Tim Hortons profit up but shares fall as traffic slips

Thu Nov 8, 2012 12:58pm EST
 
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TORONTO (Reuters) - Tim Hortons Inc reported an increase in quarterly profit and sales on Thursday, but its share price fell as the results showed traffic in Canada and the United States was hit by a tougher economic environment.

Sales at established stores rose by 1.9 percent in Canada, where Tim Hortons is the dominant coffee-and-snacks chain, and by 2.3 percent in the United States in the third quarter as customers spent more during each visit, but those figures were lower than in previous quarters.

"I'm not overly concerned, but definitely we would like to see same-store sales...re-accelerate back to that kind of 3 percent plus level, longer term," Edward Jones analyst Brian Yarbrough said of the Canadian numbers.

Same-store traffic dropped as fragile consumer confidence held back discretionary spending, the company said, noting that "the challenging economic conditions led to an intensified competitive environment".

The comments recalled competitor McDonald's Corp's last quarterly earnings report, when t he U.S. chain's chief executive attributed weak sales growth to a tough battle for customers in a fragile economy. On Thursday, McDonald's reported its first decline in monthly same-store sales since 2003.

COMPETITION IN CANADA

Yarbrough said the prospect of tougher competition from McDonald's has been weighing on Tim Hortons' stock.

McDonald's has been touting recent market share gains in Canada, and in October its Canadian chief told Reuters that his division is stepping up its expansion after holding back for more than five years.

Analysts are watching restaurant traffic in Canada closely to gauge whether Tim Hortons can hold off competitors and keep growing in its home market. It is selling more products that carry premium prices, such as lattes and panini sandwiches, and that helped support third-quarter profit and sales.   Continued...