Popeyes is under pressure from a wave of chicken sandwich insurgents

·Anchor, Editor-at-Large
·3-min read

There was one relatively abnormal metric in Restaurant Brands' (QSR) second quarter earnings release on Friday — a 2.5% same-store sales decline at Popeyes U.S.

The result marked a continued U.S. sales slowdown for arguably the creator of the current fast-food chicken sandwich craze. From the fourth quarter of 2019 (when the Popeyes chicken sandwich insanity kicked off) through the third quarter of 2020, Popeyes U.S. saw same-store sales gains of 34% to 17.4%. But the sales trajectory has now turned for Popeyes since those blistering gains. U.S. same-store sales for the chain have declined in two out of the past three quarters.

Restaurant Brands CEO Jose Cil — who leads Popeyes, Burger King and Tim Hortons — acknowledges the onslaught of competition in the chicken sandwich game of late that has likely stolen some of Popeye's thunder (aka sales). 

Wendy's (WEN) has upped its chicken sandwich quality, ditto McDonald's (MCD). Burger King has found success with its new CH'King sandwich (maybe at the expense of sister brand Popeyes). Even Bojangles dropped a spicy chicken sandwich this week. 

"The [Popeyes] business is strong. The business is performing well. Nominal sales are strong and the sandwich business is consistent. Certainly there have been a lot of folks coming into the space with chicken sandwiches and we felt a little bit of pressure at moments, but sales are stable," Cil said on Yahoo Finance Live.

To counter its foes, Popeyes has just released nuggets at Popeyes that use the same batter as its popular chicken sandwich. Cil is hopeful this perks up sales at Popeyes once again. 

Enter Popeyes new chicken nuggets.
Enter Popeyes new chicken nuggets.

"We think it's a really exciting opportunity to feed kids and families as well as doing so at a snacking time in the afternoon, which we don't really have strength in. We think it will be highly incremental. It's a big additional platform to bring guests back to Popeyes and to continue to grow our mainstream awareness across the the U.S.," Cil said of the nugget launch.

Despite the more ho-hum quarter from Popeyes U.S., Restaurant Brands had a solid quarter as consumers became more mobile during the pandemic. 

Global same-store sales at Tim Hortons and Burger King rose 27.6% and 18.2%, respectively. Burger King U.S. same-store sales increased 13%. Popeyes outside of the U.S. notched a 24.78% same-store sales increase.

Here is how Restaurant Brands performed compared to Wall Street estimates for the second quarter.

  • Net Sales: $1.44 billion vs. $1.37 billion

  • Adjusted Operating Profits: $577 million vs. $526.2 million

  • Adjusted Diluted EPS: 77 cents vs. 61 cents

Restaurant Brands shares were up nearly 5% in Friday trading.

Analysts overlooked the Popeyes U.S. sales result, instead locking in on several other catalysts to the investment thesis on Restaurant Brands.

"There's plenty to nitpick (including Burger King U.S. same-store sales and units) but nothing that derails the recovery story nor indicates that major initiatives at the company's core EBITDA generator (Tim Hortons Canada) are off track. Further, the new $1 billion repurchase authorization (~3% of weighted average shares outstanding) adds to the total shareholder return story (~3.3% dividend yield) and should be enough to keep existing investors engaged in the stock as well as pique the interest of others looking for a turnaround/recovery story with increasing shareholder payouts," said Wells Fargo restaurant analyst Jon Tower.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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