Restaurant Brands International Inc
NYSE:QSR
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Restaurant Brands International Inc
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Good morning, and welcome to the Restaurant Brands International Fourth Quarter 2021 Earnings Conference Call. [Operator Instructions].
Please note this event is being recorded. I would now like to turn the call over to Stephen Lichtner, RBI's Head of Investor Relations. Please go ahead.
Thank you, operator. Good morning, everyone, and welcome to Restaurant Brands International's earnings call for the fourth quarter and year ended December 31, 2021. As a reminder, a live broadcast of this call may be accessed through the Investor Relations web page at investor.rbi.com, and a recording will be available for replay.
Today's earnings call contains forward-looking statements, which are subject to various risks set forth in the press release issued this morning and in our SEC filings.
In addition, this earnings call includes non-GAAP financial measures. Reconciliations of non-GAAP financial measures are included in the press release available on our website.
During portions of the call today, we will be referencing 2-year comparisons for system-wide sales growth and comparable sales to provide a cleaner indication of how the business is trending versus a more normalized period. These 2-year comparisons are calculated on a geometric stacked basis by using the 2020 and 2021 disclosed growth metrics.
In addition, consolidated system-wide sales, digital sales, net restaurant growth and organic adjusted EBITDA growth do not include the results of Firehouse Subs, which we acquired on December 15, 2021.
And now I'll turn the call over to Jose.
Good morning, everyone. I hope you're all doing well. Joining me on the call this morning, as usual, are Josh Kobza, our COO; and Matt Dunnigan, our CFO. I'm also excited to have Tom Curtis, the President of Burger King in the U.S. and Canada, as a special guest this quarter to share what he and his team have been up to since he took the helm in August.
We made significant progress over the course of 2021 on key near-term initiatives, including opening over 1,200 net new restaurants, seeing early progress at Burger King U.S. and good momentum exiting the year at Tim Hortons in Canada. As we look to 2022, we have a number of clear objectives for the year ahead and remain focused on: first, continuing to build sales momentum in our home markets and around the world, while driving franchisee profitability and unit economics. Second, accelerating global unit growth through our best-in-class franchise network. Third, leveraging recent investments in our field teams, training and equipment to improve restaurant operations.
Fourth, utilizing technology initiatives, including our growing loyalty and e-commerce platform to enhance the guest experience. And finally, making meaningful strides in our restaurant brands for good plan, including executing against our climate strategy and furthering what sustainability means for our brands. I'm confident we're well positioned to execute on these priorities as we work towards our big dream of building the most loved restaurant brands in the world.
I want to thank our restaurant team members, franchisees and employees for their continued dedication. Our people are the lifeblood of our business, and for that reason, I was incredibly proud to see us earn the Great Place to Work Certification with our strongest scores ever, reflecting our commitment to our team and culture.
Turning to a few highlights from the quarter and the year. During the fourth quarter, year-over-year comparable sales accelerated sequentially from the third quarter, driven by all of our brands and across the world. This includes Tim Hortons Canada, which saw year-over-year comparable sales improved to 11.3% positive from 9.5% positive in Q3 and Burger King's international business, which grew comparable sales positive 19.4%, a 320 basis point sequential acceleration. In addition, Burger King U.S. started to narrow the gap to industry performance and saw comparable sales improved to plus 1.8% from a decline of 1.6% in Q3.
On the development front, we opened nearly 600 net restaurants in the fourth quarter, returning to over 1,200 net new restaurants for the full year. And what excites us even more is the excellent work our teams delivered in 2021, entering into new high-quality master franchise development agreements for Burger King, Tim Hortons and Popeyes in building pipelines that position us well to accelerate unit growth in 2022 and beyond across all brands. The combination of comparable sales and unit growth helped drive year-over-year system-wide sales growth of 14%, with organic adjusted EBITDA growth of 15%. This contributed to strong free cash flow generation that enabled us to capitalize on an exciting strategic opportunity with the acquisition of Firehouse Subs.
As the year came to a close and as we look forward to 2022 and beyond, I could not be more excited to have welcome Firehouse Subs' brand and its seasoned team to our family of iconic and loved restaurant brands. We also returned over $610 million to shareholders during the quarter and over $1.5 billion for the year through a combination of dividends and open market share repurchases. Our capital allocation this year was consistent with our overall philosophy that allows us to dynamically allocate capital between reinvesting in our business, returning capital to shareholders, executing on strategic M&A, or all 3.
In addition, our continued commitment to our restaurant brands for good framework helped drive a notable improvement in our ratings this year from leading ESG rating agencies. For example, we improved our S&P score by 37 points year-over-year and achieved a strong inaugural score of B- on our first public CDP disclosure, which was anchored by our strong governance and ambitious climate targets.
Before we dive into brand results, I want to address a few industry headlines relating to staffing and inflation that I'm sure are top of mind for everyone listening in. Our brands have not been immune to these challenges, and we're hyper focused on alleviating near-term pressures by driving sales and traffic in conjunction with recommending staffing initiatives and pricing strategies. On labor, we're taking a proactive approach to improve the situation, including providing toolkits for hiring and retention, expanding the support from our field and training teams and working on simplifying back-of-house processes to make it easier and more rewarding for our franchisees', restaurant staff to work in their restaurants.
On pricing, we took price in 2021 at each of our brands and given the level of commodity cost and labor inflation we're seeing, we expect additional price increases in 2022 and are working closely with franchisees to make the best decision for guests and our franchisees' P&Ls.
Turning now to our brand performance. Let's start with Tim Hortons Canada. We are 2 years into our back-to-basics plan and continue to see encouraging proof points that our focus on elevating core quality, innovating for growth and modernizing the brand is positioning Tims well for long-term growth in Canada. For the fourth quarter, as I mentioned, we saw an 11.3% year-over-year increase in comparable sales, a 180 basis point acceleration relative to the third quarter.
As compared to 2019 levels, we saw a 2% decrease in comparable sales, which is a 360 basis point improvement versus Q3. These results were driven by broad-based momentum, including in the underlying core business, the impact of our digital initiatives and well-executed promotions. During the quarter, we continued our journey of core quality enhancements in both breakfast and coffee. In breakfast, we built on our fresh cracked eggs platform with the introduction of the stake and egg breakfast sandwich, which helped drive overall morning daypart sales ahead of 2019 levels for the first time since the start of the pandemic. We also made progress enhancing our hot beverage offerings, extending our prior work on brewed coffee into a successful platform relaunch of handcrafted espresso beverages, including lattes in November. We saw the benefits of our richer and bolder recipes, dairy alternatives and equipment to nuts with these great tasting espresso-based beverages contributing to positive sales growth and helping drive a sequential improvement in hot beverage sales.
In October, we took the next step in innovating for growth around our food-led occasions with freshly grilled wraps. This successful launch built off our established credibility in craveables and helped drive mid-single-digit growth in our lunch and afternoon snack dayparts versus 2019 levels. It's encouraging to see our focus on enhancing food quality and taste translating to strong sales growth with breakfast foods and main foods up a combined 14% versus 2019. Building new ownable platforms across food-led dayparts remains an ongoing focus for the team, and you can expect to hear more from us on our initiatives throughout the year.
We're also making important strides modernizing the brand through restaurant technology enhancements and continued growth in our Tims Rewards loyalty program. For example, a roll-up to win 2.0 helped propel digital sales to over 1/3 of system-wide sales. In addition, Tim's rewards maintained its position as the #1 food and beverage app in Canada with 4.5 million monthly active users during the quarter, over 50% growth year-over-year. On top of these underlying improvements, we also drove special visits and sales during the quarter through impactful promotions, such as our NHL trading cards and our collaboration with Justin Bieber. Timbits, which included exclusive merchandise in 3 delicious Timbits created together with Justin Bieber, was one of the more successful traffic-driving initiatives in recent memory and outperformed our internal expectations. We've seen early signs of brand loved benefits from this partnership through unprecedented social engagement and increased appeal with younger guests.
I'm a believer, and you can expect to see more from this exciting partnership in the year ahead. We were pleased to see the positive impact of our initiatives translate to growth in our brand health metrics as well across nearly all metrics and ahead of competitors with notable call-outs in both food and coffee quality and taste and all brand connection attributes.
I should point out that our efforts in the quarter, alongside the tremendous work of our owners, drove sequential improvements in comparable sales each month, culminating in the month of December with positive low single-digit comparable sales versus 2019. We also saw sequential improvements on a 2-year basis across all product categories, all dayparts, all formats, all our vanities and all regions during the quarter. While temporary restrictions and lockdowns in January naturally had some impact on mobility and hence performance, we were pleased to see that the impact of this latest surge and resulting restrictions has proven to be less severe than prior impacts, a reflection of the strength of our underlying business and brand connection and the fact that Canadians, like people everywhere, are keen to safely return to their normal mobile lives.
In Tims, we have a beloved brand, dedicated restaurant owners and a strong multiyear plan in place to build on the momentum we're establishing in the attractive categories of food, specialty beverage and cold beverage. And we're confident that thoughtful and steady category innovation combined with improved core execution and unmatched digital reach will unlock a better experience for our guests and more opportunities to grow sales and owner profitability across Canada. What's more, there's also a very attractive path to expand the Tims brand around the world. We already have an established presence in 13 countries and are actively adding to this footprint through our robust development pipeline.
The team achieved the highest level of unit growth since we acquired the brand, delivering 342 net new restaurants in 2021 with notable strength in China where we exited the year with 390 stores and opened our 400th restaurant in January, less than 3 years after opening our first. In the U.S., we achieved our best year of restaurant growth since 2016 and signed development agreements to expand to new markets, including Houston, which will open its first store this summer. Our new U.S. openings leverage a smaller footprint, faster build times and an optimized menu offering focused on beverages, baked goods and hot breakfast sandwiches, all leading to more compelling unit economics. We're seeing encouraging results from these formats and are excited to see the overall business get back to growth. We look forward to sharing additional progress of the Tims U.S. business later in the year.
Now before I walk you through the rest of our results, I'd like to pass it over to Tom to give you an update on the encouraging progress we're seeing at Burger King U.S.
Thank you, Jose, and thank you all for having me here today. Over the past 6 months, I've had the pleasure of traveling throughout the U.S., meeting with and learning from our dedicated franchisees and doing important foundational work with our BK team and franchisees to build a multiyear plan to reclaim the flame at Burger King. While we intend to share additional details of this plan later this year, I'd like to take this opportunity to walk you through some of the near-term initiatives we recently shared with our franchisees.
I've been an operator for most of my career, including 2 decades as the franchisee. So I'm going to start with our initiative to improve operations, which is an important unlock for driving comparable sales. The opportunity is evident when we look at performance across our top operators compared to our bottom operators as measured across a number of metrics, including hours of operations, staffing, speed of service and average complaint ratios. In 2021, for example, comparable sales from this top quartile operators outperformed bottom quartile operators by over 400 basis points, and this is why we are focused on working with our franchisees to implement initiatives that will improve operations.
At the end of December, we rolled out our first of 2 waves of menu simplification, removing low-volume items so the team members can focus on serving our most loved products and providing guests a fantastic Burger King experience consistently. The first wave had no material impact on comparable sales, and we are confident that the improved execution we're starting to see will drive guest retention and frequency for our restaurants. In addition, we're streamlining some product builds across the menu and simplifying our menu boards to make production and ordering easier for team members and for guests. These measures and the renewed focus on operations are welcomed by our franchisees and starting to drive progress in several key operational metrics, including order accuracy and overall satisfaction.
Next, on digital. I spent many years at another company that has been an industry leader in the digital guest experience. There's no doubt for everything that I've seen at Burger King that we have a lot of opportunities to make it easier for guests to order from us online with way fewer clicks to complete an order and consistent, easy-to-enjoy pickup experience. Becoming a leader in this digital space also involved completing the rollout and effective utilization of our outdoor digital menu boards, where over 70% of our guests order with us today. We are well on our way to equipping 100% of our drive-throughs in the U.S. and Canada with these boards by mid-2022. And as we continue to expand our Royal Perks loyalty program, we expect to see synergies from integrating loyalty into these dynamic digital boards.
Shifting to our menu. We are leaning into our iconic brand equities and assets starting with a more purposeful highlight on what has made us special over the decades, flame grilling and having it your way. We were the first in the industry to do both at scale, and they're very much core to our future growth. And also core to our growth is leaning into our strongest brand equity, The WHOPPER. The WHOPPER is a multibillion-dollar brand, and we need to treat it as such. You should expect to see new extensions and innovations around The WHOPPER, some of which are already proven winners in our international markets. We expect they will test and perform well here in the U.S. as well.
And while we always strive to provide excellent value for money on a full menu basis, going forward, we will be purposeful and targeted when we choose to promote this iconic asset. On chicken, you can expect us to optimize our platform so that we ensure unique offerings that we can execute on consistently. This includes a thoughtful menu architecture that features our premium chicken sandwich and extensions, celebrates our original chicken sandwich and offers a fun new approach to our unique fan favorite chicken fries.
Value also remains important to our guests and core to our business. One of our key priorities is to establish a strong value menu that will drive incremental traffic, specifically by creating a powerful Have It Your Way value menu and addressing its rightful place in our overall menu architecture.
Now to execute on our initiatives, we've been building strong capabilities with our new analytics and insights team, bringing additional rigor to all areas of the business, utilizing guest insights, operations analytics, performance analytics and digital analytics. We are implementing better testing protocols to ensure our advertising and our initiatives are well chosen and more impactful. And given the increased rigor of our new processes, it's fair to expect more of an impact from our initiatives in the back half of 2022.
On branding and advertising, the team is working on our brand positioning and how we build relevance with all audiences. I won't go into the detail on that today, but I would note that we recently announced our decision to put our creative and accounts into review. Another crucial part of our brand positioning and relevance is reflected in our systems image, where currently we have nearly 30% of our system equipped with the latest BK of tomorrow image and technology element. The path toward a fully modernized fleet of restaurants is a key part of our longer-term plan, and we're committed to doing what we need to, including making investments in both the brand and its physical assets to get there. We are working side-by-side with our franchisees to develop a bold and thoughtful investment plan, which we'll share with you later this year.
We are also investing in the support of our franchisees and restaurants so that operators execute well on our proven business model, especially in this challenging operating environment. First, we increased our corporate field and training positions across the U.S. and Canada by over 50% since the start of 2021. Second, we're developing our Burger King employee value proposition, and also we'll start providing franchisees with market insights on competitive wages and benefits to help them attract and retain great talent.
And third, we plan to pilot new training methods for restaurant team members like in the moment QR codes that can help them learn and grow as well as complete their everyday tasks more efficiently. And finally, it will come as little surprise that inflationary pressures coupled with near-term sales headwinds have had an impact on franchisee profitability. We've developed and tested a list of opportunities, many of which came directly from our top operators, which we expect will make a meaningful difference going forward. We already started to selectively implement some of these profitability initiatives in 2021 and plan to execute on more over the course of this year with a clear path to improved profitability in the coming quarters.
And now to touch on our results for the fourth quarter. We saw a 1.8% year-over-year increase in comparable sales, a 340 basis point acceleration from Q3. This was driven primarily by the impact of simple, more powerful messaging around our key core platform initiatives for the quarter as well as increases in both delivery and digital sale. These improvements offset a modest impact from reduced operating hours, continued headwinds from our measured transition away from paper coupons and lapping last year's 2 for $5 per core discount promotion.
I was especially pleased to see our Italian Original Chicken Sandwich and Ghost Pepper Nugget promos benefit from our improved media testing and our purposeful decision to reduce the number of messages in the quarter. These were direct outcomes of opportunities our team identified early on to enhance our media firepower. I'm also excited to see that our efforts help to close the gap to our peers by a few hundred basis points last quarter. While we have a long way to go to further shrink this gap and to start creating one, both our corporate team and our franchisees are energized and excited to get after it. Finally, I want to thank them for their dedication and support as we work toward our common goal to reclaim the flame and provide exceptional experiences for each and every guest.
And with that, I'll hand it back to Jose.
Thank you, Tom. It's clear, the team's hard work is paying off, and I'm personally equally as energized as you and our franchisees about Burger King's opportunity in the U.S.
Let's turn now to our Burger King international business, which comprise nearly 60% of the brand's global system-wide sales in the quarter. During the quarter, we once again achieved a sequential acceleration in system-wide sales growth versus 2019, growing over 12%, up from last quarter's 10%. This result included sequential 2-year comparable sales improvements in some of our largest international markets with Spain and Brazil notably returning to pre-pandemic levels during the quarter. Canada, up high single digits versus 2019, and Australia, Korea and the U.K. generating double-digit growth. We also ended the year with our 3 largest international markets, France, Spain and Germany, each generating over $1 billion in system-wide sales. Outside of the benefits from easing restrictions, one of the largest contributors to business performance in our international business remains digital growth. As Josh shared last quarter, we've seen a correlation between our most advanced digital markets and our largest and fastest-growing markets.
In addition, our plant-based products continue to be an important sales driver in Europe, where we are a leader in plant-based offerings. We continue to introduce new products, including the veggie version of our iconic Long Chicken, which made its debut in Spain and Germany during the quarter. We've been pleased with the results, including a doubling of plant-based product incidents in Europe in the quarter and are looking for new market opportunities in Europe and around the world to expand the platform.
We, of course, expect the international business to see continued improvements as restrictions ease. And as we look forward into 2022, we also expect to accelerate our unit growth in Burger King's international markets off our 2021 levels. We're optimistic about the long-term appetite and opportunity to expand the Burger King brand in new and existing markets around the world.
Turning to Popeyes. As you know, development remains a key priority and an unlock for the brand for long-term growth. 2021 was a milestone year for Popeyes development, crossing the 3,000 restaurant mark in the U.S. and Canada and experiencing record unit growth with the highest number of openings since we acquired the brand, and we have no plans to slow down. In 2021, we signed more development agreements around the world than ever before, including plans to bring Popeyes iconic Louisiana-style chicken to India, the U.K., Saudi Arabia, Romania and France as well as further expansion in Mexico and of course, the U.S. and Canada. We continued this momentum into 2022.
In January, Popeyes announced an agreement to launch in South Korea, one of the largest chicken QSR markets in the world. I'm very proud of the team's dedication to introducing Popeyes to more guests, and I'm confident we'll once again see strong unit growth in 2022 in both the U.S. and around the world. We saw the benefit of our powerful development engine on full display in our home market during the fourth quarter as strong net new restaurant growth of 5.6% offset softer comparable sales and drove a 4% year-over-year increase in system-wide sales. While Popeyes unit volumes remain incredibly strong, we did see a 1.8% year-over-year decline in home market comparable sales as a result of staffing challenges and competitive pressures. Ongoing labor challenges led to reduced operating hours and service modes, impacting comparable sales by roughly 1%.
In addition, chicken sandwich volumes remain pressured by competitors, which, as you may recall, started making their sandwich debuts in early 2021.
Despite these pressures, comparable sales did improve by nearly 300 basis points relative to Q3, partially driven by traction from many innovation. For example, we saw encouraging results from recent initiatives with nuggets and the [indiscernible] sauce collaboration contributing positively to comparable sales. These initiatives also played an important role in attracting new demographics, specifically Gen Z and millennials, and expanding our PM snacking daypart. We're just scratching the surface on opportunities for Popeyes, and I firmly believe that the brand is poised to become one of the fastest growing in the industry.
And finally, I'd like to briefly touch on our newest addition, Firehouse Subs. I'm pleased to share the strong results that the Firehouse Subs team drove in 2021, including reaching all-time high average unit volumes of over $900,000, growing year-over-year comparable sales 21%, driving system-wide sales to approximately $1.1 billion and generating over 27% of system-wide sales through digital channels. These impressive results are a testament to the strength of the brand, its unique menu offerings, its purpose-led public safety commitment and its seasoned management team. It's all of these elements that make us so confident in Firehouse Subs long-term growth and expansion opportunity.
We're excited to plug Firehouse Subs into our robust global development network, shifting the brand's unit growth into high gear in the coming years. And while Firehouse Subs already has a growing digital presence, we see further opportunities to add more guest options and benefits and transport the brand's digital experience across borders. I'm very excited for the future of Firehouse Subs at RBI and look forward to providing you with more updates in the year ahead.
With that, I'd like to hand it over to Josh to take you through a quick update on our technology and digital initiatives. Josh?
Thanks, Jose, and good morning, everyone. Technology remains a key pillar of our long-term strategy and one we view as a powerful business driver across all our brands and markets. We're focused on creating an even more convenient and seamless experience for guests with the ultimate goal of driving sales. That means being available across all channels, making it easier and faster to order and creating a joyful experience each and every time anyone interacts with our brands. To help us achieve this goal, we've added roughly 300 team members in the last 3 years across our consumer facing, restaurant technology and data analytics teams, putting ourselves in a position to move quickly and build critical capabilities ourselves. In addition, we have accelerated adoption of key skills across our broader organization through hiring, education and training programs.
One way we're integrating digital into our brands is through new service modes built into our restaurant image. For example, at Tim Hortons, our design team has added new order and pickup channels into various restaurant types. These include developing a walk-up order window, a dedicated curbside pickup area and a drive-through conveyor system. We look forward to sharing more on each of these exciting design innovations that enable digital experience as we roll them out to more restaurants in 2022.
And a quick update on our digital sales progress. We ended 2021 with over $10 billion in global digital sales, representing just over 30% of our total system-wide sales. Tremendous progress from just over 4 years ago when we had virtually no digital sales in most of our major markets. During the fourth quarter, Tims Canada derived over 1/3 of its sales from digital channels, an all-time high for the brand. And Popeyes and Burger King home markets generated 16% and 9%, respectively, while our international markets drove over 50% of sales through digital channels. We attribute this improvement to a combination of factors, including growth in delivery, an increase in mobile order and pay and continued traction from loyalty.
2021 marked the first year we had royalty across all our brands in home markets. While Burger King and Popeyes are earlier on in their journeys, during the year, Tim Hortons transitioned its loyalty program from one focused on building a strong user base to consistently driving comparable sales and as a result, saw the highest sales contribution from royalty to date. I'm confident that the investments we are making across our digital and technology capabilities will play a critical role in enhancing the guest experience and advancing our growth in the future.
With that, I'll hand it over to Matt to take you through our financials for the quarter.
Thanks, Josh, and good morning, everyone. For the fourth quarter, our global system-wide sales grew 14% to $9.3 billion, and our adjusted EBITDA was $584 million, up about 15% organically. Beyond the growth in system-wide sales, there were some factors that contributed to slightly higher EBITDA growth versus system-wide sales growth this quarter. These include benefits related to a few things. First, a positive shift in sales mix at Tim Hortons Canada, where we have additional lines of business benefiting from our same-store sales growth of over 11% year-over-year. Second, cash distributions related to joint ventures and other ownership positions as we've seen the health of many of our markets around the world continue to improve. Third, the release of bad debt provisions while lapping cautionary provisions that were set up in 2020. And lastly, the continued growth of our retail business at Tim Hortons, including new product launches and further expansion into U.S. channels. These tailwinds were partially offset by anticipated increases in our G&A expenses as well as year-over-year ad fund timing.
As discussed throughout 2021, we've ramped up G&A investments within core areas of the business such as expanding and improving our field operations, including the 50% increase in field headcount at Burger King U.S. and Canada that Tom mentioned, and meaningfully growing our technology capabilities. In the fourth quarter, we saw this flow through largely as expected, with our segment G&A increasing to about $104 million, excluding Firehouse, reflecting these investments as well as a few million of additional discrete compensation expense driven by business performance exceeding expectations into year-end. As it relates to ad fund timing, our year-over-year growth this quarter reflects the fact that advertising expenses exceeded revenues by approximately $11 million more than they did in the fourth quarter of last year, resulting in an organic EBITDA growth headwind of about 2%. Most of this movement relates to us deploying the remainder of our CAD 80 million commitment behind the Tim Hortons Canada marketing plan to drive our back-to-basics initiatives.
In addition, as of January, our restaurant owners ad fund contributions have stepped up by 50 basis points versus the beginning of last year, which we expect will provide valuable investment capacity for the future as we advance on our food innovation roadmap and build further and further on our digital momentum to modernize the experience of our guests across Canada.
Before turning to EPS, I'd like to briefly discuss our sales -- cost of sales margin within our Tim Hortons segment. Similar to what others across the industry have noted, we saw a significant increase in commodity volatility as we progress through the quarter, leading to elevated levels of inflation that have similar pass-through effects on both our revenue and expense lines. This dynamic resulted in a somewhat lower margin percentage than anticipated in the quarter. That said, during the fourth quarter, we saw healthy year-over-year growth related to sales less cost of sales on a dollar basis, a good reflection of the trends we saw at Tims as sales and volumes improved throughout the quarter. We will continue to manage through the volatility that has extended into this year, and as we do so, we remain focused on driving volume growth in a high-quality way for our sales plan and maintaining best-in-class service levels, which are a key advantage for our system.
Our fourth quarter adjusted earnings per share was $0.74 compared to $0.53 last year, representing an increase of approximately 39%, including an FX tailwind of about 1%. The higher growth compared to our organic adjusted EBITDA growth of 15% was mainly driven by lower net interest expense, a lower adjusted effective tax rate and a reduced share count from our repurchase activity, partially offset by higher equity-based compensation.
Turning to our cash flow and capital structure. We generated $435 million in free cash flow during Q4 and over $1.6 billion for the year. This strong cash flow enabled us to continue investing in our business and capitalize on an accretive strategic opportunity, all while following through on our commitment to return capital to shareholders, through both our industry-leading dividend and open market share repurchases.
In December, we increased our term loan A facility by over $500 million and extended the maturity of our term loan A and revolver to 2026. The proceeds along with cash on hand supported our $1 billion acquisition of Firehouse Subs. The transaction had a minimal impact on our balance sheet, only increasing net leverage by about 0.3x from Q3, and we ended the year with a strong liquidity position of $2 billion, including $1 billion of cash on hand. Our strong cash flow and flexible balance sheet has allowed us to execute across all elements of our capital allocation priorities, which starts first and foremost with investing in the business. On this front, we made a number of important investments throughout the year, including the G&A investments I discussed and our CAD 80 million support for the Tim Hortons Canada ad fund. In addition, we invested $125 million into our business through CapEx and tenant inducements, reflecting our commitment to modernizing our brands and innovating our digital capabilities.
Going forward, we will continue to prioritize investing in our brands, and as Tom mentioned, are in the process of working through a thoughtful plan for the BK U.S. business, which we expect to share more on with you later this year. We've also been actively buying back shares, and during the fourth quarter, repurchased and retired approximately 6.4 million shares of our common stock for nearly $370 million. In addition, we paid shareholders of $0.53 per share quarterly dividend, which will increase in Q1, marking the 38th consecutive quarter of year-over-year dividend increase and a target of $2.16 per share for 2022.
2021 marked a positive combination of improving business results with double-digit growth in both system-wide sales and adjusted EBITDA and $1.5 billion of shareholder returns through nearly $1 billion of dividends and over $500 million of open market share repurchases. As we look forward to 2022, we see clear opportunities to continue down this path by building on our momentum at Tims, ramping up the initiatives Tom touched on in BK U.S. and delivering on our big global development opportunities.
In addition, with our ample liquidity, strong cash flows, nearly half of our $1 billion open market authorization available, we have plenty of flexibility to remain dynamic with our capital allocation between reinvesting in our business and enhancing our growth with a similar amount of shareholder returns in 2022, absent other compelling strategic investment opportunities.
With that, I'd like to thank everyone again for your support and for joining us this morning. And we'll now open the line for questions. Operator?
[Operator Instructions]. We'll be taking our first question today from Brian Mullan of Deutsche Bank.
Tom, thanks for the prepared remarks. You talked about a lot of things, but I believe you mentioned potentially being willing to further invest in the brand to be in physical real estate, which will presumably more of CapEx. But I'd imagine perhaps, that could also mean ongoing G&A or OpEx to support system. So if you could just elaborate on that comment and what you had in mind. Is one thing even more than the other? Are both equally important? Just any thoughts would be great.
Brian, thanks for the question. It's Jose. I'll just open it up here and then pass it over to Tom, who's sitting right next to me. As we've said in the past and we commented in our prepared remarks, we've got an incredible business generating a lot of free cash flow and it gives us the ability to invest back into the business to return capital to shareholders, to do strategic M&A, or all 3, as we've done in this fourth quarter of 2021. As it relates to the Burger King business, we've talked -- touched on this quite a bit. And Tom just got into a position and he's working with the team on the game plan going forward. I'll let him go into a bit on the G&A front as well as the work we're doing on real estate and the capital side.
Tom, do you want to touch on that?
Yes. And thanks for the question, Brian. It's important to remember that we're already investing a good bit of G&A behind the BK U.S. business as we expanded the field team last year, increasing over 50% the size of the field team from January to January of this year. And those team members are critical partners with our franchisees. They're helping drive the operational improvements that we're seeing and that we need to continue to see, and they're also helping the franchisees implement some of the new initiatives that we have going forward. Also, we've invested in our analytics and insights team, led by a fantastic colleague of mine, Julia Oswald, and we're putting money behind technology and digital.
But image is perhaps the area where we can accelerate the most with capital. We exited 2021 with about 30% of our home market system remodeled to the BK of tomorrow. We've been going at a run rate of about 500 remodels per year, but we're looking at ways to make step changes while maintaining quality. And this year, we'll be going site by site and working with our franchisees to execute on what that looks like so that they can drive good return on investment and also create a more endless or seamless end-to-end experience for guests and improve operations for the restaurants. So we certainly are anxious and eager to share more with you, and that will probably come later this year in the coming quarters.
We'll take our next question from Chris Carril of RBC Capital Markets.
I wanted to circle back to development. You noted recently and again today that you see development accelerating, but I was hoping you can expand on that a bit more. I mean, Tim' clearly showed meaningful acceleration in the 4Q, and you've signed a number of new agreements for Popeyes. I know you've layered in Firehouse. So curious on how all the pieces fit together for the overall development outlook for this year? And to what extent you see more balanced growth going forward longer term?
Chris, thanks for the question. Yes, we were excited with the progress we made in 2021. We saw the power of diversified growth this year with Popeyes in the U.S. as well as internationally beginning to really be a big contributor as well as Tim Hortons gaining traction in international markets, especially in China, but also in other international markets like the Middle East and the U.K. and Mexico. And we saw the first time in a long time, positive growth out of Tims in the U.S. So we're excited about Popeyes and Tims contributing.
Obviously, BK is the engine of growth and has been for some time for our company internationally, in particular. And we're confident in the ability of that business to get back to levels of growth of what we saw back in '17, '18 and '19. And we're encouraged by the broad-based growth that we saw internationally in many markets. We saw some markets where we have large franchisees getting back to growth in 2021 and seeing some good momentum there, but not quite to pre-pandemic levels.
And examples of that include China, Brazil and Russia growing, but not quite at the pace that we saw in 2018, 2019. In some cases, there are macro environmental issues like we saw with Brazil, although we did see signs of improvement in the fourth quarter. In the case of China, as an example, we've been working through some open issues and disputes that we've had with our master franchisee there. We're working through them, working closely with the master franchisee. I'm not going to be able to get into too much of that into this call here, but I've known these guys a long time and believe that we have a good path forward to help accelerate growth in China, which is one of our biggest priorities.
And overall, we're pleased with the huge bounce back we saw in 2021 from basically flat in 2020 to meaningful growth in 2021. And we have a lot of confidence in our long-term outlook. We continue to see a lot of the white space in many markets in Asia. We're still -- our competition has 3:1 versus us, and we think we have an opportunity to grow in the chicken space, in the coffee space, in the burger space and now in the sandwich space. In EMEA, Europe, Middle East, Africa, it's 2:1, and North America, it's also 2:1. So lots of room for growth. We have 4 great brands that have strong unit economics and lots of interest from franchisees. And in particular, as it relates to BK, we're confident that we can accelerate in 2022 and beyond and get back to really strong growth across the entire company.
We'll take our next question from David Palmer of Evercore ISI.
For my question, I wanted to focus on the impact of inflation in supply chain in Canada. You mentioned how Tims supply chain was a drag to the EBITDA this quarter. And I would imagine costs would be running high in supply chain in Canada this quarter. But looking to the future, I would imagine that the relationship of pricing to cost in the supply chain business would be improving, and some of these COVID-related friction costs that we see across all sorts of supply chains out there would also be going away. So could you talk about how much COVID and perhaps, the temporary dislocations of price to cost might be a drag to Tim's EBITDA right now? And how much of that might be easier comparisons later? And then how much higher are Tims Canada prices at the menu level for the franchisees versus a year ago to pay for this?
Yes. Dave, thanks for the question. It's Matt here. I was just going to share some comments on your question on supply chain margin, and I think Jose was going to jump in with some thoughts as well. But specifically as it relates to the quarter in the supply chain, we had talked last quarter about some pressure on the sales, cost of sales margin, and we were expecting it to come down a bit given the volatility that was out there. And I think that's generally what we saw in the quarter. We did come in a bit lower than we had expected when we spoke in the third quarter.
I called out in the prepared remarks, there was an impact there related to inflation, obviously. And if you think about it, the way our business works in terms of commodities where we're seeing a bunch of volatility and inflation, where we have pass-throughs, those pass-throughs are going through both the revenue and expense lines in the P&L. And so they have a little bit of a disproportionate impact as they flow through, which is kind of what we saw in terms of the impact to our percentage margin in the quarter.
But that being said, I think we're very positive on the trajectory of the business, and I think that's the most important thing. We're very excited to see the progress in the business at Tims in the quarter, both in terms of sales and volumes falling along with that. And as a result of that, it didn't really have a material impact on our dollar profit, right? So we saw healthy year-over-year growth on a dollar basis in the supply chain. I think where we are now, we're obviously still facing a bunch of volatility out there. We aren't giving specific margin guidance, but we are managing costs and pricing in a really disciplined way and focused on really driving guest experience and delivering great value to our guests and maintaining best-in-class service levels from our supply chain, which we think is a pretty key advantage for the system in Canada.
I'll let Jose jump in with some other thoughts as well.
Thanks, Matt. And yes, David, your second -- the second part of the question was on pricing to the consumer. And as we've mentioned before, we work closely with our franchisees and also third parties to help guide and determine the right pace and level of pricing. We're quite structured and data-driven in that regard, and we run the process on a regular basis just to keep an eye on what's happening. We also look closely at what's happening in the marketplace and trends with competitors as well.
In Canada as well as in the U.S., we've tended to price in line with CPI, and CPI in Canada is -- has been probably in '21, about half or even slightly below half of what we've seen in the U.S. And so pricing for Tims in Canada has been right around CPI, just -- actually just under it. And so we'll continue to monitor this. It's really important for us to ensure that we manage -- control the demand side of it and not get too far ahead of the consumer from a pricing standpoint. And our teams work closely with the owners in Canada and with our supply chain teams to ensure that we have the right pricing going forward and continue to create that strong demand for our beverages and food throughout all dayparts. Thanks for the question.
We'll take our next question from John Glass of Morgan Stanley.
Tom, you mentioned franchisee profitability at Burger King being under some pressure just given inflation in the sales results. Can you maybe frame what the average profitability looked like in '21 versus '19 or some way to sort of measure how you think franchisee profitability is today. Do you think that system has the wherewithal to continue to reinvest in the business the way you want them to just given that profitability? And do you think the solution has just help them operationally improve profitability, and therefore, they can reinvest? Or do you think there's a more significant role in corporate investment to help them achieve those goals of reimaging the system?
Yes. Thank you, John. Franchisee profitability is going to be a big key to our long-term success. And as we came out of 2020, we had very strong profitability despite a difficult time, and that really speaks to the resilience of the business model. But that said, we worked through a lot of headwinds last year and saw an overall decline in profitability in 2021. We did see some positive signs in Q4 where we were flat to Q3 nominally and as a percentage of sales, despite the inflation headwinds. And just positively, we started to see some progress at the end of the year from our profitability initiatives specifically.
So as we go forward, we're doing a lot on this front, and we're positive, and our franchisees are also very optimistic that this will have a positive impact in 2022 and beyond and help create the ability to invest more. So on the cost side, we're helping to diversify sourcing to alleviate cost pressures and supply chain risk.
On the labor front, I talked a lot about simplifying life in the restaurants and addition of tech -- of restaurant technology opportunities that can help drive efficiency as well. So our near-term plan in next year is to try to drive about $500 million of annualized price and price-related efficiencies to the system. Part of that comes through utilizing those new approaches in guest insights. We started to roll those out in Q4, by the way, and expect to complete those in 2022, once again, providing us with a road map and a backdrop for future investment. And as we mentioned earlier, we do think we have a role to play. Matt, Jose, myself are working closely together. It's something we talk about almost every day, and then we'll have more later in the year on what that will look like. And also we'll be working closely with our franchisees on that plan.
We'll now be moving over to our next question from Dennis Geiger from UBS.
Jose, I appreciate all the color on Tim Hortons and the improvements that the brand saw through the quarter. Wondering if you could talk a little bit more about how you view the brand has positioned this year to make further gains based on everything you highlighted and the work the team has done across menu and marketing and digital and more, particularly as the restrictions in Canada begin to ease and mobility improves. Maybe specifically, if you could kind of touch on sort of the strength maybe that you're seeing on those brand, customer brand closeness scores that you've highlighted previously or whether the brand is taking market share currently in Canada?
Great. Thanks, Dennis. Appreciate the question. Yes, as I mentioned, we were excited and encouraged by the progress in Q4. It was a well-balanced plan that was executed well by the owners and by our team. We saw growth in our core performance and kind of the underlying core business was moving in a really good direction. Our digital business, as I touched on and Josh mentioned as well, is really strong. And we saw some really good execution of the promotions in the quarter, including the promotion around hockey cards as well as the promotion with Timbits, something we've done consistently over the years, and we think we can continue to do going forward, relevant promotional activity to create engagement with our consumers, both digitally as well as in restaurants.
We're encouraged by the progress, and obviously, towards the end of the quarter and the beginning of '22, we saw a bit of a surge in -- with the Omicron variant, and we saw some restrictions being implemented in Canada as we've seen from time to time. Those are easing now. There are some announcements earlier this week, which we believe will kind of continue down the road for us. We believe our business plan is focused entirely on addressing our food -- our excellent food and beverages. We're also quite focused on the digital side of the business. And so trends continue to be encouraging. The brand metrics, as I touched on, are positive and also encouraging, and we continue to see good momentum as we head into the second half of the quarter and look forward to sharing progress.
And Matt, maybe you can touch on some of the comments here.
Yes. Thanks, Dennis. Just related to market share, just a couple of ones to kind of throw out there for you. We did see in the important area of food innovation, which we've been focused on, and we've seen a lot of good results so far against the plan. We did see breakfast food market share grow over 300 basis points year-over-year improvement based on high single-digit growth in breakfast foods versus '19. And we also saw a really, really nice strong growth in lunch foods as well, which were up over 20% versus 2019, and also improving in terms of market share.
We'll take our next question from Jeffrey Bernstein of Barclays.
Great. Tom, welcome to the call. It's great to have brand leadership contributing. Just following up on the Burger King franchisee profits being under pressure. Just wondering whether you think that, that limits certain investments or initiatives that you want to implement in '22. I know you mentioned working with Jose and Matt and others, is there a chance for maybe some sort of contribution to the Burger King system similar to what you made at Tim Hortons this past year, which seemed to be a big positive for you? And just on that franchise profit front, I'm just wondering whether you can share your thoughts around the menu pricing for that specific BK brand. Maybe you're -- where you think the system closed in '21 to protect that profit and maybe some suggestions for 2022 to balance traffic and value and margin? Any thoughts there would be great.
Thank you, Jeffrey. On the contributions, like I said, we're working thoughtfully on what that plan could look like. And yes, there's a thought that, that can -- that we can help there and work with our franchisees on what an investment -- a multiyear investment plan would look like. However, in the short run, we're very focused on the operational improvements that we can make to help profitability and also some interventions that we could do on the marketing front to improve profitability there as well.
On pricing specifically, in late '21, we did lift some price caps on some selected items, and we've removed WHOPPER from our core discount, although we'll look for opportunity for some incremental discounting there in the future, but it won't be every single day. We have shown that we have some good price elasticity in a variety of areas. And I think anything -- as we do those things over the course of the next couple of years, what's going to be very important to us and our operators is going to be keeping that guest experience great. And we've also seen that those operators who outperform from a traffic perspective after taking price also perform well in terms of -- they can basically do pricing and maintain traffic.
So all of that, those efforts really work together. Those operational efforts alongside any real targeted pricing interventions to make sure that we can grow the business as well. And we saw some pretty good evidence of that in Q4, and once again, as I said, with our high-performing operators.
Our next question comes from Andrew Charles of Cowen.
Great. Guys, really impressive traction in the first 3 years in Tim Hortons China. Could we just get an update, though? I think with the master franchisee plan go public, they did share some store level details. And just want to learn a little bit more around how it impacts your income statement. Based on their disclosure, it looks like AUV is around $450,000 to $500,000 or so. And also I'd love to know just the royalty. I think it steps up over time, but it starts at around 1% to 2%. Just want some help just connect the dots between their store economics and how it impacts your income statement. Obviously, that becomes a larger percentage of growth.
Yes, Andrew, thanks for the question. We are really excited about the progress we're making in Tims in China. Obviously, as I mentioned in the prepared remarks, we crossed the 400 threshold there or kind of milestone in January, only opening the first one less than 3 years ago. We have a very ambitious long-term target for growth in China and view that as a great path to build the Tims international business throughout the region in Asia and also in other markets around the globe. So we're really excited, and they're seeing some good growth as well from a comparable sales standpoint in 2021. Tremendous digital business as well. Around 90% of the business is through digital channels, and we're seeing significant improvements as well from an operational standpoint at the store level, guest engagement and feedback there is really good.
Similar to what we see with Popeyes and we also saw with Burger King early days, as you build the brand internationally, there are different formats that we use. You'll see less -- especially in Asia, you'll see less freestanding drive-through locations, and you'll see the formats that are more in line and smaller footprint. We also see differing economics, as you pointed out, on the royalty, but also in terms of how -- our business internationally is principally a royalty-based business. We do, in some cases, have had ramp-ups in royalty, but the goal is to get back to kind of standardized royalty rates across the globe for all brands.
And in many cases, with these international businesses, as you're starting from scratch, you're building awareness. These are startups in many of these markets. And so you'll see AUVs grow over time as we connect and engage consumers better with the brand. They understand the brand better. Frequency is being driven more and more. We have strong loyalty platforms in these markets, which allows for even higher frequency. So we're really excited and looking forward to sharing more on how we progress with Tims, but also Popeyes and Firehouse alongside our BK international growth engine. Thanks so much for the question.
We'll take our next question from Lauren Silberman of Credit Suisse.
I wanted to ask about Popeyes U.S. You talked about competitive pressures at the brand, and given these competitive pressures are unlikely to abate, how are you thinking about the strategy to reaccelerate comps and market share gains? And then to what extent is the sales performance weighing on franchisee economics and the appetite for development in the U.S.?
Great. Thanks for the question, Lauren. I think it's important to remember how significant the step change for Popeyes in the U.S. was in 2018 heading into '19 and then throughout 2020. The business has changed dramatically in terms of AUVs or volumes on a per store basis as well as 4-wall EBITDA for the franchisees. We've seen tremendous appetite and engagement from all the franchisees around the country, existing and new ones as well, coming into the system because of the exciting unit economics. We are facing as we do with all brands in the U.S. and in more mature markets, we -- there's a lot of competition. That's part of the business. But we think we have a differentiated product with the chicken sandwich as well as our nuggets that were launched and a lot of the innovation pipeline that we have on handheld chicken, we believe allows us to continue to grow long term the business investments in digital as well, we believe, are key drivers of growth for the brand in the U.S. in quarters and years to come. And we think there's a tremendous opportunity here.
So we'll continue to innovate and develop our menu to continue to address trends in the industry. But the key for Popeyes in the U.S. will be to continue to deliver the great tasting products that we have and do so in a really efficient way in our restaurants. And that's the focus that the team has investing in drive-throughs, investing in outdoor digital menu boards, investing in operations and continuing to be there for our guests day to day. much for the question.
We'll take our last question today from Mark Petrie of CIBC.
Tom, I'll echo the other comments this morning. But just regarding the approach to marketing, I heard your comments about the opportunities in the menu as well as in digital, but I wanted to ask about the Burger King brand perception. And I understand you're in a review of your creative accounts, but where do you think the Burger King brand has lagged? And where do you see the most opportunity this year?
Thank you, Mark. I think that where we have the most opportunity is really redefining or defining who we are, having a relevant and distinct voice. And that is one of the reasons that we took -- we went out to agency review. So we're excited to kind of work on that brand positioning and defining our brand essence going forward. I think we'll be focusing on our core, on the WHOPPER, flame-grilling, having it your way, those are really the things that made us great and the things that will make us great going forward. So I think just focusing on those things and doing it in a simplified way with added firepower to the distinct messages that we'll be out there with are going to be key for us to growing market share over the course of time going forward.
Great. Thanks to everyone for their questions and for joining us this morning. I'm incredibly proud of the progress we've made this quarter and throughout the year against a number of our key priorities, including driving sequential improvements at Tim Hortons in Canada, at Burger King in the U.S., enhancing our global digital capabilities and building a robust development pipeline to accelerate unit growth in 2022 and beyond. I'd like to thank our team and franchisees for their contributions and their continued dedication and effort as we work together towards our big dream of building the most loved restaurant brands in the world. Thank you again for joining us, and have a great day.
This concludes today's call. Thank you all for joining. You may now disconnect.