Tim Hortons will boost its stock dividend by 23 per cent and spend up to $440 million buying back its shares, the company announced Thursday as it released quarterly earnings that missed analyst estimates.
The Oakville, Ont.,-based coffee giant said its quarterly dividend will rise from 26 to 32 cents a share, payable March 18. At the current stock price, that would produce a yield of 2.2 per cent.
The chain's earnings of $100.6 million in the fourth quarter (69 cents a share) were up slightly from the same quarter a year ago, but came in shy of analysts' expectations of 77 cents.
Operating income dipped slightly, in part because of the company's decision to remove Cold Stone Creamery from Tim Hortons locations in Canada. Management said this would allow restaurant owners to "simplify their operations and focus entirely on their core business." Some U.S. outlets of Tims will continue to offer Cold Stone Creamery products.
Loyalty program with CIBC
Tim Hortons is launching its own loyalty rewards program in response to growing competition in the coffee market.
The company has partnered with CIBC for a Visa credit card that accumulates points redeemable at Tim Hortons stores, part of a broader effort to give its customers more incentives.
Chief operating officer David Clanachan says a loyalty program for coffee drinkers who don't want to use a credit card is also in the works.
"We see this as a big part of our future and this is kind of our first foray down that path."
The company also said its operating income was affected by the decision to close some underperforming restaurants in some U.S. markets.
Revenues rose more than 10 per cent to $898.5 million, as the chain imposed significantly higher fees on its franchises to pay for renovations. Same-store sales in Canada rose 1.6 per cent.
Tim Hortons also renewed its share buyback program.
"We will continue to act decisively and make tough decisions where necessary to position our company for profitable growth," CEO Marc Caira said in a quarterly conference call with analysts.
Investors liked the company's news. Shares of Tim Hortons were up $1.04 to close at $58.98 in Thursday TSX trading.
The company will announce a new five-year strategy at an online investor conference next week, when it is expected to address ways of dealing with stiff competition from McDonald’s and others in the fast-food sector.
Tim Hortons also announced plans to launch a co-branded Visa credit card that will offer instant loyalty rewards to CIBC clients. The card will be available in May.
Tim Hortons has 4,485 locations system-wide, with 3,588 in Canada. It plans to open 215 to 255 new locations in 2014, with 140 to 160 of those in Canada.