August 6, 2014 / 11:49 AM / 3 years ago

Tim Hortons results exceed expectations, lifts forecast

Tim Hortons employees prepare coffee before the company's annual general meeting in Toronto, May 8, 2014. REUTERS/Peter Jones

TORONTO (Reuters) - Tim Hortons Inc, the Canadian coffee and doughnut chain, said on Wednesday that market-beating quarterly growth shows a shift in strategy is paying off and that full-year profit and U.S. sales growth could exceed its targets.

Customers spent more money on higher-priced and new menu items, such as crispy chicken and turkey sausage sandwiches, the company said, which buoyed sales at established restaurants.

The trend is expected to continue this year, said the Oakville, Ontario-based company, whose shares jumped nearly 6 percent in early trade.

Tim Hortons outlined a plan in February to kick-start growth and improve returns by fine-tuning its menu to encourage increased spending, improving service and opening new restaurant formats.

“Guests have been responding favorably,” Chief Executive Marc Caira said in a statement.

The fast-food operator, which has struggled with U.S. expansion efforts in recent years, is fending off mounting pressure on its home turf from well-capitalized rivals such as McDonald’s Corp and Starbucks Corp.

Second-quarter sales at Canadian restaurants open for at least 13 months rose by 2.6 percent, and by 5.9 percent for U.S. locations. BMO Capital Markets analyst Peter Sklar said that was well ahead of his expectation for 1.5 percent growth in Canada and a 2.3 percent gain in the United States, as pricing, menu changes and product mix boosted the average bill.

For a ninth consecutive quarter, same-store transactions dropped in Canada, a declining traffic trend that is cause for caution, said Canaccord Genuity analyst Derek Dley.

The company now sees 2014 earnings per share at the high end, or slightly above, its target range of C$3.17 to C$3.27. Sales growth at established restaurants in the United States are now seen near the top, or slightly above, a target of 2 percent to 4 percent.

Tim Hortons, which serves nearly three of every four cups of coffee sold in Canada, said net income was flat at C$123.8 million ($112.8 million) in the quarter ended June 29. Profit rose on a per share basis to 92 Canadian cents, from 81 Canadian cents, as the company bought back shares in the quarter.

Revenue rose 9.3 percent to C$874.3 million.

Analysts, on average, had expected earnings of 87 Canadian cents per share on revenue of C$843.3 million, according to Thomson Reuters I/B/E/S.

Tims, as it is affectionately called in Canada, plans to open at least 800 new restaurants over the next five years as it seeks to secure its dominance in Canada and boost returns in the United States.

Shares rose C$3.54 in opening trade on the Toronto Stock Exchange on Wednesday to C$63.62, a 10-month high.

($1 = 1.0974 Canadian dollars)

Additional reporting by Ashutosh Pandey in Bangalore; Editing by Savio D'Souza and Grant McCool

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