Tim Hortons sees tough market as Canadian traffic slips

Thu Feb 21, 2013 11:44am EST
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By Allison Martell

TORONTO (Reuters) - Tim Hortons Inc THI.TO said on Thursday that customer traffic in its established Canadian coffee shops dropped for a third consecutive quarter, sending its shares lower even as the company boosted its quarterly dividend.

Analysts have been watching Tim Hortons' Canadian traffic closely, trying to gauge whether the chain can keep growing in its home market, where it is already a coast-to-coast fixture.

"We're seeing a slowing growth profile in Canada, a more competitive environment," said Canaccord Genuity analyst Derek Dley.

The problem is not just other chains, Dley said, but Tim Hortons' own steadily expanding footprint: "It appears as though they're eating into the profitability and the performance of their existing store base."

In Canada, same-store sales rose 2.6 percent in the fourth quarter to December 30, despite the traffic decline, as customers spent more during each visit. Same-store sales in the United States grew 3.2 percent and transactions increased slightly.

The company said it expects first-quarter, same-store sales to grow at a slower pace than last year, when the metric rose 5.2 percent in Canada and 8.5 percent in the United States. It blamed the expected slowdown on weak economic conditions, stepped-up competition and unfavorable weather - but it did not elaborate about the weather's impact.

For 2013, it forecast earnings per share from $2.87 to $2.97. On average, analysts had been expecting earnings of $3.00, according to Thomson Reuters I/B/E/S.

Tim Hortons says it is responsible for eight of every 10 cups of coffee sold in Canada, but as it expands its food offerings, especially at lunch, it is increasingly going head to head with fast-food brands such as McDonald's Corp (MCD.N: Quote).   Continued...