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Tim Horton's or Dunkin' Brands: Which Company Cooked up the Stronger First Quarter?

Tim Horton's (NYSE: THI  ) and Dunkin' Brands (NASDAQ: DNKN  ) are two of the most popular retailers of doughnuts and coffee in the world and both have recently released their first-quarter results to kick off fiscal 2014's earnings. Let's compare these companies' results and outlooks on the rest of the year to determine which had the better quarter and could provide the highest returns for Foolish investors going forward.

Breaking down the first quarter

Source: Tim Horton's

On May 7, Tim Horton's released its first-quarter report and the results came up short of analyst expectations; here's a breakdown and year-over-year comparison: 

Metric Reported Expected
Earnings Per Share $0.66 $0.68
Revenue $766.40 million $772.85 million

Source: Benzinga

  • Earnings per share increased 16.9%.
  • Revenue increased 4.8%.
  • Comparable-store sales data:
    • Canada: 1.6% increase
    • United States: 1.9% increase
  • Operating profit increased 13.6% to $145.3 million.
  • Operating margin expanded 150 basis points to 19%.
  • Repurchased approximately $303.4 million worth of its common stock.
  • Paid approximately $44.1 million in dividends.
  • Expansion update: Tim Horton's opened 39 net new locations during the quarter, bringing its total store count to 4,524 in North America; of these 4,524 locations, 3,610 are in Canada and 870 are in the United States.

Source: Dunkin' Brands

Dunkin' Brands released its first-quarter report on April 24 and the results fell short of analyst expectations as well; here's a breakdown and year-over-year comparison:

Metric Reported Expected
Earnings Per Share $0.33 $0.36
Revenue $171.90 million $172.66 million

Source: Benzinga

  • Earnings per share increased 13.8%.
  • Revenue increased 6.2%.
  • Comparable-store sales data:
    • Dunkin' Donuts U.S.: 1.2% increase
    • Dunkin' Donuts International: 2.4% decrease
    • Baskin-Robbins U.S.: 0.5% increase
    • Baskin-Robbins International: 1.4% increase
  • Operating profit increased 7% to $75.6 million.
  • Operating margin expanded 30 basis points to 44%.
  • Repurchased approximately $22 million worth of its common stock.
  • Paid approximately $24.5 million in dividends. 
  • Expansion update: Dunkin' Brands opened 96 net new stores during the quarter, bringing its total store count to 18,254 worldwide.

What should we expect for the rest of 2014?

Source: Wikimedia Commons

Tim Horton's did not go on to update or reaffirm its guidance for the full year following its earnings results, but I believe it is safe for investors to assume that the outlook provided in its fourth-quarter report still stands; at that time, the company projected diluted earnings per share in the range of $3.17-$3.27, which would result in growth of 12.4%-16% compared to the $2.82 earned in fiscal 2013, and comparable-store sales growth of 1%-3% in Canada and 2%-4% in the United States.

In addition, Tim Horton's expects to open 215-255 new locations during the year, 140-160 in Canada, and 40-60 in the United States, which would bring its total store count to 4,700-4,730; however, the company is well off of the pace it needs to be on to accomplish this goal after just 39 openings in the first quarter.

Source: Wikimedia Commons

Even though Dunkin' Brands experienced challenges during the first quarter which led to weaker-than-expected results, the company does not expect the challenges to continue and it went on to reiterate its full-year outlook; here's what the company expects to accomplish:

Metric Fiscal 2014 Expected Fiscal 2013 Actual
Earnings Per Share $1.79-$1.83 $1.53
Revenue $756.5 million-$771 million $713.8 million

Source: Dunkin' Brands

This outlook calls for earnings per share to increase 17%-19.6% and revenue to increase 6%-8% compared to fiscal 2013, which would result in another record-setting yearly performance. The company added that it anticipates comparable-store sales growth of 3%-4% at Dunkin' Donuts locations in the U.S. and growth of 1%-3% at Baskin-Robbins locations in the U.S. Also, although the 96 stores opened during the first quarter puts the company well off of the pace it needs to be on to achieve its expansion goals for the year, if 685-800 new stores open as it expects this would bring Dunkin's worldwide store count to 18,843-18,958.

Source: Dunkin' Brands' Facebook

And the winner is...
After reviewing the companies' earnings results and outlooks on the rest of fiscal 2014, the winner of this match-up is Dunkin' Brands. Although Tim Horton's reported higher growth in most key financial categories, Dunkin's outlook calls for significantly higher growth over the next three quarters, while its expansion plans will set it up for continued success in the years ahead.

Today, Dunkin' Brands' stock sits more than 16% below its 52-week high and has a healthy dividend yield of 2.1%, so Foolish investors should strongly consider initiating positions right now because the long-term potential far outweighs any short-term negativity. 

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8/28/2015 3:59 PM
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Tim Hortons CAPS Rating: ***