TORONTO Tim Hortons Inc reported an increase in quarterly profit and sales on Thursday, but its share price fell as the results showed traffic in Canada and the United States was hit by a tougher economic environment.
Sales at established stores rose by 1.9 percent in Canada, where Tim Hortons is the dominant coffee-and-snacks chain, and by 2.3 percent in the United States in the third quarter as customers spent more during each visit, but those figures were lower than in previous quarters.
"I'm not overly concerned, but definitely we would like to see same-store sales...re-accelerate back to that kind of 3 percent plus level, longer term," Edward Jones analyst Brian Yarbrough said of the Canadian numbers.
Same-store traffic dropped as fragile consumer confidence held back discretionary spending, the company said, noting that "the challenging economic conditions led to an intensified competitive environment".
The comments recalled competitor McDonald's Corp's last quarterly earnings report, when t he U.S. chain's chief executive attributed weak sales growth to a tough battle for customers in a fragile economy. On Thursday, McDonald's reported its first decline in monthly same-store sales since 2003.
COMPETITION IN CANADA
Yarbrough said the prospect of tougher competition from McDonald's has been weighing on Tim Hortons' stock.
McDonald's has been touting recent market share gains in Canada, and in October its Canadian chief told Reuters that his division is stepping up its expansion after holding back for more than five years.
Analysts are watching restaurant traffic in Canada closely to gauge whether Tim Hortons can hold off competitors and keep growing in its home market. It is selling more products that carry premium prices, such as lattes and panini sandwiches, and that helped support third-quarter profit and sales.
The chain is ubiquitous in Canada, claiming eight of every 10 cups of coffee sold. But as it expands its food offerings, especially at lunch, it is increasingly going head to head with McDonald's and its fast-food peers.
McDonald's has been promoting its coffee aggressively in Canada, with giveaways and remodeled stores that are more cafe than burger joint, featuring soft seating and even fireplaces.
SAME-STORE SALES TREND
Tim Hortons said same-store sales growth is trending a bit below its full-year target of 3 to 5 percent, but it expects new products to help offset weak consumer confidence in the current quarter.
Tim Hortons' net income rose to C$105.7 million ($106.2 million), or 68 Canadian cents a share, from C$103.6 million, or 65 Canadian cents, a year earlier.
Earnings were hurt by a charge of C$8.6 million, or 4 Canadian cents a share, related to a previously announced executive shuffle.
Analysts, on average, had been expecting 72 Canadian cents a share, according to Thomson Reuters I/B/E/S.
Revenue rose 10.3 percent to C$802.0 million, compared with analysts' average forecast of C$794.6 million.
The company's effective tax rate fell to 26.7 percent from 29.0 percent in the year-earlier quarter.
Shares were down 3.1 percent at C$47.95 on Thursday morning on the Toronto Stock Exchange.
($1=$1.00 Canadian) (Reporting by Allison Martell; Editing by Janet Guttsman, Gerald E. McCormick, John Wallace, Andrew Hay and Peter Galloway)