* Q2 EPS C$0.69 vs C$0.58 year earlier
* System-wide sales up 6 percent
* Same-store sales rise 4.9 pct in the United States
By Allison Martell
TORONTO, Aug 9 Tim Hortons Inc
reported a slight decline in transactions and disappointing
quarterly sales at established Canadian stores, sending its
shares down on Thursday even as the restaurant chain posted
impressive growth in the United States.
Canadian transaction count and same-store sales are closely
watched metrics for Tim Hortons, as analysts try to gauge
whether Canada's dominant coffee chain has any more room to grow
in its home market.
The concern over its Canadian prospects overshadowed a 6
percent rise in overall sales, thanks in part to the chain's
still-robust expansion program, and a solid overall profit gain
during its second quarter ended July 1.
Same-store sales rose 1.8 percent in Canada in the three
months ended July 1, as customers spent more during each visit.
Edward Jones analyst Brian Yarbrough said the gain was
disappointing. Combined with a decline in same-store
transactions, it was likely weighing on the stock, he said.
"Restaurant and retail stocks are driven by same-store
sales," he said. "It sells at a lofty premium compared to the
group, and you need to continue to produce those positive
In July, Goldman Sachs analyst Michael Kelter downgraded Tim
Hortons to "sell" in part over declining traffic, which he said
could be a sign of market saturation or competitive pressure in
But Yarbrough said slight traffic declines did not concern
him too much, given the company's track record raising prices
and introducing higher-priced products.
In its earnings release, Tim Hortons said global economic
uncertainty seems to be hurting consumer confidence.
"This theme was echoed by many in the restaurant sector last
quarter and into July, and likely had a moderating effect on
rates of same-store sales growth in the industry," it said.
"We noticed some of that impact of moderating sales in the
second quarter which carried through into July."
McDonald's Corp reported flat global same-store
sales in July, its worst performance in more than nine years, a
possible sign that economic uncertainty is hurting discretionary
In the United States, where Tim Hortons sees an big
opportunity to grow, same-store sales rose 4.9 percent, helping
Shares fell 2.9 percent to C$50.77 on the Toronto Stock
Exchange on Thursday.
NEW PRODUCTS BOOST SALES
Tim Hortons said average check rose even as it held prices
steady, with customers sampling new espresso drinks and the
chain rolling out new hot drink sizes, including a 24-ounce cup.
Strong breakfast business also helped average check.
The company has been trying new products and, increasingly,
butting heads with U.S. heavyweight McDonald's in Canada.
Tims, as the chain is known across Canada, claims 8 of every
ten cups of coffee sold in the country, but McDonald's has been
remodeling stores and heavily promoting its coffee, while Tims
expands its food menu.
"It's a more competitive market. We're not hiding from that
fact. Everybody is trying to get into the coffee business, and
the coffee business as a whole is flat," said Chief Executive
Paul House on a conference call.
"But we're growing overall transactions, and we've got a
huge market share in the marketplace, and so we feel comfortable
where we're at."
Tim Hortons said new restaurant development boosted
system-wide sales, which rose 6.0 percent on a constant currency
basis. As of July 1, it had 3,326 Canadian stores, an increase
of 137 from a year earlier. Tim Hortons said a lower effective
tax rate also helped results.
Net income rose to C$108.1 million ($108.7 million), or 69
Canadian cents per share, from C$95.5 million, or 58 Canadian
cents, a year earlier. A share repurchase program boosted
earnings per share. Total revenue rose 11.8 percent to C$785.6
Analysts, on average, had been expecting earnings of 69
Canadian cents a share, according to Thomson Reuters I/B/E/S.
Separately on Thursday, Tim Hortons announced a deal with
Kraft Foods Inc to sell its coffee in the form of "T
discs," pods used in Kraft's Tassimo single-cup coffee makers.
Tim Hortons pods and brewers will be sold online and at Tim
Hortons restaurants in the United States and Canada.
In the United States, the expanding market for single-cup
brewing systems is dominated by Green Mountain Coffee Roasters
Inc's Keurig machines.
Tim Hortons said Tassimo is one of the fastest-growing
brands in the single-cup market in North America, with more than
950,000 brewers sold in Canada. On the conference call, House
said Tassimo is a major player in the Canadian market.