(Reuters) - Burger King owner Restaurant Brands International Inc (QSR.TO) and its franchisees will spend C$700 million ($546 million) over four years to revamp coffee chain Tim Hortons, following a round of bad publicity over its management of the Canadian chain.
The revamp, unveiled by managers on a conference call with analysts on Tuesday, followed first-quarter results which suggested initiatives including cheaper meals and new breakfast options were bearing fruit at Burger King outlets.
Toronto-listed shares in the company rose 5 percent to C$72.36 in morning trading, while the U.S. equivalent gained 4.8 percent to $56.08.
Politicians have criticized Hortons for its reaction to minimum wage increases in Ontario, while a group of franchisees has alleged Restaurant Brands is not keeping to the terms of a 2014 deal to buy the chain.
Hortons’ same-store sales fell for the eighth consecutive quarter in the first three months of the year, the company’s results showed.
“The environment’s competitive and the fact that there’s a ton of negative media created by this group of franchisees is also hurting guest perception,” Chief Executive Daniel Schwartz said on the post-earnings call.
Restaurant Brands said it would redesign Tim Hortons restaurants, focus on technology and introduce more lunch options at the chain.
The company, which expects to remodel most of Hortons outlets in Canada by 2021, did not disclose how it planned to split the cost with franchisees as they face rising competition from Starbucks and McDonald’s McCafe among others.
By contrast, a 3.8 percent rise in Burger King comparable sales topped a consensus forecast of 3.5 percent and helped Restaurant Brands beat first-quarter profit estimate.
Excluding items, Restaurant Brands posted earnings of 66 cents per share, beating analysts’ average estimate of 56 cents, according to Thomson Reuters I/B/E/S.
Net income attributable to shareholders tripled to $151 million, or 60 cents per share, in the three months ended March 31. The company reported under a new accounting standards for this quarter.
Revenue rose 7 percent to $1.07 billion.
Under new accounting standards, the company had a profit of $147.8 million and revenue of $1.25 billion.
($1 = 1.2823 Canadian dollars)
Reporting by Yashaswini Swamynathan in Bengaluru; editing by Patrick Graham and Sriraj Kalluvila