TIM HORTONS $62.68 (Toronto symbol THI; TSINetwork Rating: Average) (905-845-6511; www.timhortons.com; Shares outstanding: 147.1 million; Market cap: $9.1 billion; Dividend yield: 1.7%) operates 3,500 coffeeand- donut shops in Canada, 817 in the U.S. and 33 in the Persian Gulf.
In the three months ended September 30, 2013, Tim Hortons’ sales rose 2.9%, to $825.4 million from $802.0 million a year earlier. Same-store sales gained 1.7% at its Canadian outlets and 3.0% in the U.S. Earnings per share rose 6.9%, to $0.77 from $0.72.
The company continues to benefit from recently introduced menu items, such as panini sandwiches. It also raised its prices to cover higher ingredient costs. At the same time, it’s working on simplifying its menu displays and speeding up service, both in-store and at the drive-through.
U.S.-based activist investor Scout Capital Management now owns 5.5% of Tim Hortons’ shares, and Highfields Capital Management holds about 4%.
Tim Hortons has rejected these investors’ demands to slow its expansion in the competitive U.S. market and transfer its real estate to a new real estate investment trust, like Loblaw and Canadian Tire have done.
However, the company is meeting one of their demands: it’s borrowing $900 million to buy back $1 billion worth of its shares. It is also changing its strategy in the U.S., with plans to expand through wellcapitalized franchise operators that can handle multiple locations. That should cut its development costs.
The company has successfully grown its iconic brand on its own for many years, but these activist investors’ ongoing involvement continues to draw attention to its strong prospects.
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