November 11, 2010 / 12:51 PM / 8 years ago

UPDATE 2-Tim Hortons profit climbs; to close 36 US stores

* Q3 EPS C$0.42 vs C$0.34 a year earlier

* U.S. same-store sales up 3 percent

* Canadian same-store sales up 4 percent

* Says to buy back up to C$400 mln in shares (Adds conference call details, analyst comments; updates share movement)

By Bhaswati Mukhopadhyay

TORONTO, Nov 11 (Reuters) - Tim Hortons Inc THI.TO, Canada’s largest restaurant chain, reported a 21 percent rise in third-quarter profit on Thursday, but said it will close 36 restaurants in the United States in the fourth quarter to focus on its core growth markets.

The company, which specializes in coffee, baked goods and home-style lunches, said it will close all those stores in the New England region that are a drag on its earnings.

It said 34 of the 36 stores to be closed are in the Providence and Hartford markets.

Chief Executive Don Schroeder said the decision to close restaurants in these markets was difficult as it affects committed franchisees and their employees.

Tim Hortons took an asset impairment charge on these stores of about 12 Canadian cents a share in the third quarter.

The Oakville, Ontario-based company, which has grown to become a Canadian cultural fixture, has over 600 stores in the United States and more than 3,000 in Canada.

“The Providence and Hartford markets are among the most densely penetrated market areas in the U.S. by quick service restaurants, and we were not successful in expanding our customer base to the levels required for future profitability,” the CEO said.

Schroeder added the Canadian company was “in the U.S. to stay.”

Tim Hortons has faced stiff competition in the United States, particularly in New England, where Dunkin’ Donuts has a big presence.

“The brand is not as well known in the U.S. (as it is in Canada) and sales volumes are about half of what they are in Canada, so the profitability level is substantially lower,” said Brian Yarbrough, an analyst at Edward Jones in St. Louis, Missouri.

Tim Hortons, which said in the last quarter it was selling its 50 percent interest in Maidstone Bakeries to its European joint venture partner, is also buying back up to C$400 million of its shares using proceeds from the sale of Maidstone.

Analysts said the buyback is a positive, which will help boost the company’s earnings.


Tim Hortons said net income rose to C$73.8 million ($73.6 million), or 42 Canadian cents a share, from C$61.2 million, or 34 Canadian cents a share, a year earlier.

On an adjusted basis, it earned 54 Canadian cents a share, beating analysts’ average expectation of 53 Canadian cents a share, according to Thomson Reuters I/B/E/S.

Revenue rose 10 percent to C$670.5 million. Analysts on average had expected C$632.6 million.

Same-store sales, or sales at stores open at least a year, grew 3 percent in the United States and were up 4 percent in Canada.

The company still has lot of room for growth in Canada, in areas such as Western Canada and Quebec, analyst Robert Cavallo of Mackie Research Capital said.

Shares of the restaurant chain were down 39 Canadian cents at C$39.01 Thursday afternoon on the Toronto Stock Exchange. The stock’s value has risen 22 percent so far this year.

$1=$1.00 Canadian Reporting by Bhaswati Mukhopadhyay; editing by Rob Wilson

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