News

Despite strong 3Q, Tim Hortons plans to close 36 U.S. units

November 10, 2010

Tim Hortons Inc. reported a total revenue increase of 9.8 percent in the third quarter ended Oct. 3. Momentum came from a same-store sales increase of 4.3 percent in Canada and 3.3 percent in the United States.

The company's 3Q earnings were $73.8 million, up from $61.2 million from 3Q 2009. Still, these earnings fell short of the $92.7 expectations predicted by analysts.

This shortfall has led to a decision to close 36 underperforming units in the New England region, 34 of which are located in Providence, R.I. and Hartford, Conn.

"We continued to create sales momentum in the third quarter with strong operating performances," said Don Schroeder, president and CEO. "However, at the same time, we incurred an asset impairment charge and subsequently made the decision to close all of our underperforming restaurants in two markets. We expect this decision to have a positive impact on our U.S. business in terms of our continued business progression and management focus."

Tim Hortons will reinvest a portion of the expected earnings from these closures to increase the brand's presence in other core U.S. markets in the Northeast and Midwest.

The company will also use about $400 million from its recent sale of Maidstone Bakeries to repurchase shares, and $30 million to help franchisees weather anticipated rising operating costs.

Other highlights from the 3Q earnings report include:

• An increase of 7.4 percent for systemwide sales
• An operating income decrease of 2.8 percent
• Lower franchise fee income and higher general and administrative expenses, primarily relating to strategic initiatives
• Diluted earnings per share at $0.42, an increase of 25.6 percent compared to 3Q 2009 mostly due to a lower effective tax rate

In Canada, 44 new locations opened up this quarter. The country has 85 co-branded stores with Cold Stone Creamery, which contributed to same-sales growth.

Canadian success was also attributed to menu initiatives, promotions and operational strategies such as Tim Hortons' hospitality program.

The U.S. growth came later in the quarter, with September delivering notably improved sales increases. The U.S. business benefitted from menu innovation, marketing programs and ongoing operational programs.

Thirty-five units opened this quarter, including four traditional restaurants, seven non-traditional restaurants, and 24 self-serve kiosks, which are a big part of the company's expansion plan.

At the end of the third quarter, there were 80 co-branded Tim Hortons and Cold Stone Creamery locations in the U.S.

Tim Hortons has more than 3,700 restaurants, 3,082 of which are located in Canada.