A Credit Suisse analyst cut his rating on shares of Canadian coffee and doughnuts retailer Tim Hortons Inc., saying he expects Canadian consumers to cut back on spending due to rising inflation and other broad economic concerns.
Analyst Winston Lee lowered his rating to "Neutral" from "Outperform" and slashed his price target to $31 from $40.
Lee said in a note to investors that rising inflation, a "less robust" employment outlook, high household debt and a slower housing market could all dampen consumer spending.
Lee noted that the Conference Board of Canada lowered its forecast for real GDP growth in 2008, partly due to falling exports. Meanwhile, the Conference Board's consumer confidence index fell in June to its lowest level in 12 years.
He said average home resale prices fell in June and household debt has been rising since 1990 in the country.
"As households use more of their disposable income to service debt and pay more for fuel, discretionary expenditures may slow," he said. Consumers may, for example, choose to brew coffee and make breakfast at home, rather than eating out.
Lee said he now expects same-store sales at the chain to rise 3.8 percent in 2008 and 4 percent in 2009. Previously, he expected growth of 4.7 percent for both years.
Same-store sales, or sales at stores open at least a year, is a key indicator of retailer performance since it measures growth at existing stores rather than newly-opened ones.
The analyst also noted that the company's attempt to sell a hot roast beef sandwich "was poorly received" and the company stopped selling them after only a few months.
"In a softening environment, the consumer seeks better value and may be less enticed by new, higher-priced products if mediocre," Lee said.
Tim Hortons did not immediately return calls seeking comment.
Shares fell 40 cents to $28.04 in late morning trading.
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