Tim Hortons boosts dividend by 23.5%

Canada's largest coffee store operator Tim Hortons Inc. is increasing its quarterly dividend 23.5 per cent amid improved fourth-quarter and full-year sales, even as its profits declined.
Tim Hortons, the iconic Canadian coffee retailer, plans to expand and open 120 restaurants across the Middle East. (Chris Young/Canadian Press)

Canada's largest coffee store operator Tim Hortons Inc. is increasing its quarterly dividend 23.5 per cent amid improved fourth-quarter and full-year sales, even as its profits declined.

The dividend hike to 21 cents per share came even as the Toronto-based coffee and baked goods chain said fourth-quarter profit fell nearly 75 per cent to $103 million, or 65 cents per share.

That compared to a profit of $377.1 million, or $2.19 per share, in the same quarter of 2010, when it booked a gain from the sale of its stake in joint venture Maidstone Bakeries.

Earnings up 21 per cent

Quarterly revenues rose 21 per cent to $779.8 million from $643.5 million in the year-earlier period as system-wide sales grew 9.2 per cent.

Tims' results were good enough to beat analyst expectations of 62 cents per share on revenue of $736 million, according to Thomson Reuters.

The fourth-quarter results exceeded analysts expectations on the back of strong same store sales, said Bank of Montreal analyst Peter Sklar.

Sklar said the sales growth in both the U.S. and Canada was "based on warmer weather, which drove transactions; last year's price increases, which have not yet been lapped; and menu development."

"The company also reported strong U.S. operating income of $5.6 million," he noted.

However, full-year profit was also lower in 2011, at $382.8 million, or $2.35 per share compared to $624 million, or $3.58 per share in 2010, which included a gain of $361.1 million from the Maidstone sale.

But full-year sales rose 12.5 per cent to $2.85 billion from $2.54 billion in 2010.

"Our disciplined focus on responding to our guests' needs, evolving our business and executing our growth strategies resulted in great momentum in the fourth quarter and a strong finish to the year," Paul House, executive chairman and interim president and CEO.

"We are pleased with our system's performance in persistently challenging operating conditions throughout 2011 and believe we have created a strong foundation on which we will continue to build," he said in a statement.

The company also announced a share buy back program of up to $200 million to decrease the number of shares that are publicly trading in order to increase the value of its stock.

Adjusted operating income, which excludes the one time items like the gain from the Maidstone sale, grew 14.5 per cent in the fourth quarter to $150.8 million from $131.7 million in the same quarter of 2010. Full year adjusted operating income was up 9.4 per cent to $567.8 million from $519.3 million in 2010.

Fourth quarter and full-year 2010 tax rates were also significantly lower than in 2010, largely due to a lower tax rate from the gain on the Maidstone sale.

Same store sales increase 5.5 per cent

Same store sales for the fourth quarter were up 5.5 per cent in Canada and up 7.2 per cent in the U.S. during the fourth quarter.

For the full year, same store sales grew four per cent in Canada and 6.3 per cent in the U.S.   

Looking ahead to 2012, House said the company will continue to invest "in a focused manner to differentiate our business and deliver shareholder value.

Tims is aiming to increase earnings per share to between $2.65 to $2.75 and grow same-store sales between three to five per cent in Canada and between four and six per cent in the U.S.

It is targeting a total of 250 to 290 restaurant openings this year, including 155 to 175 in Canada, 80 to 100 in the U.S. and 15 in the Middle East.

Tim Hortons is on a search for a permanent CEO after the sudden departure of Don Schroeder last May.

The chain launched a new line of espresso-based specialty drinks in the fall. It has also raised the price of some beverages and snacks as well as introduced bigger cup sizes.

Expansion plans

Based in Oakville, Ont., Tim Hortons is Canada's biggest restaurant chain and the fourth-biggest in North America with more than 3,700 restaurants on the continent.  

The company has recently been expanding its market, with a master license agreement with Dubai-based Apparel Group to open up to 120 restaurants in the United Arab Emirates, Qatar, Bahrain, Kuwait and Oman over the next five years.

Tim Hortons has been struggling with competing said it would close 54 locations in New England, a money-losing market for the company, where it faces strong competition from locally-headquartered Dunkin Donuts.

Since opening its first U.S. store in Buffalo, N.Y., in 1985, Tim Hortons has expanded to over 600 stores in a dozen states  — including Michigan, Ohio, Kentucky and West Virginia — and plans to open another 300 locations over the next three years.