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May 15, 2020, 8:49 p.m. EDT

Popeyes ‘immune’ to coronavirus as Restaurant Brands reopens dining rooms

Popeyes sales grew 32.3% in the first-quarter despite the spread of COVID-19

By Tonya Garcia, MarketWatch

Popeyes continues to be powered by sales of its popular chicken sandwich.

Restaurant Brands International Inc. has announced its plans for reopening dining rooms across its portfolio of fast-food chains, including Popeyes Louisiana Kitchen, which barely lost momentum despite the spread of COVID-19 and is set up for a strong recovery, according to analysts.

In an open letter from Restaurant Brands (NYS:QSR)  Chief Executive Jose Cil, the company said acrylic shields and contactless service has been put in place at its restaurants, tabletop signage designates which tables have been set aside for social distancing purposes, and self-serve soda fountains have been turned off.

KeyBanc Capital Markets analysts expect demand for Popeyes chicken meals to be strong.

“The ‘V-shaped’ recovery at Popeyes was unexpected, and we continue to be amazed by the strong performance and sustainability of recent trends,” wrote analysts led by Eric Gonzalez. “We believe the chain’s impressive performance during this crisis will only increase demand for that brand by consumers and in the franchising community and support accelerating unit growth in the years ahead.”

Read: Dunkin’, Starbucks, Chipotle and other restaurant chains have seen business shift to different times of day due to coronavirus

Restaurant Brands, whose portfolio also includes Burger King and Tim Horton’s, reported first-quarter earnings on May 1. Net income totaled $144.0 million, or 48 cents per share, up from $135 million, or 53 cents per share, last year. Revenue was $1.225 billion, down from $1.266 billion in 2019. The FactSet consensus was for EPS of 50 cents and revenue of $1.234 billion.

System-wide sales at Popeyes were up 32.3% for the quarter, while dropping at Burger King and Tim Hortons, 3% and 9.9% respectively.

And same-restaurant sales were up 26.2% at Popeyes while down 3.7% at Burger King and 10.3% at Tim Hortons.

Same-restaurant sales were up in the mid-30% range in January, February and the first couple of weeks in March, Cil said. Same-restaurant sales declined to flat for the last two weeks of the month.

“Popeyes’ success last year was unlike anything any of us have seen in our careers, but its resilience in the face of COVID-19 with dining rooms closed across the country has been equally remarkable,” Cil said on the earnings call, according to a FactSet transcript.

“We’ve made many important adjustments at Popeyes since the global spread of COVID-19, rolling out contactless procedures in the drive-thru and putting additional resources behind delivery and mobile order and pickup.”

KeyBanc analysts say they’re bullish about Popeyes for the long term, though the chain doesn’t get as much attention as it should because it’s so much smaller than the others in the Restaurant Brands portfolio.

Also: Chipotle will continue to invest millions in its digital business despite uncertainty from COVID-19

At the end of the first quarter, there were 3,336 Popeyes restaurants, 18,848 Burger King locations, and 4,925 Tim Hortons.

KeyBanc rates Restaurant Brands overweight with a $54 price target.

“Popeyes all but immune to COVID,” wrote Stifel analysts led by Chris O’Cull. Chicken sandwiches remain the star at Popeyes, but other items on the menu, including bone-in chicken and seafood also grew.

“Quarter-to-date, Burger King saw a rate of recovery similar to quick-service restaurant-burger peers, while Popeyes defied the gravity of a national lockdown and returned to pre-COVID comp growth in April,” Stifel said. “We believe the resilience of Popeyes sales will only serve to accelerate its domestic development prospects.”

Stifel rates Restaurant Brands stock hold with a $53 price target.

Watch: How to pick restaurant stocks that can survive the looming crisis

Restaurant Brands stock has tumbled nearly 24% over the past year, while the S&P 500 index (S&P:SPX)  is nearly breakeven for the period.

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