Results at Tim Hortons
Revenue rose a better-than-expected 14.4% to CAD $465.3 million. Earnings were also in line with expectations, at CAD $0.36 ($0.34 a share in U.S. dollars). Some items did appear a bit crusty, but there is a plausible explanation for those. (Note: The company reports in Canadian dollars, which are used in this article unless otherwise noted.)
Management expected earnings to be flat as the tax rate returned to a more normal 34%, compared with 20% last year. A more fair comparison would be to examine operating income, which grew 8% to $106.3 million. This is below management's goal of 10% for the year, but there were certain items that help explain the discrepancy, for which the company shouldn't be penalized. The company granted restricted stock units this quarter, leading to higher general and administrative expenses. The company also had higher costs as a result of operating as a public company. Importantly, management reaffirmed its goal for the year, expecting to meet or exceed its target.
Same-store sales in Canada continued to do well with a 6.5% increase, easily exceeding the company's long term goal of 4% to 5%. However, in the U.S., comps grew 3.8%, well below the 6% to 7% target. The first quarter was also low, at 4%. But these are long-term goals, and Tim Hortons faced very difficult comparisons for the first half of the year. A year ago, same-store sales growth in the U.S. was 9.8% and 8.4% in the first and second quarters, respectively.
Tim Hortons is well-known in Canada, where it is the country's largest quick-service restaurant chain. It no longer offers just doughnuts and coffee, but has expanded into premium coffee, flavored cappuccinos, specialty teas, homestyle soups, fresh sandwiches, and fresh baked goods. However, in the U.S., it faces a lot of competition from companies such as Starbucks
Starbucks is a Motley Fool Stock Advisor selection.
Fool contributor Larry 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. The Fool's disclosure policy prefers Sprinkalicious doughnuts.