New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Restaurant Brands 2Q22 sales and 1H22 guidance – initial impressions</h2>
Restaurant Brands (RBD) has provided first time 1H22 guidance below our expectations, with inflationary pressures the key driver of the difference. Total store sales for 1H22 of ~NZ$585m (+8% on 1H21) was in-line with our expectations (FB: NZ$578m), but 1H22 NPAT guidance of between NZ$14m to NZ$16m is materially below our expectation of ~NZ$30m, and a -35% decline on 1H21 (NZ$23.1m, after adjusting for the Hawaiian PPP loan forgiveness). &nbsp;&nbsp;&nbsp;
We anticipate demand for RBD will be less sensitive to the economic cycle than many retailers, with a proven track-record. However, today’s update highlights that despite demand remaining robust cost pressures have been difficult to offset to date. We will look for further comments from the company around strategies to mitigate these cost pressures going forward, but at face value today’s update is clearly negative for near-term earnings expectations.
2Q22 divisional summary
<ul>
<li>New Zealand — 2Q22 same store sales (SSS) +3.2%: Total sales were up +7.4% to ~NZ$133m. All brands showed sales growth throughout the period, despite the on-going impact of the Omicron variant; causing reduced store trading hours and lower dine-in traffic. Store numbers remained constant during the quarter at 138.&nbsp;</li>
<li>Australia — SSS +5.0%: Total sales were up +8.4% to ~NZ$70m. The company noted that mall and in-line sales are beginning to recover towards pre-COVID levels. Store numbers increased by one during the quarter to 81 with the opening of a new Taco Bell in Sydney.&nbsp;</li>
<li>Hawaii — SSS +3.6%: Total sales up +19.7% to ~NZ$62m. With the easing of COVID-19 restrictions the dine-in market has rebounded towards pre-pandemic levels, benefitting Taco Bell sales though Pizza Hutt delivery growth has eased. Store numbers increased by one during the quarter to 74, with the opening of a new Taco Bell store.</li>
<li>California — SSS -6.1%: Total sales were up +9.1% to ~NZ$44m. Sales declined (-1.2%) on a local currency basis as the business cycle periods boosted by US Government stimulus payments and COVID-19 related supply chain disruptions which has caused key ingredients shortages. The USD strengthened against the NZD versus the prior quarter (NZDUSD from 0.72 to 0.65), which offset sales weakness in NZD terms. Store numbers increased by one during the quarter to 74, with the opening of a new KFC store.</li>
</ul>
Figure 1: Quarterly same store sales growth (local currency)
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/288/392/original/image_21862083921658883549961.png?1658883553" class="editor-image img-responsive" data-smartkarma-image-id="288392"></figure>
Source: RBD, Forsyth Barr analysis

Restaurant Brands 2Q22 sales and 1H22 guidance – initial impressions
Restaurant Brands (RBD) has provided first time 1H22 guidance below our expectations, with inflationary pressures the key driver of the difference. Total store sales for 1H22 of ~NZ$585m (+8% on 1H21) was in-line with our expectations (FB: NZ$578m), but 1H22 NPAT guidance of between NZ$14m to NZ$16m is materially below our expectation of ~NZ$30m, and a -35% decline on 1H21 (NZ$23.1m, after adjusting for the Hawaiian PPP loan forgiveness). &nbsp;&nbsp;&nbsp;
We anticipate demand for RBD will be less sensitive to the economic cycle than many retailers, with a proven track-record. However, today’s update highlights that despite demand remaining robust cost pressures have been difficult to offset to date. We will look for further comments from the company around strategies to mitigate these cost pressures going forward, but at face value today’s update is clearly negative for near-term earnings expectations.
2Q22 divisional summary

New Zealand — 2Q22 same store sales (SSS) +3.2%: Total sales were up +7.4% to ~NZ$133m. All brands showed sales growth throughout the period, despite the on-going impact of the Omicron variant; causing reduced store trading hours and lower dine-in traffic. Store numbers remained constant during the quarter at 138.&nbsp;
Australia — SSS +5.0%: Total sales were up +8.4% to ~NZ$70m. The company noted that mall and in-line sales are beginning to recover towards pre-COVID levels. Store numbers increased by one during the quarter to 81 with the opening of a new Taco Bell in Sydney.&nbsp;
Hawaii — SSS +3.6%: Total sales up +19.7% to ~NZ$62m. With the easing of COVID-19 restrictions the dine-in market has rebounded towards pre-pandemic levels, benefitting Taco Bell sales though Pizza Hutt delivery growth has eased. Store numbers increased by one during the quarter to 74, with the opening of a new Taco Bell store.
California — SSS -6.1%: Total sales were up +9.1% to ~NZ$44m. Sales declined (-1.2%) on a local currency basis as the business cycle periods boosted by US Government stimulus payments and COVID-19 related supply chain disruptions which has caused key ingredients shortages. The USD strengthened against the NZD versus the prior quarter (NZDUSD from 0.72 to 0.65), which offset sales weakness in NZD terms. Store numbers increased by one during the quarter to 74, with the opening of a new KFC store.

Figure 1: Quarterly same store sales growth (local currency)

Source: RBD, Forsyth Barr analysis

Restaurant Brands: 2Q22 Sales and 1H22 Guidance – Initial Impressions

Restaurant Brands NZ

Restaurant Brands: 2Q22 Sales and 1H22 Guidance – Initial Impressions