US operations lift Tim Hortons
by Eric Schroeder
OAKVILLE, Ontario – Another solid few months of transaction gains helped spark a 3 percent increase in same-store sales in the United States for Tim Hortons Inc. during the third quarter of fiscal 2013. The gain followed a 1.4 percent increase in US same-store sales in the second quarter ended June 30.
Marc Caira, president and CEO, attributed the continued growth in the United States to Tim Hortons’ focus on developing “a successful, thriving and profitable business that can be scaled aggressively to become our longer-term growth engine.”
“Our focus in the US will be on the priority markets already identified, where we plan to drive average unit volumes, or AUVs, to improve returns from existing restaurants,” Caira said during a Nov. 7 conference call with analysts. “Our business is highly responsive to AUV lift, and by focusing on the core and driving sales and unit economics across those markets, we have an opportunity to deliver meaningful increases in profitability.”
He said research suggests guests believe Tim Hortons has become more convenient and achieved greater brand awareness in many of its core priority markets. As a result, Caira said the company’s thinking needs to shift to driving traffic and loyalty across day parts beyond breakfast.
“This is a great foundation to work with to capture incremental visits and to build sales volumes from a large pool of US consumers who already find us convenient,” he said. “We will accomplish this within a reduced capital scenario by primarily leveraging our current asset infrastructure. We will consider entry into new markets with partners that are well capitalized, but more importantly, partners with strengths such as an understanding of the local food service market and access to market resources, including supply chain, labor, media and real estate that we would not normally have access to. We plan to win with the US consumers by developing distinct and differentiated products that recognize the difference of the American consumer and that what has worked well in Canada may not necessarily be applicable to the US consumer.”
While Canada and the United States remain top priorities for Tim Hortons, the company also has its sights set on longer-term international opportunities. Specifically, Caira mentioned the Middle East.
“Our focus in the short term is on continuing to grow and learn in this part of the world before embarking on further expansions internationally,” he said. “We believe our approach to the opportunities in Canada, the US and international is both pragmatic and responsible. In this new reality, we cannot do everything. We will need to make choices.”
Net income at Tim Hortons Inc. in the third quarter ended Sept. 29 was C$113,863,000 ($109,028,000), equal to C$0.76 per share on the common stock, up 8 percent from C$105,698,000, or C$0.68 per share, in the third quarter of fiscal 2012. The company said the increase reflected higher operating income, partially offset by a higher effective tax rate.
Net revenues rose 3 percent to C$825,353,000 ($790,109,000) from C$802,040,000. Same-store sales increased 1.7 percent in Canada and 3 percent in the United States.
“In both markets, the rate of same-stores sales increase has improved on a sequential basis in each of the last two quarters,” Caira said. “We are particularly pleased with strong transaction growth in our US business, which contributed significantly to the solid same-store sales performance. Our US team focused on driving traffic during the quarter in the face of a sluggish operating environment in a continued intensive competitive landscape.”
Operating income in the third quarter of fiscal 2013 rose 10 percent to C$168,828,000 from C$153,659,000.
For the nine months ended Sept. 29, net income was C$323,770,000, or C$2.12 per share, up from C$302,544,000, or C$1.94 per share, in the same period a year ago. Net revenues were C$2,357,029,000, up from C$2,308,905,000.