Tim Hortons may miss same-store sales targets

Tim Hortons, which has 2,971 outlets in Canada and 556 in the U.S, said same-store sales jumped in both Canada and the United States as third-quarter revenues increased 10.7%. Net income fell more than 22% because of costs associated with the company's reorganization.

The National Post
October 30, 2009

Tim Hortons may miss same-store sales targets
Jonathan Chevreau

TimHortonsNewYork.jpg

Pedestrians walk past a new Tim Hortons coffee and bake shop in Midtown Manhattan Brendan McDermid/Reuters

TORONTO — Tim Hortons Inc. may miss its same-store sales targets for the year because of a slower-than-expected economic recovery, its chief executive said Friday.

The largest coffee and baked goods chain in Canada says it now expects to slightly miss or hit the low end of its 3% to 5% stated sales growth target for 2009 at stores open for more than a year in Canada, where it has the vast bulk of its restaurants.

"There's no question that consumers right across the country and in the U.S. continue to be under pressure," Don Schroeder told analysts on a conference call to discuss third-quarter results at the Oakville, Ont.-based chain.

"The real reason [for the diminished sales expectations] is with respect to the economy. Everyone had projected that by the third quarter the economy would be improving, [and] at best, [progress] is sluggish to date," he said, adding it is prudent to be conservative when it comes to forecasts for the remainder of the year.

Analysts had speculated that Tim's may benefit from coffee lovers trading down from Starbucks' pricier brews, but it is clear some consumers are still in wallet-watching mode given the weak consumer confidence reports from earlier this week and unexpected news Friday that Canada's economy shrank in August.

Tim Hortons says it is confident it will meet its other targets, including consolidated operating income growth range of 11% to 13% growth, excluding the impact of its reorganization as a Canadian public company in the third quarter.

Tim Hortons, which has 2,971 outlets in Canada and 556 in the U.S, said same-store sales jumped in both Canada and the United States as third-quarter revenues increased 10.7%. Net income fell more than 22% because of costs associated with the company's reorganization.

Operating income for the three months ended Sept. 27 was up 5.4% to $129.2-million, and same-store sales gained 3.1% in Canada and 4.3% in the United States, helped in part by new promotions including sausage and a biscuit, ranch and barbecue chicken wrap snackers and a line of blueberry baked goods. Year-to-date, sales in Canada are ahead 2.7% and are up 3.6% in the United States.

Tim Hortons said it took a $23.1-million hit from its reorganization as a Canadian public company, repatriating its head office back to Canada from Ohio, a move that was completed at the end of the third quarter and is expected to help lower the company's tax rate in the long run.

As a result, net income fell to $61.2-million from $78.8-million as the reorganization drove substantially all of the increase in effective tax rate for the third quarter, which rose to 50.5% compared to 32.5% last year.

The company also said yesterday that it would resume its share repurchase program this quarter, which it put on hold in May pending the reorganization. It expects to spend up to $150-million on shares during the remainder of the program, which ends on March 1, 2010.

Revenues in the quarter jumped to $563.6-million from $509-million.

A co-branding deal with U.S. gourmet ice-cream-retailer Cold Stone Creamery helped sales on both sides of the border, the company said. The venture started with several stores in New York City, but since then 12 co-branded outlets have opened in Canada. While the company also has secured the rights to open standalone Cold Stone outlets in Canada, it has no plans thus far to do so, Mr. Schroeder told analysts.

http://www.financialpost.com/personal-finance/wealthy-boomer/story.html?id=2162826#ixzz0Zc1PbkMN


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