* Costs rise on store openings, credit card launch
* Cold winter, tough competition pressure results
* Reports EPS C$0.66, revenue C$766.4 million
* Same-store sales rise 1.6 pct in Canada, 1.9 pct in U.S.
(Adds shareholder and analyst comments, stock price, company
By Solarina Ho
TORONTO, May 7 Tim Hortons Inc,
Canada's biggest coffee and doughnut chain, posted
first-quarter results that fell short of analysts' expectations,
with fewer customers visiting established stores and the company
spending more on growth.
Oakville, Ontario-based Tim Hortons, which serves an
estimated 7.5 out of every 10 cups of coffee sold in Canada,
reported higher expenses related to new store openings and the
launch of its credit card, aimed at cultivating customer
Shares, which have retreated nearly 4 percent since the
start of the year, slipped more than 1 percent on Wednesday
"It was a lousy winter, everybody knows it. The fact that
they had better same-store sales growth than I was expecting is
a big plus," said Barry Schwartz, vice president and portfolio
manager at Baskin Financial Services, which owns some 150,000
Tim Hortons shares.
Schwartz, whose firm plans to be "long, long-term
shareholders," said the profit miss was due to the company's
efforts to win and keep customers and that it was doing the
"right thing" for growth.
Chief Executive Officer Marc Caira, who joined the company
last summer, had previously outlined the fast-food operator's
strategy to fend off mounting pressure from heavyweights
including McDonald's Corp and Starbucks Corp,
and analysts have pegged 2014 as a transition year for Tim
"It's a competitive, cut-throat environment ... That's just
the way it's going to be," said Schwartz, who still expects
double-digit earnings growth in the coming years.
"There's a lot of options for the Canadian consumer, but the
U.S. numbers look pretty good in our opinion and I think it's
going to be a good year."
Sales at stores open for 13 months or more grew by 1.6
percent in Canada and 1.9 percent in the United States, as
customers spent more during each visit, but transactions in both
The company has been testing new products including
dark-roast coffee and expanding its breadth of food offerings to
tempt customers into spending more during each visit.
The results come as McDonald's and other major U.S.
restaurant operators said severe winter storms chilled results.
"In the context of very challenging (first quarter) weather
conditions, reflected in the weak sales results of its peers,
sales results were solid, in our view," analyst Keith Howlett of
Desjardins Securities told clients in a note.
Net income for the first quarter ended March 30 was C$90.9
million, or 66 Canadian cents a share, compared with C$86.2
million or 56 Canadian cents a share a year ago.
The company said higher operating income was partially
affected by interest expense and a higher tax rate, due mostly
to its recapitalization.
Revenue climbed 4.8 percent to C$766.4 million.
Analysts, on average, had expected earnings of 68 cents per
share on revenue of C$778.2 million, according to Thomson
Tim Hortons shares were down 1.4 percent at C$58.87 on
Wednesday morning in Toronto.
(Editing by Nick Zieminski and Matthew Lewis)