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A more budget-conscious consumer, coupled with a fiercely competitive industry, combined to create a very challenging business climate in 3Q24 for quick serve restaurant companies. In the wake of lackluster earnings reports from Wendy's (WEN) on October 31, and McDonald's (MCD) on October 29, Restaurant Brands Int'l (QSR) followed suit and posted disappointing Q3 results. The owner of the Burger King (BK), Popeye's Louisiana Kitchen (PLK), and Tim Hortons (TH) banners missed Q3 EPS and sales estimates as consolidated comparable sales growth slowed to just +0.3% from +1.9% last quarter.

• The most pronounced downturn occurred at PLK, where comparable sales came in at (4.0)% compared to +4.9% in Q2. Given that PLK's menu prices are a little higher than BK's or MCD's, for instance, it makes sense that the fried chicken chain would experience a bigger drop. Similarly, Yum Brands' (YUM) KFC division saw comps drop by 4% in Q3, while Taco Bell's comps were up 4%, thanks to its more value-centric menu. On that note, QSR does intend to add more value offerings to PLK's menu, including a meal that costs $5-$6.
• Meanwhile, BK's struggles continued as comps dipped to (0.7)%, matching last quarter's performance, as the turnaround in QSR's largest division failed to gain momentum. That ongoing turnaround plan, which features $400 mln worth of investments to remodel aging stores and update restaurant technology, has experienced some fits and starts since being launched in September 2022. Rewinding to last year, it appeared that the turnaround was kicking into high gear as BK's comps in 3Q23 jumped by 10.3%, preceded by a 13.8% increase in 2Q23. As macro-related headwinds stiffened in 2024, though, BK's momentum has faded.
• Tim Hortons, the Canada-based coffeehouse and breakfast chain, was the only banner to deliver positive comps at +2.3%. However, that was still down from last quarter's +5.4% mark.
• QSR's system-wide sales growth of 3.2% was mainly driven by the company's footprint expansion efforts, particularly for PLK and its smaller Firehouse Subs (FHS) brand. Net restaurant growth for PLK was 4.1%, while FHS's footprint grew by 3.9% for a total of 1,300 restaurants at the end of Q3.
• A key positive is that QSR saw an improvement in consolidated comps in October and that it remains confident in its ability to achieve adjusted operating income growth of 8% or better in 2024 and beyond. For some context, the company generated adjusted operating income growth of 6.1% in Q3.

QSR's earnings results generally followed the same track as rivals WEN, YUM, and MCD, reflecting a difficult environment that's placing even more emphasis on value. We anticipate that QSR will ramp up its promotional activity by adding more deals to its menus, which should provide a spark for comps, but that could come at the cost of lower profit margins.