* Same-store sales rise, traffic slips in Canadian shops
* Competition expected to weigh on same-store sales growth
* Quarterly dividend and dividend payout target raised
* Shares drop 3.5 percent on Toronto Stock Exchange
* Slowing growth profile in Canada disappoints, analyst says
By Allison Martell
TORONTO, Feb 21 Tim Hortons Inc said on
Thursday that customer traffic in its established Canadian
coffee shops dropped for a third consecutive quarter, sending
its shares lower even as the company boosted its quarterly
Analysts have been watching Tim Hortons' Canadian traffic
closely, trying to gauge whether the chain can keep growing in
its home market, where it is already a coast-to-coast fixture.
"We're seeing a slowing growth profile in Canada, a more
competitive environment," said Canaccord Genuity analyst Derek
The problem is not just other chains, Dley said, but Tim
Hortons' own steadily expanding footprint: "It appears as though
they're eating into the profitability and the performance of
their existing store base."
In Canada, same-store sales rose 2.6 percent in the fourth
quarter to Dec. 30, despite the traffic decline, as customers
spent more during each visit. Same-store sales in the United
States grew 3.2 percent and transactions increased slightly.
The company said it expects first-quarter, same-store sales
to grow at a slower pace than last year, when the metric rose
5.2 percent in Canada and 8.5 percent in the United States. It
blamed the expected slowdown on weak economic conditions,
stepped-up competition and unfavorable weather - but it did not
elaborate about the weather's impact.
For 2013, it forecast earnings per share from $2.87 to
$2.97. On average, analysts had been expecting earnings of
$3.00, according to Thomson Reuters I/B/E/S.
Tim Hortons says it is responsible for eight of every 10
cups of coffee sold in Canada, but as it expands its food
offerings, especially at lunch, it is increasingly going head to
head with fast-food brands such as McDonald's Corp.
At the same time, McDonald's is challenging Tim Hortons'
domain, promoting its coffee and remodeling its Canadian
restaurants into something more coffee house than burger joint,
with softer seating and even fireplaces in some outlets.
McDonald's Canadian chief told Reuters in October that his
division is stepping up its expansion after holding back for
more than five years.
Tim Hortons' shares fell 3.5 percent to C$49.01 in morning
trading on the Toronto Stock Exchange.
ADJUSTED EARNINGS RISE
Fourth-quarter net income slipped to C$100.3 million ($98.84
million), or 65 Canadian cents a share, from C$103.0 million, or
65 Canadian cents, a year earlier. Earnings per share were
boosted by share buybacks.
Costs associated with a corporate reorganization announced
last year reduced earnings per share by about 5 Canadian cents.
Excluding those costs and other non-operating items, adjusted
operating income rose 4.4 percent to C$157.4 million.
Analysts, on average, had been expecting earnings of 71
Canadian cents a share.
Revenue rose 4.1 percent to C$811.6 million, weaker than the
consensus forecast of C$829.5 million.
DIVIDEND TARGET UP
The company boosted its dividend to 26 Canadian cents a
share from 21 Canadian cents and said its board has approved a
higher payout target.
Tim Hortons will aim to pay out between 35 percent and 40
percent of the prior year's normalized net income, up from 30 to
35 percent previously.
Canaccord analyst Dley praised the increase. "This is
becoming a more mature company, and mature companies in my mind
should focus on returning cash to shareholders," he said.