TIM HORTONS INC. (Toronto symbol THI; www.timhortons.com) operates 3,588 coffee-and-donut stores in Canada, 859 in the U.S. and 38 in the Persian Gulf. Franchisees operate 99.6% of these outlets.
The company’s sales jumped 33.0%, from $1.7 billion in 2009 to $2.3 billion in 2013. That’s largely because it opened 573 new locations in Canada (up 19.0%) and 296 in the U.S. (up 52.6%). New menu items, like soups and panini sandwiches, also spurred sales.
Earnings jumped 110.5%, from $296.4 million in 2009 to $624.0 million in 2010, mainly due to a $361.1-million gain on the sale of a bakery joint venture. Per-share earnings rose 118.3%, from $1.64 to $3.58, on fewer shares outstanding. Earnings then fell to $2.35 a share (or a total of $382.8 million) in 2011 but turned around and rose to $2.82 a share (or $424.4 million) in 2013.
Under a new strategic plan aimed at further improving sales and profits, Tim Hortons will stop selling Cold Stone Creamery ice cream in its Canadian stores, though it will keep doing so in the U.S. It is also closing some less profitable U.S. outlets. If you exclude costs related to these moves and other unusual items, the company earned $2.98 a share in 2013.
Canadian stocks: 800 new outlets on the way in latest growth plan
Other parts of the company’s plan include a simpler menu, which should shorten checkout times and encourage repeat visits. The company is also installing technology that lets customers pay with their smartphones, which will further cut waiting times.
In addition, the company plans to open 800 new outlets (500 in Canada and 300 in the U.S.) over the next five years. Franchisees will build and operate these locations, which cuts Tim Hortons’ risk. The company has a similar arrangement with Dubai-based Apparel Group to open up to 220 outlets in the Persian Gulf over the next few years.
During 2014, Tim Hortons plans to spend $180 million to $220 million to build new outlets and renovate existing locations. That’s down from $221.0 million in 2013.
Tim Hortons recently raised its dividend by 23.1%. The new annual rate of $1.28 yields 2.1%. The company also plans to buy back up to $440 million worth of its shares over the next year.
In the latest edition of The Successful Investor, we examine the prospects for Tim Hortons’ growth plan and its impact on earnings for 2014. We also look at the company’s balance sheet strength in light of its ambitious expansion plans. We conclude with our clear buy-sell-hold advice on the stock.
(Note: If you are a current subscriber to The Successful Investor, please click here to view Pat’s recommendation in the latest issue. Be sure to log in first.)
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COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members
Do you believe that successful franchises like Tim Hortons and McDonalds can sustain their high rates of growth in North America and overseas? Or do you think they will ultimately be stalled? Beyond a familiar name, what is the main thing you look for when you invest in chain restaurant stocks?
Comments
David
I believe that Tim Hortons has a successful horizon going forth but that will depend on an increase in service; expanding the menu; sprucing up some of those dreadful looking stores, etc. The way to get buy in from employees is to offer them the change to purchase stock in the company at a reduced price. Watch those people move then. Right now Tim Hortons is stuck in a rut and they need a new marketing plan going forward. Next time you go to Tim Hortons on a busy day, count the number of young people inside. There are not many. So you need to reach out to this segment of the population in a big way or Timmy’s will go the way of the dodo bird.
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I believe that Tim Hortons has a successful horizon going forth but that will depend on an increase in service; expanding the menu; sprucing up some of those dreadful looking stores, etc. The way to get buy in from employees is to offer them the change to purchase stock in the company at a reduced price. Watch those people move then. Right now Tim Hortons is stuck in a rut and they need a new marketing plan going forward. Next time you go to Tim Hortons on a busy day, count the number of young people inside. There are not many. So you need to reach out to this segment of the population in a big way or Timmy’s will go the way of the dodo bird.