Sami Siddiqui: Hey John, it’s Sami. Thanks for the question. I think a couple of things going on in the Tim’s supply chain business for the first quarter. So first off, as kind of I mentioned and alluded to in my prepared remarks, Q1 is typically seasonally the smallest quarter of the year. So in a business like the supply chain business where you have higher fixed costs, you’ll see the margin be a little bit lower in Q1. If you look at Q1 of this year, we were around 17.5% sales less cost of sales margin. There was a bad debt expense that I alluded to in my prepared remarks around certain international partners. I think on a more normalized basis, that margin will be closer to 18% for the first quarter. And on a full year basis, as we’ve said in the past, we expect full year supply chain margin to be around our 2022 full year levels which were at 19%. So hopefully, that gives you some color.
Operator: Thank you. Our next question is from the line of Brian Mullan of Piper Sandler. Brian, your line is open. Please go ahead.
Brian Mullan: Thank you. I had a question on Tim’s Canada. I just want to ask specifically about speed of service. Last quarter, you called that out as a positive contributor. I’m wondering if that continues to be a benefit in Q1? And then kind of just related to that, if you could give us some historical context. When was Tim’s at its best? And where are you in the process now of improving that metric? And can this be a traffic driver from here?
Joshua Kobza: Hey Brian, thanks for the question. So we do continue to make progress on speed of service. I think, I mentioned for this quarter, we did improve about 8% year-on-year. So we’re making more progress. Matt Moore and the team are really doing a wonderful job on that front. I think we’ll probably see a little bit of a headwind in the near term from the Flatbread Pizza launch. That will slow us down a little bit, we think probably for like for some number of weeks. And that’s something that we saw in the market test is when we launched Flatbread, we slowed down for a little bit as we kind of, we learn the muscle memory, but then we picked back up to where we were before. So I think probably a little bit of a near term headwind, but something that we’ll work through as teams get used to the Flatbreads and then we should be back on track.
Operator: Great, thank you. Our next question today is from the line of Sara Senatore of Bank of America. Sara, your line is open. Go ahead.
Sara Senatore: Thank you. A clarification on the question. The question is, you mentioned you’re on the path to getting franchisees to 300,000. Does that require significant volume increases? Or are there self-help opportunities that can get you there? I’m just trying to think about unit economics and a period of perhaps lower growth. And then maybe it’s not a clarification, but just specifics on the G&A outlook. I think you mentioned head count reduction. But you’ve always been much leaner than others. So I’m just wondering if you could give a little bit of color on that. Thanks.
Joshua Kobza: Sara, just a clarification on the 300,000 franchise profit. Are you talking about which concept are you referring to?
Sara Senatore: I thought it was for Burger King U.S. I thought that’s what Patrick was referring to?
Joshua Kobza: Perfect. Okay. Great. Yes. So I think there’s a few things that will drive that. One of them has absolutely increased sales. That can come from a combination of improved operations even more effective marketing, increasing our advertising spending, which we’ve been doing, but also importantly, remodels. And that’s one of the really important pieces that we think it’s helpful to have more visibility on now that we’ve announced the funding that’s needed to get to move us to a fully modern state. So there’s a few different pieces of sales growth that are definitely part of the mix there. There is also a piece of which is improving margins. And you’ve seen us be more thoughtful about discounting. So we’ve already made a lot of progress there in terms of managing our gross profit margins better.
And then I think those, the increase in sales can also allow us to become more efficient with labor. We’re at sales levels where you get a lot of incremental margin out of those marginal sales and a lot more labor productivity. So that’s an important part of the piece as well. And I think some of the stuff that we’re doing on technology can also be a really important margin driver. If we’re able, over the course of a few years to move, for example, to a fully digital ordering model, whether it’s through kiosks or digital ordering and the drive-thru that really changes the operating model of the restaurant and can allow us to be much more efficient in how we run the restaurants over time. So those are a few of the pieces we’re working at all of them.
Some of them will work better than others, but there’s a lot of different things we’re working on that can be pieces of the puzzle to get towards that 300,000.
Sami Siddiqui: Yes. And Sara, I will — maybe I’ll give a clarification to your clarification. So in Q1, segment G&A grew 11% year-over-year. And so actually, that was related to higher compensation-related expenses. The majority of which were in the second half of 2023, so they’re now flowing into Q1 of 2024. As we think about guidance for the full year, we took it down by about $15 million for the full year. That guidance and the majority of that reduction is really related to stock-based comp expense, which, as you know, goes into our segment G&A. So that’s the majority of the $15 million. There are some one-off items as well, some smaller G&A items in that $15 million. I’m digging in, I’m new into the role, and I’ve been working pretty closely with the brand presidents to see how we maximize the leverage we can get on the investments we’ve made. And if we have anything else to report there, we’ll come back to you.
Operator: Thank you. Our next question today is from the line of Brian Harbour of Morgan Stanley. Brian, your line is open. Please go ahead.
Brian Harbour: Yes, thanks good morning. Maybe just following up on your unit growth comments, mainly outside of North America. Are there any markets that you think could remain slower for whatever reason, whether it’s Middle East or if it’s just sort of like macro issues? And then China, it sounds like you’ll update us later, but is that going to be more of a 2025 story, at best?
Joshua Kobza: Brian, thanks for the question. I think you hit on the two main things that are top of mind and that have a lot of focus from us. First, we may see a small impact in some of the Middle East markets where pipelines might be a little bit slower there. So that’s certainly something that we’re paying attention to. And I think the other one is China, which we’ve called out before and we talked about in February. I think that’s a huge long-term opportunity for us. I think it will take some time to get all of those markets on the right track. As you mentioned, we don’t have anything new to touch on today there, but of course, we’ll update you in the coming quarters there.
Operator: Thank you. Our next question is from the line of Eric Gonzalez of KeyBanc. Eric, your line is open. Please go ahead.
Eric Gonzalez: Thanks, good morning. My question is about the remodel investment. Patrick, you said to us over a year ago that if we saw RBI make an investment that is because the company found something he was confident to generate a significant return to shareholders. So it’s exciting to hear what this next round of capital, and I appreciate the comment that you’re seeing in the high-teens uplift, which appears quite strong. Can you speak to the cost of the remodel today? And maybe what percentage RBIs contribute on average to each project so we can maybe assess the return on the investment of that initiative?
Patrick Doyle: Sure. So I think you’re seeing the remodels, it depends on the scope of the remodel. Clearly, if it’s a scrape and rebuild, it’s going to be close to the cost of building a new unit, depending on equipment that you’re going to reuse. But I think you’re going to see an average on full remodels and lighter remodels that’s going to wind up in the $0.5 million to $1 million range, full, obviously, closer to the high end of that. If you just play through the numbers that we rolled out today, you’re looking at about 250 of that coming from us. And if we get a list in the double digits as we have seen to date, our return on that is healthy and the franchisees’ return on that is healthy. So overall, and this kind of plays back to Sara’s question a bit on how do you get to that $300,000 over time.
If we’ve still got half of our system to get remodeled and we can see double-digit lifts, mid-teens lifts on those remodels, and you average that out over half of our system, that’s a pretty nice lift to the overall average unit and does really good things for the profitability of those units. So we feel very good about the return for the franchisees and for us. And ultimately, this is us kind of laying out the full plan and the full commitment for the progress that we are making and are going to continue to make to get Burger King to a great place. We are fully committed to having the brand fixed. We’re seeing great progress on that. We’re pulling lots of different levers. And we feel very much on track.
Operator: Thank you. Our last question today will be from the line of Gregory Francfort of Guggenheim. Gregory, your line is open. Please go ahead.
Gregory Francfort: Hey, thanks for the question. My question is mostly, I guess, on the U.S. market. And I guess we’re seeing in the protein markets is that they seem to be re-inflating at a time where the industry seems to be focusing more on value. And I’m curious, one, is that something you’re seeing in your business? And two, how do you expect that to play out as we get through 2024. Do you expect maybe that focus on value from the industry to start to abate later in the year. Just any thoughts on that would be great? Thanks.
Sami Siddiqui: Hey Greg, it’s Sami. I can take the first part of your question. Look, as we look at, first off, the Q1 results, but even the outlook for the year, I think from a protein perspective, most of you have read about beef headwinds and potential headwinds in that market. But then on the flip side, as you think about Popeyes and the chicken industry, you’ve actually seen some abatement in food costs from a macro perspective. So nothing to call out here on a forward-looking basis when it comes to the food cost side of things. We’re going to continue to monitor the situation. But as Josh mentioned earlier, we feel good about the position where our franchise profitability ended last year. And our outlook for this year, and I think nothing in the food cost arena changes that outlook.
Operator: Thank you. And this will conclude the Q&A for today. And I’d like to hand back to Josh Kobza for any closing remarks.
Joshua Kobza: Well, thank you all for taking the time to join us today on the earnings call. I’d just like to say thank you one more time to our corporate teams, our franchisees and our restaurant teams for an amazing job and for all your hard work you do every day. Have a great day, everyone, and we’ll talk again soon.
Operator: This concludes today’s call. Thank you all for joining. You may now disconnect your lines.
