TORONTO (Reuters) - Tim Hortons Inc THI.TO said on Thursday buoyant sales growth at its U.S. and Canadian coffee and donut shops boosted its underlying quarterly profit, enabling the company to raise its dividend and sending shares up more than 3 percent.
Both overall revenue and sales at established stores rose in the quarter ended January 1 as customers spent more during each visit to Tims, which operates Canada’s largest coffee shop chain.
The company, one of Canada’s most recognized brands, has been introducing new products such as espresso beverages and smoothies, and raising prices.
Raymond James analyst Kenric Tyghe said the results in the United States, where Tims has enjoyed mixed success in recent years, were stronger than expected. Sales at stores open 13 months or more rose 7.2 percent in the United States, and 5.5 percent in Canada.
Chief Executive Paul House said Tim Hortons is focusing on expanding in its “core” U.S. markets - Ohio, Michigan and upper New York state, all close to the company’s Canadian base.
“We are staying relatively concentrated and developing those markets out, and we want to get very good penetration before we roll into the next market,” he said in an interview.
Tim Hortons dominates its home market, claiming eight out of every 10 cups of coffee sold in Canada. It said franchise fees rose significantly, thanks to new store openings and resales.
Boosting prices may prove more challenging in 2012, Tyghe said. “Part of last year’s increases were on the back of coffee and commodity input costs. Some of those headwinds have moderated,” he said.
“At the same time (on) the competitive landscape the ante has been upped, which speaks to a challenging pricing environment.”
Tim Hortons faces tough competition from McDonald’s Corp (MCD.N), which has been promoting its coffee while introducing espresso-based drinks, and remodeling its Canadian stores.
In January Tim Hortons introduced new, larger coffee sizes, bringing its products in line with the biggest offerings at competitors like Starbucks Corp (SBUX.O).
“We certainly have had great acceptance,” said House. “The new larger size, we see the consumer buying it.”
Tims forecast diluted earnings per share between C$2.65 and C$2.75 in 2012, up from C$2.35 a share in 2011, and same-store sales growth of 3 to 5 percent in Canada and 4 to 6 percent in the United States.
It plans to open 250 to 290 new restaurants during the year, including 155 to 175 in Canada and 80 to 100 in the United States.
Net income fell to C$103 million ($103 million), or 65 Canadian cents a share, from C$377.1 million, or C$2.19 a share a year ago, when results were helped by Tim Horton’s sale of its interest in supplier Maidstone Bakeries.
Excluding that gain and impairment costs in the previous year, earnings per share rose 26 percent. Revenue rose 21 percent to C$779.8 million.
Shares of Tim Hortons were 3.7 percent higher at C$52.52 Thursday afternoon on the Toronto Stock Exchange.
($1 = $0.99 Canadian)
Reporting by Allison Martell In Toronto and Bhaswati Mukhopadhyay in Bangalore; Editing by Frank McGurty and Janet Guttsman