Tim Hortons Sees Growth and Change

Tim Hortons brewed up a 12% rise in fourth-quarter net income compared to a year earlier as the Canadian coffee-and-doughnut chain saw same-store-sales growth slow. Last week the restaurant chain announced that Don Schroeder, a member of its board, would replace its CEO on March 1, Paul House, who will continue as chairman.

Same-store sales were only up 3.4 per cent in Canada and 4.2 per cent in the U.S. compared to 9.3% and 8.3% growth in revenues of the previous year. Tim Hortons said that sales had been hurt by fierce December snowstorms in its few key markets and by its new “TimCard” electronic payment system that are collected and accounted for after the end of the quarter.

Meanwhile, system-wide sales, which include both franchised and company-operated stores, climbed 7.9 per cent and operating profit jumped by 9.3 per cent to $116.2-million.

The quarterly performance brought profit for the full year to C$269.6-million. At $1.9-billion, system-wide revenue for 2007 was up by 14.2 per cent, while operating profit climbed 12.1 per cent to C$425.1-million.

“We met or exceeded our 2007 targets for operating income and unit growth, and we feel positive about our same-store sales growth performance over the past year, given the significant comparable period growth that we lapped,” Tim's veteran chairman and chief executive officer, Paul House, said in a news release. [Ontario's Globe & Mail]

But Canada is running out of people for Tim Hortons. Having been spun off from Wendy's International Inc. in 2006, the Ontario coffee and donut chain said that in 2007 it was really eyeing the U.S. market for growth.

... industry analysts have said that in less than seven years, Hortons will have built as many stores as Canada can support. So the company is hoping to raise its growth potential by ratcheting up its U.S. expansion. Hortons has said it wants to have at least 500 U.S. stores by the end of 2008. [WSJ $$]

But the chain has challenges that are heating up in the United States.

Hortons still has little recognition in the U.S., where its coffee sales face growing competition amid McDonalds Corp.'s plan to open coffee bars in its nearly 14,000 U.S. stores in 2008. The company is banking on the fact that it has proved itself adept at moving customers quickly through lines, a problem that has plagued Starbucks Corp. And its advertising tries to differentiate Hortons doughnuts from competitors' with claims that its doughnuts are "Always fresh" as smaller batches are made throughout the day. [WSJ $$]

The majority of Tim's new openings for now will still be in Canada though. It is looking for an additional 120 - 140 new stores and gas station self-serve kiosks for Canada in 2008 compared to 90 to 110 for the United States. The chain wants 2 to 4 percent same-store sales growth in the States compared to 4 to 6% in its home country.