Foolish Forecast: Can Tim Hortons Keep Rolling?

Canada's beloved coffee-and-donuts chain, Tim Hortons (NYSE: THI  ) , is scheduled to release earnings before the market opens tomorrow. Here's what to expect on the menu.

What analysts say:

  • Buy, sell, or waffle? Seven analysts follow Tim Hortons. Three recommend a purchase, while the other four have a hold rating on the stock.
  • Revenue. Analysts are forecasting CAD 412.1 million in revenue, just a 1.3% increase from the prior year.
  • Earnings. The average forecast calls for earnings of $0.34, flat from the $0.35 earned a year earlier.

What management says:
Tim Hortons had been operating independently from Wendy's (NYSE: WEN  ) for about nine months. Bottom-line earnings per share have been hurt this year by a higher share count following its IPO last March, and a more normal 35% tax rate.

The company reiterated its expectations for the year: a same-store sales rise of 4%-5% in Canada and 6%-7% in the U.S.; 120-140 new restaurants in Canada, and 60-80 in the U.S.; and operating income growth of 10%.

What management does:
The year has gotten off to a good start. Same-store sales in Canada rose 6.3%, and 4% in the United States. Operating income grew more than 13%, surpassing the company's 10% goal. Operating margins have been expanding nicely, thanks partly to higher sales. The U.S. segment gave some relief to new franchises that were opened late last year. Next year should see a boost in margins, since that incentive may not be replicated.

4/2/2006

7/2/2006

10/1/2006

12/31/2006

4/1/2007

Gross Margin

27.8%

27.8%

27.8%

27.6%

27.5%

Operating Margin

21.7%

21.9%

22.1%

23%

23.3%

Net Margin

13.5%

14.2%

13%

15.6%

14.9%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Tim Hortons is well-known in Canada, evolving since its 1964 inception into the country's largest quick-service restaurant chain. Previously offering just donuts and coffee, its menu now includes premium coffee, flavored cappuccinos, specialty teas, homestyle soups, fresh sandwiches, and fresh-baked goods. However, while Tim Hortons seeks to expand in the U.S., it will find itself facing stiff competition from the likes of Starbucks (Nasdaq: SBUX  ) , Dunkin Donuts, and McDonald's (NYSE: MCD  ) . Buckle down and order up, Tim -- your Loonies won't help you here.

Starbucks is a Motley Fool Stock Advisor selection.

Fool contributor Lawrence Rothman is happy to receive feedback, and promises to read it when not being wrestled by his three children. He doesn't have any positions in the companies mentioned.


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