Tim Hortons' Canadian traffic ebbs, shares slide

Thu Aug 9, 2012 4:00pm EDT
 
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By Allison Martell

TORONTO (Reuters) - Tim Hortons Inc THI.TO THI.N reported a slight decline in transactions and disappointing quarterly sales at established Canadian stores, sending its shares down on Thursday even as the restaurant chain posted impressive growth in the United States.

Canadian transaction count and same-store sales are closely watched metrics for Tim Hortons, as analysts try to gauge whether Canada's dominant coffee chain has any more room to grow in its home market.

The concern over its Canadian prospects overshadowed a 6 percent rise in overall sales, thanks in part to the chain's still-robust expansion program, and a solid overall profit gain during its second quarter ended July 1.

Same-store sales rose 1.8 percent in Canada in the three months ended July 1, as customers spent more during each visit.

Edward Jones analyst Brian Yarbrough said the gain was disappointing. Combined with a decline in same-store transactions, it was likely weighing on the stock, he said.

"Restaurant and retail stocks are driven by same-store sales," he said. "It sells at a lofty premium compared to the group, and you need to continue to produce those positive same-store sales."

In July, Goldman Sachs analyst Michael Kelter downgraded Tim Hortons to "sell" in part over declining traffic, which he said could be a sign of market saturation or competitive pressure in Canada.

But Yarbrough said slight traffic declines did not concern him too much, given the company's track record raising prices and introducing higher-priced products.   Continued...