TIM HORTONS $48.38 (Toronto symbol THI; TSINetwork Rating: Average) (905-845-6511; www.timhortons.com; Shares outstanding: 160.1 million; Market cap: $7.7 billion; Dividend yield: 1.4%) operates 3,225 coffee-and-donut shops in Canada and 645 in the U.S.
Without one-time items, Tim Hortons earned $0.65 a share in the three months ended October 2, 2011. That’s up 18.2% from $0.55 a share a year earlier.
Sales rose 8.4%, to $726.9 million from $670.5 million. Canadian same-store sales rose 4.7%, because Tim Hortons launched successful new products like real fruit smoothies and specialty bagels. U.S. same-store sales rose 6.3%, as customers spent more per visit. The company also raised its prices to cover higher costs for coffee and other foods.
Smart growth plan tempers risk
Tim Hortons needs a sustained recovery in consumer spending to show continued same-store sales growth in the U.S., but its strategy of expanding in towns and cities near the Canadian border should pay off. This lets it profit from Canadian tourists and Americans who are already familiar with its brand. Meanwhile, there’s still room to expand in Canada, including in gas stations, convenience stores, universities, hospitals and airports.
Tim Hortons aims to keep coffee sales strong by introducing espresso-based lattes, mocha lattes and cappuccinos under the Tim’s Café Favourites brand. It will also extend its breakfast hours to noon.
The stock trades at 17.6 times the company’s forecast 2012 earnings of $2.75 a share. That’s reasonable in light of its strong growth prospects.
Tim Hortons is a buy.
