to the experience we offer and then use that data to make adjustments for the next time they come in.

Now I'm simplifying it a bit, but not that much. That was how our industry operated for a long time before the power of fully integrated digital experiences, combined with leveraging technology and data, has begun to change the way that we and others manage our business.

The foundation of our digital and technology strategy is our guest. We want to be part of the smartphone in their hand and be one of the apps that they return to frequently. This is an important point.

We've spent decades to develop and protect our iconic brands. We want to design every step of the guest journey with our brand, and we can best do that on our digital platforms, in our own applications whether on desktop, mobile, kiosks, digital menu boards or any device where we interact with our guests. We are building our apps and our associated digital loyalty programs to be highly engaging and a reason to visit our brands more frequently, driving lifetime value of our guest relationships and deepening connections with our own brands.

A great example from this quarter that we believe is a guide for the future is the Roll Up To Win experience that Jose mentioned earlier. We took something historical, iconic and unique to our Tim Hortons brand and brought it into the modern digital world in a caring and highly guest-focused way. Through that transition, we were able to bring a very large group of our Tims guests a lot closer by creating a new digital relationship. But we also drove engagement with existing guests spending more time on the app, something we plan to sustain with games, contests and more reasons to use the Tim Hortons digital ecosystem in the future.

Ultimately, this deepening of our guest engagement is allowing us to better understand our guests and drive sales through more personalized offers. That is to say we are using better offers and addressing a larger portion of our guest base. And it means that our digital platforms are having a more relevant impact to our business than ever before.

Jose mentioned that we are deploying loyalty programs at Burger King and Popeyes as well, which will help to reinforce the already large and growing number of guests that engage on our digital platforms at those brands. Fundamentally, what this allows us to do is work very differently and much more efficiently with our marketing funnels across our businesses. Many of the members of our rewards or loyalty programs tend to be some of our most loyal fans. And we can now personalize the offers and messaging that they receive to improve their experience and offer suggestions for other dayparts or menu items that they might like to try.

We have also leveraged these channels to communicate about purpose-driven messages that are important to our guests, like Tims for Good, or our recent Popeyes quality campaign, bringing even greater visibility to the great work our brands do at little to no media cost. This is a much more efficient way of marketing to our guests, and we are excited about the path ahead of us.

Alongside loyalty, we've discussed significantly expanding our outdoor digital menu board footprint, with plans to have over 10,000 drive-thrus equipped by mid-2022. It's exciting to see the menu boards installed so far producing a quantifiable uplift in sales even while we are early in rolling out and optimizing our predictive selling capability and fully integrating our loyalty programs. With that in mind, we continue to work closely with our franchisees to roll the boards out across the system as quickly as possible, while our engineers and product teams continue to improve the software capabilities.

I'll stop there for now and pass the call over to Matt to cover financial results.

Thanks, Josh, and thanks, everyone, for joining us this morning. While we're still working through COVID-related headwinds in various parts of the world, as Jose mentioned, we've seen solid underlying progress against our plans in many areas of the business. And when you look at our consolidated results, we see the benefit of our global scale and diversification across 3 great brands and a differentiated set of partners around the world, who remain focused on growing their businesses. As a result, our global system-wide sales for the quarter were up 1.4%, and our adjusted EBITDA was up over 5% organically year-over-year.

Beyond the growth in system-wide sales, I would call out 2 other factors contributing to our growth in adjusted EBITDA. First, while we haven't historically had meaningful bad debt expenses, we did increase our bad debt provision in 2020 to reflect an increased risk environment. As sales and unit level profitability have now largely rebounded, we're seeing some release of cautionary provisions, which accounted for about 1.5 points of our year-over-year growth.

Additionally, our Tim Hortons retail business, in particular, has performed very well throughout the lockdown environment as a result of market share gains, new product listings with some of our largest partners, expansion into new markets in the U.S. and adding points of distribution. Overall, our growth in retail also added about 1.5 points to our year-over-year growth in adjusted EBITDA.

Next, we wanted to provide a quick update on G&A. During our last call, I mentioned that we expect to continue making proactive investments in digital and technology initiatives as well as adding hires across a number of key areas, all leading to sizable year-over-year increase in G&A.

When looking at the first quarter and adjusting for timing and one-off expenses last year, our segment G&A was up slightly year-over-year, consistent with Q4. However, as we look forward, we expect these investments to increase over the course of the year as we ramp up our various initiatives.

And as Jose mentioned earlier, we also recently announced CAD 80 million of support behind the Tim Hortons marketing program in Canada. This, along with other advertising expenses, will flow through a newly separated line item in our P&L added as part of an effort to enhance disclosure around advertising expenses, revenues and core segment G&A. We hope this enhanced disclosure makes things easier for everyone to understand going forward.

Now turning to EPS. Our first quarter adjusted earnings per share of $0.55 grew at a higher rate than our consolidated adjusted EBITDA at about 15% year-over-year, including an FX benefit of about 2%. The higher growth was further supported by a lower effective tax rate, mainly as a result of stock-based compensation realized during the quarter and a lower share count following our $380 million share repurchase last year. These tailwinds were slightly offset by higher stock-based compensation and D&A.

Jose talked quite a bit about the underlying progress and opportunities that are driving our positive outlook on the business. And along with that, we're moving forward on our key capital projects, including investing behind remodels and rolling out outdoor digital menu boards across the Tim Hortons system, both of which we expect to ramp up as the year progresses.

From a capital structure perspective, we ended the quarter with slightly lower net leverage relative to the end of 2020, now at 6x. While net leverage may seem high relative to other industries, we are very comfortable with our position for a number of reasons.

First, our liquidity position is solid. Between our $1.6 billion of cash on hand and our undrawn revolver, we have about $2.6 billion available. We also have no upcoming maturities until 2024, and approximately 80% of our capital structure is fixed at attractive rates as a result of the refinancing work we've done over the last few years.

And most importantly, as Jose mentioned earlier, our business model as a franchisor is very efficient. And our high conversion of earnings to cash flow provides plenty of capacity to cover our debt service obligations multiple times over.

And finally, to wrap things up, I'm pleased to share that we declared a dividend of $0.53 per common share in unit payable on July 7, 2021, which extends our industry-leading dividend, consistent with our previously announced target of $2.12 for 2021.

With that, I'd like to thank everyone again for your support, and we'll now open the line for questions. Operator?

(Operator Instructions) The first question comes from Jon Tower with Wells Fargo.

Great. Lots to dig through today, and congrats on the progress. Just curious, perhaps you could dig into the incremental ad fund contribution that you made or plan to make in Tim Hortons Canada. Can you discuss how you plan to utilize the incremental spending or the incremental dollars, particularly given that right now, you've got a challenged environment in Canada as you alluded to earlier, Jose, in the conversation? And where we should expect seeing that show up, whether it's in digital channels, more traditional media, or is it going to be a promotional activity? And particularly the timing, can this bleed over into 2022, given the challenges that are facing the Canadian mobility at the moment?

Jon, thanks for the question. Look, as I mentioned during the prepared remarks, we feel encouraged by the progress we're making at Tims, encouraged by the first quarter. Obviously, the situation is different in Canada as it is in the U.S. and some other markets around the globe.

But we've been focused on our Back to Basics plan and are making good progress on those initiatives around the quality of our food, expanding the menu, but keeping it to what we're really good at and what made Tims famous, modernizing the restaurant experience with our rewards program as well as the investments in the drive-thru.

And what this investment means is that we, at the company, the Tims team, as well as our owners have confidence in the plan, confidence in the team and feel it's really important to invest now in the business, investing behind these initiatives to be able to be in a position once mobility returns, the vaccine reaches higher levels of rollout and things start opening up again. As we've seen here in the U.S., we have confidence that we're going to be well positioned to capture that growth and that return to normalcy, if you will, that will come to Canada.

The timing of it is really a function of how much we believe and the plan and the partnership that we have with our owners and the opportunity that exists in Canada. And how we'll use it will depend -- we've got flexibility. Obviously, we think that it's going to be an investment behind initiatives that are driving our core platforms and the digital experience as well. Overall, we want to be able to bring higher levels of awareness and also just continue to drive our brand love initiatives in Canada and bring more firepower to the advertising budget to be able to get the message out to Canadians in the coming quarters.

Yes. Jon, just one quick thing I would add there on timing. It's -- I think we'd expect the investments here, as Jose mentioned, to be fluid. It probably fluctuate a bit as we progress throughout the year, but we do expect to invest the entire CAD 80 million of support this year.

The next question comes from David Palmer with Evercore ISI.

I heard some comments in there about 2-year breakfast comp that you mentioned being positive. And I think you said down the -- I think it was breakfast food comp was positive, and the breakfast daypart was down low single digits slightly. Perhaps we can go over those numbers again and perhaps what that means for how you're doing, overall, for Tims on a 2-year basis slightly? I think that's going to be important for people to get a sense of.

And I'm -- and really just a big discussion, I know you're not going to get too much into guidance, but when you look back at '19 as the base year, that was kind of a rough year for Tims. You had the royalty issues and the drag then, and 2020 was supposed to be a little bit of a rebuild year anyway. So when -- it's interesting that The Street numbers for '22 are still below that in terms of same-store sales, below that level of '19. So it seems conservative. When you think about it, do you agree that you should be higher in sales per unit in '22 if Canada has reopened? And I'll pass it on.

Thanks, David. On the second question, we don't -- I'm not going to get into that. It's -- we're focused on executing our plan now. And as I mentioned, we're excited about the progress we're making. We still have a lot of work to do, and there's obviously macro conditions in Canada, in particular, that we're still working through.

But the plan is working as intended. And we're making good progress on all fronts, product quality improvements in coffee with the dark roast, as well as the fresh brewers that we rolled out. Progress with the -- with breakfast food, in particular, that was one of the key priorities I mentioned a couple of times over probably over the last 12 months, the importance of us moving into top consideration for breakfast visitation when food is a driving motivator. And so we, certainly, are at the top of the list when coffee is the motivator. And I think we're getting better at that.

But in addition to that, when food is driving the decision for our customers in Canada, we needed to move up that list, and food quality was critical. Freshly cracked eggs was a big, big initiative for us. It's taken us over a couple -- it's 2 years plus in the making and a very strong partnership with our restaurant owners in Canada to get that in place as well as great work from the team in Tims in Canada from an operational standpoint, from a supply chain standpoint as well as from a marketing and product innovation standpoint.

The numbers I mentioned or the progress that I mentioned is that we launched freshly cracked eggs at the -- sometime at the beginning of February. And by the end of February, we saw our breakfast food category, so the food side of the business at breakfast, delivering a positive year-over-year and 2-year comp growth. So that was encouraging at the early days in the launch of that product and really the enhancements of quality in our breakfast offering driving growth in the food category. And then we also saw positive year-over-year growth in the overall morning daypart the last few weeks of March. So it wasn't for the full month or for the full quarter, but for the last few weeks of March, we saw progress on a year-over-year basis.

We're still negative on a 2-year basis in the daypart, but it was low single digits at the end of March, which, again, just highlights that we're in the early days -- or if using baseball as an analogy, early innings of the game here, but we're working hard with our teams and our franchise owners in Canada to make real progress here. So thanks so much for the question. We'll go to the next one.

The next question comes from Dennis Geiger with UBS.

The insight across brands is definitely helpful. I wanted to ask a bit more about the Burger King U.S. So you've highlighted a number of compelling initiatives across chicken, breakfast and digital, with a focus on quality and experience, it seems like. I wanted to ask how quickly you think a lot of these initiatives can start to drive market share gains from here?

And kind of related to that, we've seen a little bit of uneven performance, certainly, over the last several years from the brand in the U.S. with LTOs and promotions working well. But it's probably difficult to have really good year in consistency with that. So curious now, as you've highlighted a lot of these strategic points of focus, if this can drive sort of greater annual consistency and momentum for the brand, going forward, if that's a part of kind of the road map that you outlined there.

Dennis, thanks for the question. Yes, on the second point, the idea here is definitely to build a long-term plan. We've made some meaningful changes to the team in the U.S., the marketing team. We feel really good about the talent that we have and the team and the progress they're making in terms of planning and the work they're doing collaboratively with the franchise owners in the U.S., which is helping us build a solid plan that we all believe in and then everyone is executing behind.

So there's the confidence there in the plan, long-term plan. And our commitment is to build something meaningful that drives sustainable growth over the long haul.

I think in the short term, which is your first question, the progress that we're making and the excitement that I shared in my prepared remarks is that the first quarter was a good quarter in terms of nominal monthly sales per restaurant. We saw really good improvements on that front, reaching highest levels we've seen in recent history. A big part of the progress we made in the quarter was the implementation. And then the full quarter execution of the dollar value menu, we think it's helping us close gaps in terms of visitation, and we saw some really good progress on that front year-over-year as well as versus the industry.

But we're also -- it's a balanced approach. And you've heard me say that multiple times over the years. The importance of -- with Burger King, in particular, having a balanced approach, obviously, driving our core, but having a balance with premium offerings as well as value. And so the quarter was encouraging in that regard.

We made some good progress as well in digital. I think there's a lot more to come there with the BK team, and we're excited about the launch of digital loyalty, which, over time, will be available in other channels and service modes.

And we've got -- I think this quarter also reflected the move back into innovation, meaningful innovation. We saw the work on the breakfast french toast sandwich, as well as cheesy tots that came back, and those are popular limited-time offers that we've had in the past. And so bringing it back for our customers was quite impactful.

Also, the work we've done on hand-breaded chicken sandwich, which I mentioned in my prepared remarks, is coming to a location near all of you very soon. This is an important launch for us. We've had chicken for a long time. This is not a new category for us, but it's a massively improved offering, and I think will be really exciting for our business long term.

The franchisees are excited. They're executing it well. And we're being deliberate in terms of the rollout because of the importance of building something sustainable, long term. So you'll see a shift at Burger King from trying to do promotional activations short term to drive visits and transactions, that high-low approach. I think you'll see us build a sustainable long-term plan on meaningful platforms. And that's why I mentioned the breakfast, the importance of breakfast, how strategic it is for our business and the investments we're making behind it long term to make a meaningful push on that over time.

So we're excited about where we are, the progress we've made. But it's early days, and we've got a long way to go. So we'll keep you posted on our progress. Thanks, Dennis.

The next question comes from John Glass with Morgan Stanley.

Coming back to Tims and 2 unrelated pieces. One, just on digital, in the past, you've talked about the contribution of digital. It was negative. It's flipped to positive. Maybe just some insights as to how that's progressed, the contribution to the comps. And inside that 30% of digital customers or transactions you're experiencing, what are the dynamics? Are you seeing those customers frequent more? And if so, how much? And if it's a check lift because they're buying up and you're the bespoke offers? What is that check lift? That's on the Tims Canada business.

If we just flip over the other side of the world, Tims China seems to be getting some momentum in unit growth just, obviously, some excitement from external investors. Can you just remind us how the brand is positioned differently there that makes this resonate? If there's any metrics around sales volumes that you can share so we can just better understand how that opportunity is shaping up?

Yes. Thanks, John. I'll have Josh touch on the digital question related to Tims in Canada, and then I'll come back to Tims China. Josh?

Yes. John, thanks for the questions on Tims. I would say, traction on the Tims loyalty program, what we have seen is that like that over time, the contribution to the sales has been more positive. We've been consistently working on that as we've been able to make the offers more targeted.

And the team has done, I think, a great job of, as I mentioned in the remarks, both consistently growing the base of those loyalty users, getting them to be more registered and then making those offers more targeted, which is kind of over time allowing the program to be more and more effective.

And then I would say, as you asked the question about what are we doing with the program, are we growing check or are we driving more frequency? One of the big things that I referenced in some of our remarks earlier is that we're really focused on -- I think it's probably the biggest part of what we're trying to do, is driving more engagement with the app, and I think that drives more engagement with the brand. I think that -- a lot of that's around frequency.

So you've seen us doing a lot of different things like the Roll Up To Win, digitization of an existing Roll Up The Rim game that's driving people to come back to the apps more often to play more games. And we can actually see in the segmentation of our guests that a lot of the guests are coming back, and they're engaging with us more and more frequently.

And I think our goal is to see the guests engage with the Tim Hortons brand more often and come back and visit us more often, drive more frequency of engagement over time. So those are some of the biggest things that we've really been focused on where we think we're making progress and where we think we can do even more over time.

Thanks, Josh. John, on the question of Tims China, as I mentioned in the prepared remarks, we're really excited about the progress there. We're only 2 years into it. So we started -- we built our first restaurant -- opened the first restaurant in -- at the beginning of Q1 of '19. And we're at about 200 locations now. We've had very exciting interest from important investors in China on the business, and we have commitments to double the size of the business this year and continue on our journey to reach the targets of growth that we set for the business as a starting point when we announced the partnership back in 2019 or end of 2018.

We're not sharing details on AUVs and these sorts of things for that business. But the progress has been tremendous. The positioning for the brand there -- interestingly enough, the Chinese consumer connects well with the Canadian brand, not Tims necessarily, but Tims Canada as a broader concept. Obviously, things like hockey players aren't going to be highly relevant in China, but there's a lot more to Canada than hockey players. And so -- and to the brand as well.

So we've been able to build on those. We've done a bunch of research with Chinese consumers. And the things that really resonate are the quality of the product, the quality of the digital experience, the design elements that we've built that are really modern and forward-looking and very cool and connecting well with our customers and convenience, being there every day for every transaction with high levels of service. The local team in China is doing an awesome job with Tims.

And I think it's a really good example. It's like a micro example of what can be the possibilities with Tims internationally, and we've seen good progress with our business in the U.K. We have a really strong business in the Middle East, Saudi Arabia with Tims. And we think we have tremendous opportunity for growth, long term, with the Tims brand as a great offering for coffee, for breakfast, for baked goods and doing it with a digital-forward game plan.

So we're excited about the progress, but it's early days. And given the nature of coffee growth in China, we think we're well positioned to see a long-term growth of the business there for years to come. Thanks for the question.

The next question comes from Chris Carril with RBC Capital Markets.

So on the back of the recently announced development agreements for Popeyes, how should we think about where the brand is along its growth trajectory, both in the U.S. and globally? And if you could, maybe to help us better understand this trajectory, can you maybe frame up how you're thinking about the brand relative to how you thought about Burger King ahead of its development ramp a few years back?

Chris, thanks for the question. I think it's important to go back to 2019 when we shared our ambitions to reach 40,000 restaurants in over an 8- to 10-year window.

We thought then, and still think now that we have an incredible amount of open space around the world to build our 3 brands. And our franchisees, new ones and existing ones, are super excited about the business and especially given the power of the brands and the resilience of the business in the most difficult of circumstances. So the unit economics and the performance of the business during probably the most complicated environment anyone's ever seen gives them confidence that this business is really solid and can create a ton of value for them, over time.

One of the things that I think is important from our development journey is -- we've talked about, and obviously, BK has been a big part of our growth internationally for the last several years. We doubled the size of our international business from 2012 to 2020. We went from something like just under 6,000 international restaurants to over 11,000, excluding the U.S. business. So there was a tremendous amount of growth internationally. We've doubled during that stretch of time. That was because of the benefit of the great partners we had internationally and the master franchise and joint venture agreements we've put in place.

But the reality is we still have a ton of room for growth in many of the markets where we made up ground versus our competitors over the last 8 years. China, France, Spain, U.K., Germany, Brazil, these are markets where we've seen tremendous growth. But we still have big opportunities for growth going forward, and we have great partners and great teams there to achieve that.

As it relates to Tims and Popeyes, it's even -- I think it's even earlier days than Burger King, obviously. But the kind of the experience we've had with our master franchisees and the approach we've taken to double the size of the business internationally for BK over the last 8 years is similar in how we're thinking about Tims and Popeyes. And Popeyes, obviously, with the momentum of the chicken sandwich and the momentum of the business in the U.S., has burned a lot of excitement and interest internationally. And it's led to important partnerships in the U.K., in India, in Mexico, in Saudi. And we think it's just the beginning of the potential this brand has internationally.

There's a lot of work here. We're not trying to meet a short-term goal here. We're trying to build something meaningful for the long term. And the selection of partners, ensuring we have the right teams in place with the right incentives and the right capital structure, that's what's driving us, and that's what drives the process. And we look forward to seeing our business grow and our brands grow internationally in the years to come.

The next question comes from Nicole Miller with Piper Sandler.

I was hoping to understand consumer behavior and the digital impact through the lens of average check or transaction. So could you please share where you landed last year by concept on the dollar amount, average check or transaction? And then at each brand, how is it trending, higher or lower or the same as you entered the year? And why?

Thanks, Nicole. In general, we don't really break out traffic and average check performance for our brands in home markets or internationally. Obviously, with the impact in the last 12 months of COVID on mobility and transactions, we've seen -- and people -- more people dining through off-premise channels delivery as well as drive-thrus, we've seen check growth across the globe.

As I mentioned in my remarks on -- and earlier on BK, we've made good progress with transaction growth in the first quarter here in the U.S. with our focus on the dollar value menu. I think there's a -- there probably is a digital aspect to that question as well. I'll ask Josh to maybe comment on it by brand.

Yes. Nicole, I mean, a couple of thoughts, just generally on this topic, a couple of things that we do see between -- that are a little bit different between some of our digital and nondigital channels. I would say, at a high level, that we tend to see that our digitally engaged guests, even with in-store service modes, they tend to be some of -- as I mentioned in my remarks earlier, they tend to be some of our more loyal guests, some of our bigger fans. So they tend to be a little bit more -- a little bit higher frequency guests. So they -- we tend to see them coming in a bit more often.

And then, obviously, the check profile is a little bit different based on the service mode. But any of our delivery service mode guests are obviously a much higher check profile. So those are the 2 things that I would probably point out to you in terms of different check and transaction dynamics between the channels.

And the last question today or questions will come from Patricia Baker with Deutsche Bank (sic) [Scotiabank]

I just want to return to a discussion of the Tims cracked egg. Thank you for sharing what you have shared with us, and it's great to see that, that has traction. It may be early, but I'm just curious what you know about that customer. Is the person buying the cracked egg sandwich, are they replacing other breakfast offers? Are you maybe seeing returning customers that may have left on breakfast for you? And do you have any evidence that you're gaining some new customers having this particular offer?

Patricia, thanks for the question. It's early days with the launch of fresh cracked eggs. The data or the update that I shared was the information we had at this point with the -- which is encouraging with the progress we're making.

I think we've seen higher frequency through our digital channels of loyal guests that are coming back and adding a chicken sandwich -- I'm sorry, chicken sandwich. I always have that in my mind, but a breakfast sandwich at Tims, maybe eventually a breakfast sandwich with chicken as well.

But anyhow, we've seen our digital data and loyalty data confirm that we're seeing -- we have higher frequency from loyal guests coming in and adding a breakfast sandwich. So we think there's new customers coming in, early days. And we're seeing more frequency from existing customers, and that gives us confidence and encouragement that we're on the right path in terms of developing a really high-quality offering for breakfast at Tims.

It's the -- it's really just the beginning of the journey. We've started to add the fresh cracked egg to bagels, and we think there's other opportunities as well to introduce that in other products. So we're excited about the progress, excited about to start with it and looking forward to continuing to drive more customers into Tims for breakfast and for other dayparts as well. Thanks so much for the question.

This concludes our question-and-answer session. I would like to turn the conference back over to Jose Cil for any closing remarks.

Thanks to everyone for their questions and for joining us this morning. We're pleased to see the business return to growth and to see such a strong start to the year from a development standpoint as we get our unit growth engine back up and running.

On top of that, our digital efforts are beginning to produce impressive results as we discussed, highlighted by what we saw from the Tim's Roll Up To Win contest. With loyalty programs at all 3 brands -- at all 3 of our brands in home markets, we're excited to build a more personalized experience for our guests while delivering them high-quality, craveable foods at a compelling price.

Our teams here at RBI and our franchise partners around the world are working hard to continue building on the progress we've made so far, and I look forward to sharing more in the next quarters to come. Have a great day, and stay safe out there. Thanks, everyone.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.