OTTAWA (Reuters) - Tim Hortons’ THI.TO THI.N profit jumped 11.5 percent in the second quarter, thanks in part to higher prices, but some analysts questioned the sustainability of such gains at Canada’s biggest restaurant chain.
The company also confirmed its full-year forecast on Thursday, to the relief of investors who fretted that growth targets would be clawed back after weak first-quarter results.
The shares rose C$1.24, or 4.2 percent, to close at C$30.98 on the Toronto Stock Exchange.
“Their same store sales numbers were a little bit better than I had expected and they were a nice acceleration when you look at what they put out in the first quarter, said Edward Jones analyst Brian Yarbrough.
“A lot of that though — 75 percent to 80 percent of it — was price increases. So you wonder how long can they continue to increase prices.”
Sales at locations in Canada open for at least one year increased 5.7 percent, with about 4.4 percent of that gain due to higher prices. Same-store sales in the United States rose 3.1 percent with about 2.5 percent attributed to price increases.
“There’s no question that price played a big part in our increases ... in the second quarter and they’ll be there for the balance of this year,” Chief Executive Don Schroeder said on a conference call.
The coffee and doughnut chain is coming under pressure as consumers grapple with higher energy and food prices along with economic uncertainty, but management is confident in the company’s future.
“We’ve seen cycles like this before. We’ve weathered the storm relatively well and, to a certain extent, I think we’ve benefited from people trading down from casual dining and coming into our restaurant,” Schroeder said.
For the quarter ended June 29, the company said it earned C$75 million ($71.4 million), or 41 Canadian cents a share. That is up from C$67.2 million, or 36 Canadian cents a share, in the same period last year.
The mean estimate from analysts was for a profit of 40 Canadian cents a share before items, according to Reuters Estimates.
Operating income rose 10 percent to C$117 million. Excluding a restructuring charge, it rose 13 percent to C$120 million.
Revenue increased nearly 10 percent to C$510.7 million from C$465.3 million.
The company said it was on track to meet its 2008 targets of 10 percent operating income growth, excluding a C$3.1 million restructuring charge for jobs cuts announced last quarter. The plan to streamline management will save C$1 million annually.
It also repeated its same store sales growth forecast of 4 percent to 6 percent in Canada and 2 percent to 4 percent in the United States. This year it expects to open 120 to 140 new locations in Canada and 90 to 110 in the United States, including some self-serve kiosks.
The company opened 23 locations in Canada and eight in the United States in the quarter.
It has set a target of 3,500 to 4,000 restaurants in Canada and 500 in the United States by year-end. At quarter’s end it had 3,257 in Canada and 406 in the United States.
The company, named after National Hockey League player Tim Horton, who co-founded the business in Hamilton, Ontario, in 1964, also said it will invest about C$30 million, largely in 2009, to build a new coffee roasting facility in southern Ontario.
Reporting by Susan Taylor; editing by Rob Wilson