Tim Hortons’ numbers disappoint investors

Even in a slow economy, the lineups at Tim Hortons are getting longer.

CEO Paul House says relief is on the way.

“It’s a nice problem to have, but it’s a problem we have to fix,” House said in a conference call on Thursday in response to questions from analysts.

“There’s no question we hear from our customers that in certain markets we have a capacity issue. In the downtown, we definitely need more locations.”

Last month, Tim Hortons joined other Canadian retailers in adding Interac Flash cards as a method of payment. It has also introduced mobile-phone payments for some smart-phone users.

House rejected the idea that an expanded menu that now includes Panini sandwiches is responsible for slowing things down. He blamed the lineups on the success of promotional pricing, especially at breakfast.

“In September we bundled coffee and a sandwich. We’ve never done that at that time of the year,” said House.

Thursday’s reported same-store-sales growth of 1.9 per cent in Canada in the third quarter was consistent with the prior quarter and the company’s forecast, according to RBC Capital Markets analysis, but U.S. same-store sales of 2.3 per cent were sharply below forecasted 5 per cent.

The figures showed a decline in the number of transactions in both countries, but a higher average cheque.

“In our view, negative traffic counts are a reflection of overall deceleration in the sector,” according to the RBC Capital Markets analysis.

Investors, unhappy with the results, punished the company’s stock which closed down $2.48 to $47.03, its lowest level since September, 2011.

House said the last time he was in such a difficult market was in the early 1990s, when the introduction of the GST brought down sales for two years.

But Tim Hortons is in better shape than some others, he pointed out.

“There are companies who have announced monthly sales that are negative. I have to compare it to where we are in the industry, not to where we’d like to be,” he said.

McDonald’s Corporation on Thursday reported a 1.8 per cent drop in October sales at established restaurants around the world, its first monthly sales fall since March 2003, hurt by tougher competition and a soft economy.

The world’s largest hamburger chain last month signaled that October sales were on the decline.

Resurgent rivals like Burger King Worldwide Inc, Wendy’s Co and Yum Brands Inc’s Taco Bell are luring U.S. diners with revamped menus, low-priced food and catchy advertising.

But McDonald’s Canada had positive sales in October, according to a spokesman for McDonald’s Corporation.

Tim Hortons saw a 10.3 per cent increase in total revenue in the quarter, but increased costs due to renovations and expansions, new digital menu boards and a corporate headquarters reorganization.

The Ontario-based company said third-quarter net income attributable to shareholders was $105.7 million or 68 cents per diluted share. That was up from $103.6 million or 65 cents per diluted share in the same year-earlier period.

Total revenues in the three months to Sept. 30 were $802 million, up from $726.9 million.

Tim Hortons is Canada’s biggest restaurant chain and the fourth-biggest in North America with more than 4,100 restaurants on the continent.

Since opening its first U.S. store in Buffalo, N.Y., in 1985, it has expanded to more than 750 stores in a dozen states — including Michigan, Ohio, Kentucky and West Virginia — and plans to open another 300 locations over the next three years.

Rather than adding to a credit card balance, the Interac cards draw down the funds from the customer’s bank account.