KeyBanc Undeterred By Tim Hortons' Bitter Q1

Canadian iconic coffee chain Tim Hortons' acknowledged in its first-quarter report the decades-long signature "Roll Up The Rim" promotion has "gotten old."

KeyBanc Capital Markets is unconcerned, and an analyst there said any problems represent a "minor setback" for parent company Restaurant Brands International Inc QSR.

The Analyst

Eric Gonzalez reiterated an Overweight on Restaurant Brands International with an unchanged $72 price target.

The Thesis

Tim Hortons remains a "top priority" for Restaurant Brands, and the coffee chain's $61-million year-over-year drop in systemwide sales in the first quarter shouldn't be a concern, Gonzalez said in a Monday note. (See his track record here.) 

April saw a "swift rebound" in trends, and loyalty program initiatives could support momentum, the analyst said. 

Investors have reason to be skeptical about whether any loyalty program can translate to notable improvements in sales, but Tim Hortons may be an exception, Gonzalez said.

Within six weeks of introducing a loyalty program, 50 percent of all transactions were conducted by a member, the analyst said. And 20 percent of Canada's population are members of the loyalty program, making Tim Hortons' a "unique" exception, he said. 

Burger King accounted for 55 percent of Restaurant Brands' total global systemwide sales, and the business is "often overlooked," especially in the international market, Gonzalez said. The burger chain showed 3.8-percent same-store sales growth and 14.3-percent systemwide sales growth in the international market, which is "nearly unrivaled" among large chain competitors, the analyst said. 

Price Action

Restaurant Brands International shares were trading down 0.23 percent to $65.35 at the time of publication Tuesday. 

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