TORONTO (Reuters) - Canadian coffee and doughnut chain Tim Hortons Inc THI.TO reported higher-than-expected quarterly revenue on Thursday and announced a dividend increase and a share buyback plan.
Shares of Tim Hortons, which faced investor pressure last year to return capital, were up 3 percent at C$59.66 ($53.90). At Wednesday’s close, the stock had fallen nearly 8 percent since the company last reported quarterly earnings in November.
Tim Hortons, which says it sells eight out of 10 cups of coffee in Canada, has been expanding its food menu in pursuit of growth, but is ending its partnership with Cold Stone Creamery in Canada, where it had performed below expectations. U.S. locations would not be affected.
Tim Hortons has long battled Starbucks Corp (SBUX.O) in the coffee arena. Now new menu items like steak-and-cheese panini and jalapeno breakfast sandwich are also pitting the Canadian company against fast-food chains like McDonald’s Corp (MCD.N), which has said it is pursuing “more of a coffee culture” with its expanded McCafe products.
Tim Hortons, which is set to unveil a new five-year strategic plan next week, has been working to improve customer service like speeding up the order process, testing new products like dark roast coffee, and trimming some less popular offerings.
“We needed to adapt and make changes to reposition ourselves in order to sustain our track record of success and we need to do this with a sense of urgency,” said Marc Caira, who became chief executive officer of Tim Hortons last summer. “I believe we have begun to do this.”
The Oakville, Ontario-based company also said it would be making its debut in grocery stores this summer with its Keurig K-Cup and Tassimo single-serve coffees.
In the meantime, it raised its quarterly dividend to 32 Canadian cents per share from 26 Canadian cents, higher than the 29.4 Canadian cents analysts had on average expected.
The restaurant chain, which has a significant and loyal following in Canada, also announced that it had paired up with Canadian Imperial Bank of Commerce (CM.TO), the country’s fifth-largest bank, to launch a loyalty rewards Visa credit card.
Fourth-quarter sales at locations open at least 13 months increased 1.6 percent in Canada and 3.1 percent in the United States, slowing from a year earlier but accelerating from earlier in 2013.
Tim Hortons operated 4,485 restaurants at the end of the quarter, including 3,588 in Canada. It also has 38 restaurants in the Gulf Cooperation Council.
The company said it expected sales at established stores to increase 1 percent to 3 percent in Canada this year and to rise 2 percent to 4 percent in the United States.
The company said it had closed a number of underperforming locations in some U.S. markets to concentrate on more successful ones elsewhere in the country.
Tim Hortons recorded charges of C$6.6 million for the restaurant closures and C$19 million for its Canadian split with Cold Stone Creamery.
Net income attributable to Tim Hortons edged up to C$100.6 million from C$100.3 million a year earlier. On a per-share basis, earnings rose to 69 Canadian cents per share from 65 cents, bolstered by share buybacks.
Analysts on average had expected a profit of 76 Canadian cents per share, according to Thomson Reuters I/B/E/S.
Results were below analysts’ expectations, BMO Capital Market’s Peter Sklar said, but he added that the profit was slightly ahead of forecasts when adjusted for the unexpected charges as well as an unusually low tax rate during the quarter.
Revenue rose 11 percent to C$898.5 million. Analysts had forecast C$836.8 million.
The company forecast a 2014 profit of C$3.17 to C$3.27 per share.
The C$440 million share buyback announced on Thursday consists of the remaining portion of a program to repurchase up to C$1 billion in stock through August, plus an additional amount of about C$200 million, the company said.
($1 = 1.1069 Canadian dollars)
Additional reporting by Sayantani Ghosh in Bangalore; Editing by Jeffrey Hodgson, Chris Reese and Lisa Von Ahn