February 21, 2008 / 12:14 AM / in 10 years

Tim Hortons plans U.S. push as profit climbs

OTTAWA (Reuters) - Fourth-quarter profit at Tim Hortons THI.TO THI.N rose 11.5 percent, the coffee and doughnut chain said on Wednesday, as new locations and higher prices more than offset rising costs.

<p>A pedestrian walks past a Tim Hortons restaurant in Toronto, October 26, 2007. Fourth-quarter profit at Tim Hortons Inc rose 11.5 percent, the coffee and doughnut chain said on Wednesday, as growth in same store sales helped to offset higher costs. REUTERS/Mark Blinch</p>

Well known as Tims in Canada, the quick-service restaurant also said it plans a bigger push into the U.S. market in 2008, shrugging off market jitters about weaker consumer spending.

“I see this a great opportunity for the Tim Hortons chain to grow,” Chief Executive Paul House said on a conference call.

“Real estate costs are coming off, hopefully building costs will follow, and there’s lots of people around that have been, especially in the U.S., displaced out of jobs, that are looking for franchises.”

The company, which named insider Don Schroeder on Tuesday as House’s successor, effective March 1, also sweetened its quarterly dividend by nearly 29 percent to 9 Canadian cents.

Net earnings for the period ended December 30 grew to C$75.7 million ($74.7 million), or 40 Canadian cents a share, from C$67.9 million, or 35 Canadian cents a share, in the same period a year earlier.

That matches the mean analyst estimate for a profit of 40 Canadian cents a share, according to Reuters Estimates.

Operating income climbed 9.3 percent to C$116.2 million.

Revenue rose 10.5 percent to C$515.4 million as it promoted such products as chicken fajita wraps, cream of broccoli soup and pumpkin spice smoothies.

Quarterly same-store sales grew 3.4 percent in Canada and 4.2 percent in the United States.

About 2 percent of Canadian growth was due to higher prices, compared with less than a half a percent in the United States.

Gains were crimped by heavy snow in key markets and a bigger promotion of its TimCard, a reloadable electronic payment system, rather than Christmas merchandise.

A new breakfast sandwich gave a big lift to year-ago growth of 9.3 percent in Canada and 8.3 percent in the United States

The cost of sales rose 13.6 percent, partly a reflection of higher distribution costs.

“FEEL VERY GOOD ABOUT THE U.S.”

The company expects 10 percent operating income growth in 2008, repeating its 2007 target. It forecast same-store sales growth of 4 percent to 6 percent in Canada and 2 percent to 4 percent in the United States.

“We continue to feel very good about the U.S. business,” said Chief Financial Officer Cynthia Devine. “But recognizing that there are some challenges that everyone’s facing in the U.S. right now, we felt that it was appropriate to reflect those in the targets.”

It plans to open 120 to 140 new locations in Canada and between 90 and 110 in the United States, including some self-serve kiosks. That is a big jump from the 2007 U.S. target of 40 to 60 locations, while the Canadian target is the same.

The company has a goal of 3,500 to 4,000 restaurants in Canada and 500 in the United States by the end of 2008. It now has 2,823 locations in Canada and 398 in the United States.

Named after Tim Horton, the National Hockey League player who co-founded the restaurant chain in 1964 in Hamilton, Ontario, the firm opened 71 new outlets in Canada and 48 in the United States in the quarter.

The shares were up 33 Canadian cents at C$35.74 on the Toronto Stock Exchange and 4 cents higher at $35.18 in New York.

($1=$1.01 Canadian)

Additional reporting by Jonathan Spicer in Toronto; Editing by Rob Wilson

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