UPDATE 4-Tim Hortons profit rises, paced by U.S. sales

Thu Aug 11, 2011 5:03pm EDT

* EPS C$0.58 vs C$0.54 year-ago; revenue up 10 pct

* Same-store sales up 3.8 pct in Canada, 6.6 pct in U.S.

* Board in early stage of CEO search, says chairman

* Company plans aggressive U.S. expansion

* Shares up 1.2 pct in Toronto, up 2.3 pct in New York (Adds chairman interview)

By S. John Tilak

TORONTO, Aug 11 (Reuters) - Tim Hortons Inc's (THI.TO) (THI.N) profit rose 1.5 percent as Canada's largest restaurant chain benefited from strong U.S. sales and passed along higher coffee costs to its customers, sending its shares higher.

The outperformance in the United States, a smaller market for the company than Canada, was a sign that the retailer was finally making headway in the cutthroat market.

Tim Hortons has invested heavily in advertising campaigns and promotions in the United States, where consumers are only starting to get familiar with a brand that is a household name north of the border.

Investors are focused on the lucrative U.S. market as it has the potential to become bigger than Canada, where the Tim Hortons name is virtually synonymous with coffee. [ID:nN13121814]

Sales at its established stores rose 3.8 percent in Canada, where price increases helped and it introduced fruit smoothies and other new products.

In the United States, same-store sales rose 6.6 percent, helped by advertising campaigns that increased visibility.

"The performance in the United States was outstanding," Edward Jones analyst Brian Yarbrough said. The U.S. same-store sales growth was one of the strongest -- if not the strongest -- in the North American quick-service industry, he added.

Tim Hortons has in the past struggled to replicate its Canadian success in the United States, where it has had to pull back and shut stores. It is now primarily focused on nine U.S. states, including New York, Michigan and Pennsylvania.

"We plan to go about aggressively opening new stores," Executive Chairman Paul House said of the company's plans in the United States, which he said was a growth market.

"We're getting more and more name recognition everyday," he said in an interview with Reuters.

Second-quarter earnings rose to C$95.5 million ($95.5 million), or 58 Canadian cents a share, from C$94.1 million, or 54 Canadian cents a share, a year ago. The results included a 3-cent charge due to expenses related to the CEO departure.

Excluding the charge, the company would have met market estimates of 61 Canadian cents a share.

Revenue rose 10 percent to C$702.8 million, compared with the average analyst estimate of C$708.5 million.

EARLY STAGE OF CEO SEARCH

The company is yet to announce a replacement for former Chief Executive Donald Schroeder, who left abruptly in May.

"You don't like to go through what we went through. But we're in good terms with Don," said House, who is also serving as the interim CEO.

The board is in the very early stage of the CEO search but has made progress, House said, declining to offer a timeline.

International experience is a nice-to-have but not essential on the new CEO's resume, House said.

"You want someone that can fit the culture. We don't want someone to come in and try to fix a broken company, because it's not (one)," he told Reuters.

"It's highly likely that the person will have great knowledge of the U.S. market," he said.

The business continues to chug along with little impact from Schroeder's exit, and the company will keep passing on the price increases to its customers, Yarbrough said.

"Price increases are the nature of the beast that will continue," he said.

Tim Hortons competes with McDonald's Corp (MCD.N), Dunkin' Brands Group Inc (DNKN.O), Starbucks Corp (SBUX.O) and Second Cup (SCU.TO), a Canadian coffee shop chain.

The company's stock was up 1.2 percent at C$44.13 on the Toronto Stock Exchange and up 2.3 percent at $44.45 on the New York Stock Exchange.

($1=$1 Canadian) (Reporting by S. John Tilak; editing by Frank McGurty)

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