Restaurant Brands International Inc. ($QSR)

Good morning, everybody. My name is Danilo Gargiulo, I'm the senior restaurant analyst here at Bernstein. Thank you very much for joining us today. It's a pleasure to have back on stage, Patrick, the Chairman of Restaurant Brands International and Josh, the CEO of Restaurant Brands International. We have a system whereby you can ask any questions that you would like to if you use the Pigeonhole app with the [ up code ] 2026 SDC. I'm going to get the questions on my iPad, and I'm going to be asking them live as needed and once appropriate. Just to get started, maybe Josh, for those who are unfamiliar with the story of Restaurant Brands International. Can you provide us with a quick overview of your business?

Of course. And good morning, everybody. Thank you very much for joining us, and especially thank you, Danilo, for having us. We always love being part of this conference. It's a wonderful one so we thank you for the time and inviting us again. So our business, Restaurant Brands International. It's one of the largest global quick service restaurant businesses in the world. We have almost $50 billion in systemwide sales, operate 4 brands in the 4 largest segments of global QSR and we do that in over 120 countries and territories around the world. So one of the largest, most diversified businesses out there. We operate in 5 different segments. I'll kind of talk through them really quickly in order. Our biggest one is our Tim Hortons business, which is originally based in Canada, and that's our biggest market. It is one of the best quick-service restaurant businesses anywhere in the world. It has tremendous market share, incredible unit economics, our restaurant owner base is incredible. They're small local owner operators who live in their communities or in the restaurants all the time. And we have the most loved restaurant brand in Canada. We're the best positioned for value in the market so just a really tremendous business that has an incredible track record. Our second business is our international business. So that's the business outside of home markets for all 4 of our brands. And that one -- it's actually in 200 or so brand market combinations. So it's a pretty big business across the globe. It has an incredible growth track record. We grow around 10% a year and we've done that for a very long time. So a very good business with a very consistent track record. Our brands are modern and vibrant around the world. And it's something that we're really proud of. Our third biggest business, probably the one that gets most of the attention here in the U.S. is our Burger King business. We're one of the largest burger chains out there in the U.S. and we're proudly the home of flame grilling and the Whopper. We can talk about it more in a little bit, but we've been on a tremendous trajectory there over the last few years. That business has improved a ton. And then our fourth business segment is Popeyes. It's our chicken business that we bought about 8 or 9 years ago, and that's been doing really well. We've grown that multiple times over the last 8 or 9 years. And we're one of the largest fried chicken chains out there. Wonderful business in the U.S., also a terrific business around the world. And our newest business is Firehouse Subs. We have the best hot subs out there anywhere. And we also proudly support our communities through our efforts with first responders. It's a great business. It's one of the highest AUVs in the sub sandwich sector, and that's been growing consistently. We ramped that up from when we bought it growing just a few units to now it's the fastest growing of our domestic business and we did, I think, around 8% unit growth there last year. So that's been going really well and we're happy to serve our hot and hearty subs to more and more guests and support our local communities and save lives. So that's hopefully a little bit of an overview of the business at a macro level and then our biggest segments.

Excellent. And maybe, Patrick, you became the Chairman toward the end of 2022. And a lot has changed since then, right? So what prompted you, first of all, to look at RBI as your next venture after a very successful career. What has changed in the business? And what do you see as a continued opportunity from here on?

Yes. So I look at a business that had 4 amazing brands, 5 businesses that I could see either in some places, some under appreciation from the market. I mean, I came in as an investor, right? I invest a lot of my own capital in the business. And I was just excited by these businesses, what I thought could be done to either elevate the awareness of how good they were or to accelerate the pace of growth in some of these businesses. And really, I mean, if I go through the businesses and how they perform, where the surprises and both up and down were, I mean, Tims was underappreciated. It's the best business anywhere. I mean it's an amazing business. I think people are understanding that. There was a sense when I invested, when I became involved that somehow there was something wrong at Tims. It is an incredibly well-run business. It's remarkable. The international business is -- I would tell you, I think it's the best international business in the QSR space. It's the consistency of the growth of that business, 10% top line at the scale that we have, it's still a bit under $1 billion in total cash flow, but it's clearly going to get there over the course of the next couple of years. I mean, it is a big scaled effectively 100% flow through cash flow business growing 10% top line year in, year out, it is an amazing business. Then Burger King, that was probably at the downside when I came in. It was in tougher shape than I thought. The franchisee's balance sheets were in worse shape. The asset base was in somewhat worse shape I thought coming in, but we have made huge progress on that business. It was slower to get there than I would have hoped for because I think the hole was a little deeper than I thought it was going to be when I got involved, but boy, it is going now. And Tom and his team have done an amazing job. The franchisees are bought in. You've clearly seen the inflection point on that now. We've been outperforming the category pretty consistently now for a couple of years, but you're seeing that outperformance accelerate, and we're really excited about that business. Popeyes is best food in the business and like unbelievable outside of the U.S. And then Firehouse which is really going to be for us, if you look in the overall portfolio, it's going to be a big part of the NRG story. The business is doing very well. The cash-on-cash returns kind of in the 3- to 4-year range. So it's a great investment for franchisees. And we've been ramping up development and it's going really well. And I think at the end of the day, the -- one of the big things that you've seen now is when I came in, I think there was a perception of RBI as the cost cutting and financial engineering and all of that, and the answer is this is a really well-run restaurant business. We've got people who understand the business, and I couldn't be more excited about where we are in kind of the trajectory ahead of us. And we take on the big things, right? The things that weren't working, getting Burger King on track, buying Carrols, which was absolutely the right answer. It made the story from an investor standpoint, a little messier, taking on China, which is turning into a great story for us, finding a new partner for that business. I think will be a big part of NRG going forward. We're good at this, and we're applying it to each of these businesses, and we're getting the results.

So you invested in the business, you made some tough decisions in the past couple of years. And then recently, you had an Investor Day that was fairly successful. So Josh, maybe what is the most important takeaway of that Investor Day? What is the biggest news that you launched in that Investor Day?

Yes. So I think we took a little bit of a different approach to Investor Day as we discussed it. And we -- I think what we tried to do is to try and directly address what felt were the biggest questions on people's minds and really spend the time on that, and I hope people appreciated that approach. One of the questions, of course, was Burger King. So we spent a bit of time on Burger King and kind of why we felt so good. I think we kind of told the story of what we had worked on. And then that was the underpinning for why we were so confident about where we are going. And I think Patrick said at the time I think we're seeing stuff that I think you will see over time more clearly. And I think that's come out since as we've gone through the elevation campaign and seeing the performance of the business really inflect. So I think that was a helpful part. And then [ Samy ] also kind of talked through a little bit of a clearer vision of where we were going, both in terms of some of the complexity and then capital allocation. So we talked really clearly about simplifying the business. We know that taking on some of those big problems that you all referenced, that was something to digest for people. It complicated the story. It complicates financials a little bit. And so we tried to give everybody clarity that by the end of 2027, we'll be done with that. We'll have refranchised the businesses that we've taken on. We also talked about where we're going with the capital structure and gave clear guidance that we're going to move over time to an investment grade rating on our debt facilities. And even just since then, we've already achieved some upgrades. So kind of clear us -- you can clearly see us moving in the direction that we talked about. And I think that's helpful for everybody to know, to have a clear understanding of what we're going to do capital structure-wise. And together with that, because the free cash flow profile of the business is so good, we're able to announce that in addition to the dividend that we pay that a lot of our shareholders really appreciate. We're going to also start repurchasing shares. And we announced that we would start repurchasing with about $500 million this year. We've already started that program and started repurchasing the shares in the market since the Investor Day, and we still plan to do around that $500 million this year. And I think then importantly, from there, as our free cash flow grows, we'll be able to expand those share repurchases over time. And get to a place down the road, especially as we get to those investment-grade leverage levels where we should be able to really meaningfully expand the share repurchase. So I think we brought a little bit more balance to the capital allocation approach. And I think those were the kind of the few of the big messages that we want to get out there. And I think it was helpful for us to just give a little bit more clarity on the vision and what the plan was going forward to all of our investors. So hopefully, we accomplished that.

And Patrick, I remember, at the end of the conference, you and I were sitting on the side and doing literally [ nap in nap ] on why it makes sense for you to do more investment to pursue investment grade as opposed to retain your current leverage ratio and potentially use your cash for more share repurchases. So can you elaborate on that? So why are you pursuing more an investment-grade optionality for you as opposed to reinvesting more into share buybacks?

Yes. They wouldn't let me put all the math in the slide. That somehow made it wrong. But if I do air math, napkin math, it's okay. And so look, if you do -- if you're doing 8% kind of AOI growth, you're buying back in the shares at some point, if you're at investment grade, once we've hit investment grade, and we're IG facility now at Fitch and S&P. Once we've got that at the company level, then you can add debt which gives you -- you can instill, maintain your IG, and we're committed to maintaining IG once we accomplish that. That means that you can accelerate your share returns and you can see a path pretty clearly to get in low to mid-teens on shareholder return. And so we're excited about that. The other thing that's interesting is -- I think about this the other day. I think we are one of -- once we get to IG at the company level, we will be one of only two predominantly franchised restaurant businesses that are IG. And the reason it matters apart from the company standpoint is it actually lowers the cost of debt for the franchisees. If you have a lower-risk franchisor, when the banks and people who are lending to our franchisees to fuel growth, to do remodels, all of that. They look at a more solid franchisor that has a lower risk balance sheet. And that actually will take some cost off of the debt facilities for the franchisees as well. And so we absolutely think it's the right thing to do, and it was really a 2-step process. One is get to the point where we can start buybacks, which we did. The second part really once we are IG at the company level, then you can stay within IG but add actual quantum of debt, and that creates more capacity for you to return capital to shareholders.

Great. And Josh, you mentioned earlier, China, you mentioned Burger King, Tim Horton. So we're going to cover all of that. But before we go any deeper, what are the top 3 takeaways that an investor should remember at the end of this conference?

So I'll -- maybe I'll first start with kind of nearer-term stuff. I think if you think about the important parts of our growth algorithm, big one first is same store sales. And I think if you look at our performance in the first quarter, we performed over 3% same-store sales. That's one of the kind of the goalpost that we have out there. So we're really happy that we delivered that. And I mentioned on the Q1 earnings call that where we were at that point in May, we still felt good about continuing to do that. So things still felt pretty good, and that continues to be the case today. Like I said, we're always going to have puts and takes, some businesses that do better than others, but that's like the main goalpost that we have out there, and we feel pretty good about how we're performing against it. And then I think, together with that, the other big metric that we always look at is our AOI growth for the year. We set out that we want to grow 8% plus on our operating income, and we've done that over the last few years, and we continue to feel confident that we'll do that again this year. So those are the kind of near-term takeaways. I think over the kind of medium to long term, the big thing I would leave you with, and Patrick's referenced this, is just that we're always going to do the right thing by our brands, all of our brands. We're going to try to do amazing things. If we get off track, we fix things. We're always going to stand by our brands. And I think that matters for our investors. But to the point Patrick just made, it matters a lot to our franchisees, too. We're always going to make sure that all of our brands have a really exciting long-term future. We're committed to all of them. And I think that's a bit of a defining characteristic of us and our philosophy about how we run the company. And I think lastly, together with that, I would just tell you, we have a huge focus on franchise profitability in our franchisees' success. I think we've done this in a differentiated manner than a lot of the other companies out there and that we both disclosed our franchisees' profitability in good years and bad years. When we -- doing that, I think it's appropriate. You all, as investors, I think, should want to know that. But it also it forces us to be transparent. And it also reinforces our commitment to our franchisees' profitability. And we actually reinforce that, too, by putting our franchisees profitability in our own bonus formulas. I think that's a bit of a unique one. And it really drives a lot of alignment within the system. And I think it's been -- both of those things have been powerful to driving better alignment with our franchisees, creating trust within the system and trust like in any business, what allows you to move quickly and decisively. And it's especially important in a franchise business to have that trust and that fluidity of movement and ability to do big things. So I think that's been really powerful. It's a bit of a philosophical thing. I think Patrick joining us really reinforced the importance of that. And I think it's been a big part of how we've been performing in the last few years.

Great. Now for context, you mentioned already a couple of long-term goals that you have. So your long-term guide is to reach at least 3% comparable sales growth, 5% in unit growth by 2028, 8% in AOI. And in the past 3 years, you have grown system-wide sales faster than peers. Excluding China, your net restaurant growth was about 4% versus 2% from peers. You exceeded your adjusted operating income every single year, again, ahead of peers. The stock only recently started to work and grow some of the valuation gap that you have with some of the bigger QSR peers. So why do you think the stock has accelerated? And what do you think investors are still missing or maybe misunderstanding about your business today?

Yes. I think like anything I think you have to prove a track record over time. And talk openly about it and show that you do what you say you're going to do. And some of the discussion earlier, we introduced a couple of new factors with -- we had to take over BK China and Carrols, there was some complexity. I think we've given people more clarity on the complex side. And we've started to build a track record. As I said, we grew AOI more than 8% for 3 years. We started to grow EPS double digits. I think we've just got to keep doing that. I think once you develop a track record of consistent delivery, that's when you get credit. And I think that's the practical thing for us is to just keep doing it over and over again. And I think as we do that, folks will develop more confidence and it will be easier to underwrite doing it in the future. So I think that's the practical to do for all of us.

And I think importantly, the big things that we needed to deal with, we've dealt with, right? I mean getting Burger King on track was a really big deal. It was -- it took time. It took resources. We've got it going right direction now. We're seeing the results, our confidence level on it is high. We had to get our Burger King China business fixed. We just -- for the scale of this business, we have to be successful with that business in China, it's going really well. I mean the outcome from that has really exceeded our expectations. Very excited about our new partner, about the results that we're seeing. But the big things then buying Carrols to break that up over time mean these were big things that we took on, and that certainly made the story from an investor standpoint, more complicated. They're now behind us. And so it's important. And people seeing the consistency in the performance and believing that the story is going to stay more simple is what's going to cause the stock to rerate and we've seen the start of that, but until we're at a premium to everybody else, I'm not going to be satisfied.

Okay. Let's touch maybe on Burger King since you mentioned this is the part that typically gets most questions in the United States despite only accounting for about 18% your EBITDA. So starting with Burger King, what was the rationale for the acceleration at Burger King that we've seen in the past couple of years, outpacing peers even more successfully, I have to say, in the past couple of months, we've seen like a big spike. So what was the rationale behind it? And more importantly, how sustainable is the growth of Burger King going forward and hopefully with the same level of results that you've achieved in the past few months?

I think there are -- a lot of the things that we did, we've been working on for like 3 to 4 years. The operational consistency across the base was a huge undertaking that took many years. It took a lot of work together with the franchisees. And Tom and Peter did a great job on that. We actually -- when you look at third-party rankings of Burger King consistency of service, the change that we've made is probably -- it's the biggest one that I can think of in any large chain that's been around for dozens and dozens of years. And as hundreds of franchisees, thousands of units, that very rarely happens because it's really hard to do. And so I just really have to commend the team for the amount of improvement that they made. And I think, on average, when you go into Burger King, you're seeing much more consistent service there. We also made a bunch of investments in remodels together with our franchisees. We knew we had dated restaurants. And we made, I think, a pretty bold decision to make one of the biggest franchisor investments that's been made in recent history to partner with the franchisees to do the hard work that needed to be done to start to really put these restaurants into a competitive state and make them modern and welcoming for families and all of our guests. And I think all of that hard work set us up for what we're starting to do. What the great work that Tom and the team have done and Joel, our CMO, has been fantastic on this. We refer to it a lot as our elevation campaign. And you've seen it come across in a few ways, whether those are TV ads or some of the social stuff where we're taking feedback and we're making improvements. We knew that when we did that, we were going to welcome a lot of guests back into our restaurants. And what was critical was that we were going to be proud of the service experience and the product that we gave them when they came back. And that required the 3 to 4 years before it. Like we couldn't have done this elevation campaign 3 to 4 years ago and had the same impact because we needed to do that foundational work first. And that's what gives me confidence about the durability of it, is we did all the hard stuff we're bringing people back in and they're having great experiences. And I can see it in data where we see return rates of new guests that have gone up and they're some of the highest rates that we've ever seen. But I also see it and I hear it anecdotally, one of the benefits of listening is you hear a lot. And Tom and I get e-mails all the time from guests who write us and they say exactly what we wanted, which is, "Hey, I hadn't come back to you for a while. I had a bad experience 10 years ago, and I kind of -- I'd written you off. I saw your ad, I thought it looked interesting. I gave you another try, and you nailed it, and I came back and you nailed it again". And I think people are really having a different experience than what they remember from 5 years ago or 10 years ago. And that's what's going to allow us to come back. Not a onetime marketing stunt, but bringing people back and them seeing a different version of Burger King than what they recall. And that's what gives me confidence in the durability. The other thing about it is you saw the elevation of the Whopper, and that was -- I would characterize that as a first chapter because it's our flagship, it's the most important thing. It's the first place you should always start with Burger King. But there's a lot of other things that we can elevate within burger King. And I think what you should expect to see over this year and into next year are new chapters of elevation and us constantly figuring out what are all the things that we can make better. We sort of -- we know more or less what a lot of those things are. But we know that this resonates with our guests. There are so many people out there who absolutely love Burger King. They have wonderful memories and they want Burger King to be better. That's probably the biggest theme we get out of these phone calls. And we know that there are a lot of things we can do over time that keep making Burger King better and keep writing new chapters. They'll bring more and more guests back. And if we keep serving them the right way when they do, that's how you drive consistent performance over a long period of time.

This is not a promotion that's driving these results. And it's something we talk about all the time, which is -- and kind of my -- just to rebase around the business is I literally sit down kind of once a quarter. I make myself sit down and say on each of these businesses is the customer having a better experience today than they were having a year ago. And fundamentally, it's really simple, is the food that they're getting better than it was a year ago, is the service level, they're getting the restaurant better than it was a year ago. Is the average image of one of the restaurants better than it was a year ago and are you doing it for a good value? Those are the fundamentals of the restaurant business. They have been for hundreds of years. There are always going to be. You got to run restaurants really damn well. I mean that's the bottom line on success, and there may be promotions that bring a little bit of extra energy and all the rest of it. But marketing's job is to magnify the truth. And if the truth isn't good, you're not going to be successful. And you look at Burger King, our core product is the Whopper, and it is better than it was a year ago. right? Our service levels, every metric we've got has been showing that we're getting better and better at running our franchisees at running those restaurants. Our image, we're remodeling hundreds of restaurants every year. So our image is improving. And we've got a value platform that has been very consistent because it's very effective people know that they're going to get the $5 duo, $7 trios, when they come into Burger King, it's been that way for a while. We're not jumping around trying to find something that will work. And so consistent value, better product, better service, better image, you're going to grow your business.

Thinking about Burger King compared to peers, you still have a significant AUV opportunity if you look at yourself and make a better version of yourself over time, you talked about adding new chapters. In the Investor Day, you talked about potentially leaning in a little bit more into the family occasion which is potentially underpenetrating. There are many other chapters along this journey. Like what will it take for Burger King to double the AUV to get to maybe like $3 million plus in the box?

Yes. I think a few of the pieces in it. Honestly, it goes back to some of Patrick's basics, but I think a couple of the chapters will be continuing the elevation on service levels. As I mentioned earlier, we've made tremendous progress. We went from a place where we were very inconsistent to a place where we're more consistent, but we want to be one of the best. And so we're going to continue chapters of further elevating the quality of service and the consistency of the service that we give in the restaurants. We also -- while we've done some remodeling, we're nowhere near done. The good news is we've got an awesome new image that we know consistently provides big uplifts and good returns. But we've got to get through the rest of the system. So bringing a modern image, beautiful new signage, welcoming restaurants that help us bring those families back in, that's going to be another piece of the bridge from where we are today from -- to where we want to get to. And then I think the new chapter that you've started to see, but I think you'll see more over the next couple of years is figuring out ways that we can even further elevate our food. And we did that with the Whopper. We took America's Favorite Burger and we made it a little bit better. We made it -- the bun a little bit fluffier. We made it a little bit more beautiful. We put it in a box to preserve the physical presentation, the height of the Whopper and really to celebrate how great that sandwich is. But that's the first chapter. There are other places we still think we can do even better for our guests across our menu. And I think that's something that we can tell from what we've done. So far, people love that. People love our products. They love the idea that brands want to give them more and do better by them. And so I think you'll see a few other chapters of that coming over the next 12 to 24 months.

Excellent. Moving on to the international business, specifically the relevance of net restaurant growth. This has been a focus point for investors. And at the recent Investor Day, you were talking through the building blocks to get into 1,800 net new restaurants by 2028. So if you were to be decomposing the net restaurant growth expectations by brand and maybe by market, where do you have the greatest conviction level? And where are some of the -- watch out? Where are you monitoring the evolution a little bit more closely?

Great. I'll share my few thoughts. Patrick, feel free to jump in here on any different ones you have. So just as a quick recap. As [indiscernible] said, we laid out a path to get to 5% restaurant growth or 1,800 net new units by 2028. That's composed of a few pieces. It's 300 to 400 restaurants in our U.S. and Canada domestic markets, 300 to 400 restaurants in China and then 1,100 restaurants across the rest of our international business, which is about 700 in our top 10 growth markets. We're doing something near that today and around 400 in the other 190 brand market combinations. So that one is a little bit more diversified. And I'll tell you the -- perhaps the one where I would characterize, I think there's the most upside to is our China business. Just to give an illustration of that, we laid out guidance to get to doing about $200 million, a little bit more than that in our Burger King China business. I think the opportunity there is much more. If you look at how fast -- how many trade areas that are in China and how fast some of the other brands are growing there, you have competitors doing upwards of 1,000 units a year. And many of our team members were part of those brands doing 1,000 units a year. So they know that's the possibility. They know how to do that. They know what it looks like. And I think our ability to unleash some of that possibility is all about our performance. We've got a great partner there now. We've got the capital. They funded $350 million of primary capital on the balance sheet. So we're ready to grow and our team is doing an awesome job. The combination of Johnson Huang, who is our Chairman; [ Danny Tim ], who's our Deputy CEO, they're doing great. The business is performing really well. We announced it's doing over -- it's doing over 10% comps already. So we're off to a great start. If we keep making that kind of progress, we keep making the unit economics better, so it's more compelling for our partners to accelerate growth. I think that's one of the places where we have the most upside. Any -- Patrick, any different ones you?

No. I mean, we've got -- I mean, they put $350 million in primary capital into a bank account the day that we closed this deal. They have prefunded 1,500-plus restaurants. And so really excited about that business, about what we're going to accomplish there. We've all been spending time over there. The other thing I'd say, and I just -- I'm going to keep saying it over and over again until I see it showing up often enough in people's analysis. Our run rate on our Popeyes International business now is at $2 billion. It did $0.5 billion in Q1 outside of the U.S. And it's only been growing 30% or 40% annualized for a few years now. You do the math. You can do 30% or 40% on $2 billion long enough. It becomes a really big business. So Popeyes outside of the U.S. is just an extraordinary business. And the difference between the U.S. and the rest of the world in the chicken category is there's fundamentally only one player outside of the U.S. and they're gettable. And so we're pretty excited about that business and the growth prospects for that business. And overall, I mean, we just -- we've got a great business. mean it is growing faster than anybody out there, the consistency of the execution has been great. The average restaurant in our international business is very well run. We've got great partners. I mean it's just a really good business.

What is the secret sauce? Because to your point, this is not just about a net new unit growth story. International markets comps has also been accelerating ahead of peers. So what is determining the success factor for international business for you?

Yes. I mean, so I'll compare it to the -- because 90% of it still is -- or close to 90% is still Burger King. So if you compare our international business, the Burger King business to Burger King in the U.S. The restaurants, on average, are new and look great. They are very digital. Many markets are fundamentally 100% digital business today. The food quality and execution overall has been great. We've got great local partners that are doing a terrific job of translating what the Whopper and flame grilling means to consumers in local markets. I mean it's just the execution. I mean, if you look at kind of your product service and image and your value and add on a bit of digital, and it is a more digital business than our domestic business today. it's just extraordinarily well run on average outside of the U.S., and we're seeing the results from that plus Popeyes business growing 30% to 40% a year.

We'll touch on Popeyes momentarily but let's touch on Tim Hortons first. 42% of your adjusted operating profit. In 2022, they had an Investor Day, and they were putting out an algorithm of 2% comp that was clearly exceeded very successfully in the subsequent years. Now recently, we've seen some growing concerns among the investment community on the state of the Canadian consumer and the economy softening, migration flows potentially tightening a little bit compared to the past few years and coincidentally, the same-store sales of Tim Hortons has decelerated to 1.5%. So is this like an early sign of consumer distress? Or are you expecting Tim Hortons to continue to come in the, call it, 2% to 3% range going forward? And how do you see Tim Hortons' relative value positioning as you look into the menu today, where do you see opportunities going forward? And how does Tim Hortons compared to peers when it comes to a more compressed economic scenario?

Yes. Tim's, it is one of the best restaurant businesses that I think we've seen anywhere in the world. It has so many -- all the basics that you want to see, it does a great job with those. And I think that's what's allowed the business to perform so well throughout all the economic cycles of its existence. And one of those characteristics is that -- well, two maybe. We're the #1 brand in Canada. We're also #1 for value. And it's always been an everyday value positioning that we do so well on. And I think that's what allows us to do well even in tough times from a macro perspective. And you referenced back to 2022. I do think it's important to call out the businesses had a really consistent track record for a long time. And I think Axel and the rest of the team have done a nice job is they laid out a plan and they stuck to it and they executed it in the details for a long time. So I think that's exactly what you want to see. More recently, there was some softening in the Canadian QSR space. You saw that in our comps. I think we're about 1.5% in Q1. I would say, importantly, we outperformed the industry by about 1.5%. And in terms of where the Canadian macro is, a few things that I look at, one, employment, it's a little bit higher than the U.S. I think it's around 6.9% right now. That's been stated -- it goes up now a little bit month-to-month. But if you look at it on like a 1-year basis, it's kind of been stable in that range. And consumer confidence, it's not in a great place. But I would say it took a little bit of a dip when you had the conflict [ in around start ]. It's come back a little bit. So you've seen some fluctuations month-to-month there. But I would say it kind of it came back a little bit from where it was maybe a month or two ago.

So what's your confidence level on Tim Hortons going back to like 2% to 3% on the foreseeable future?

I think that business -- because it's got all the fundamentals that are so great, I think it's going to continue to perform really well over time. I mean that's what we've been able to do. So that's what we're focused on. We've got to execute our basics really well, make sure we keep our great value positioning. And I think that will be the basis for performance over the next few years.

Great. Earlier, you mentioned also that you added franchisee profitability in your bonus pool. So in 2025, franchisees [ 4-wall ] EBITDA reached about CAD 295, which is 3% above 2024 EBITDA despite elevated coffee prices and tariffs. What do you see as the health of franchisees today? And how do you think it's going to be evolving in 2026 if, again, the -- we have to turn a little bit softer.

Yes. So I think when you look at the -- and specifically on Tim's Canada, the franchise profitability. It's in a great place. If you're at [ 295,000 ], that is a fantastic business. That's why everybody wants to become a Tim's franchisee. When we have units available, everybody wants them. It's a wonderful business for folks. So that's great. And also the balance sheet of our Canadian franchisees are one of the healthiest. We maintain very low leverage levels. So I think it's a great business with very good balance sheets and plenty of capacity to invest. It's always going to be our goal. And that's in those bonus targets every year that we want to grow and improve our franchisees' profitability and further strengthen the system. So that's going to be our goal each period. The best way to do that is by growing sales. And so that's what we're most focused on.

But I mean for a franchisee in Canada, they buy the equipment package. when we build out the unit. We're in the real estate business there. So they're putting in, what, CAD 700, CAD 750, something like that, their cash flow at around CAD 300. It's a really good business.

Actually the impact on that point on the pipeline for net unit because Tim Hortons was not opening units for a long period of time and then recently started to reaccelerate your units. You talked about the importance becoming a lever that you want to unlock both in Canada and in the U.S. So can you talk about not just the cash on cash returns that you're touching on, Patrick, but also the pipeline that you're seeing? And why do you think that there is room for Tim Hortons to keep opening stores in Canada where you have probably the highest penetration on store per capita even compared to some other peers in the United States?

Much lower penetration today than there was 10 or 15 years ago is the answer. Canada's population did grow a lot. It has slowed down now. But you've had a flat unit count for Tims fundamentally 10 or 15 years. And the market has gone from being, what, 32 million, 33 million people to around 40 million. And so there are a lot of areas, particularly Western Canada and Quebec, where others still more in Ontario as well, but particularly Western Canada and Quebec, where there are real opportunities. And our average unit volumes in the West are higher than our national average, and our penetration is much lower. So it's very easy to see how you get more built.

And just in terms of the visibility on the pipeline, it's a little bit different from some of other markets, say, in the international market that we might have and that we're doing a lot of the development. We have internal teams who are putting capital behind the product. So we're actually leading all the development projects. So that gives us, I would say, a much higher degree of visibility into exactly what's going to happen in any given time frame.

Excellent. Finally on Popeyes. We hear many possible reasons for a contraction of Popeyes. We heard rising competition in the chicken space, growth of other national brands change in consumer preferences, increased discounts from traditional burger players onto the chicken, given the high cost prices for beef, execution challenges, GLP-1. So what do you think the same store -- what you think caused the same-store sales contraction at Popeyes? And what must Popeyes execute well over the next 12 months, hopefully, 6, to structurally win share again?

We're doing it right now. We're not waiting for 6 or 12 months, just to be entirely clear. I think Peter has made a bunch of progress already in just the first few months, which is great. But zooming out for a second. I think the Chicken segment and Popeyes have been a tremendous success for us. If you look at it over the last 8, 9 years, we got into chicken because we were really excited about what -- where it was going, both in the U.S. and around the world. And that's played out very much as we thought. It's been a wonderful period of ownership for us. And I continue to think chicken is a great place to be. Logically, when you have a great segment, other people are going to go after it, too. So that's natural. That's okay. Still happy to be in the segment, happy to compete there. I think more recently, probably we got a little bit out of focus on the core of the menu. We expanded things a little bit, and we're a little bit too focused on things like wings and some of the LTOs. And what Peter is doing right now is bringing that focus back to the core, focusing on the few things that we think we do, the absolute best in the space, things like our amazing bone and chicken where we are absolutely the market leader in the chicken sandwich, where we sort of changed the whole chicken sandwich category in the U.S. as well as our tenders that we've already made improvements to. So we're bringing that focus back to the core, both in terms of our operational teams, but also what we're communicating to our guests, and that's an important part. The second big thing is we've always known that we've got to make -- we've got to bring more consistency to the level of operations across the restaurants in the U.S. And that's one of the big reasons that we brought in Peter. He had done what I think is the most impressive turnaround in large-scale QSR of the last -- as many years as I can remember. So he knows exactly what it takes to bring a system along and upgrade the average experience, the consistency of the experience that our guests are getting. That's something we've known -- we need to work on for a while, and we're now going to make progress on it. I think that's going to a big lever because frankly, the level of expectations are going up in the space. There are -- a lot of the growing players are doing a good job. And I think we've got to move there with them, and that's very clear to Peter and his team. And the last piece I would say is having consistent value. And that we've basically already done. We've put in place the $5 faves, which is basically -- it's a single leader value proposition as well as a $20 family offering. So we've already made a lot of progress there that we're seeing results from. So I think those are the few things. I have a ton of confidence in what Peter is doing. And I think a lot of -- the good news is a lot of the things that we need to improve on, they can be done more quickly. and I think he's moving very expeditiously to make progress on all those fronts.

The structural issues that we had in Burger King are not present in Popeyes. The assets are fine. The balance sheets are fine. The franchisees -- I mean we don't have the -- this is a very, very different situation. We've got to execute better in the stores. We've got to have a consistent value and have people know that it's there. And frankly, our market share is low enough that no matter what else is going on in the chicken category that we can't use that as an excuse. We can grow this business. We're going to grow this business. But we just got to execute better, and we're doing it.

Is the unit growth in international market for Popeyes dependent on the performance of the U.S. [indiscernible]?

That's one of my favorite questions. I'll jump on that one because I don't believe that you can have a great international business unless your core business is good in your domestic market period. When I was at a pizza company before this, I ran the international business for 5 years. And I used to tell the CEO that the constant complaint from our master franchisees out of the U.S. is paying a full royalty for this supposedly great pizza business, and I come to the U.S., and it's a disappointing experience. Why am I paying you when you can't run it well in your own home market? And I made the comment one too many times and he said, "Hey, come back and run the U.S." I'm like, "Oh crap" and it ultimately worked out. And -- but we had to fix the U.S. business. You are -- when you're going into international, I mean the global QSR business is dominated by U.S.-based chains. They are paying for a brand and know-how that's coming from North America. And you've got to be great here. You can't have a weak business here and expect to have success in your international business, period, full stop.

Maybe Patrick this is for you. What is the strategic rationale for running a portfolio of companies instead of having 4 separate businesses?

Want me to take it?

Yes, go for it.

All right. So it's really interesting because I've done both. I've been involved with both, right? And here are the advantages. To me, they're really -- it comes down to 3 things that I have in this portfolio, why it makes difference. There is leverage from a purchasing standpoint that we are getting more and more and that scale matters. There is the ability to accelerate international growth in the other brands because you already have a network. Basically, the reason we are able to grow these other brands, and particularly Popeyes so quickly outside of the U.S. is we're already in 110, 120 markets with Burger King. We already know all of the players and all the markets. We know the suppliers. When we go in, we are not starting from scratch. So that's a big deal. And then the last one, and I think it's ultimately the most important is people. And you're able to move people around, get them the experiences that they need. So when you've got an issue, an execution issue at Popeyes, Josh can look around the company and say, who is best at executing at the store level in our system that we can put in charge of Popeyes and there's Peter Perdue, who's been doing it on Burger King and moving that business forward and we're able to pull him across. He's already known. He's known to us. And so that part of it is really important, and it allows you to attract great talent because they know they're going to get those opportunities. It's a little hard when you are a single brand company and you want to be the CMO, it's exactly one CMO job. And we have multiple CMO jobs, and we have multiple COO jobs, and we have multiple heads of finance for a brand jobs. And I mean, we have the ability to give a great career and development opportunity to great talent, and I'll put our talent up against anybody in the industry. And then the important thing is we focused everybody around what ultimately matters, which is, if we're going to be a great restaurant company, then you've got to generate great returns for franchisees. That's what's going to generate growth. And so everybody gets closer to that, understanding the core of the business, how you improve that, and that's how you build real momentum.

To complement, could I add one or two other ones [indiscernible] I think there was also an advantage to our ability to invest behind the brands through cycles in difficult moments. I think you've seen a lot of other concepts go through tough times, and they struggled to get out of it. They get under various constraints and I think one of the benefits of our business and also bringing to the investment-grade credit rating that we're going to is we have the ability to always invest through good times and bad times of the economy, of brands, of everything. And I think that should give comfort to all the folks involved, whether investors or franchisees as well. I'm a franchisee, I'd want to invest in a business that I know is going to invest behind it when it needs it, good times and bad. And I guess the last point I would make is also for franchisees, too, it's an exciting thing sometimes to know that if I'm a fantastic Tims franchisee in Western Canada, I might have the -- I'm doing a great job in my town, but maybe I'm built out with my Tim Hortons business. I have other options. I can do other things to grow. I can build Firehouse. So I think there's some attraction both from the stability of the business, the long-term perspective, we're able to take the financial capacity we have and the growth options that you get as a franchise partner that are also a bit of an advantage to our setup.

Great. Running out of time. So thank you very much, everybody, for joining. Thank you, Josh. Thank you, Patrick for [indiscernible].

Thank you.