RBI shares jump despite flat sales growth

Executives at the operator of Tim Hortons sounded an upbeat note about the brand Monday despite slower than anticipated store growth for the coffee and doughnut chain across North America, weak same-store sales on its home turf and an ugly spat with its franchisees.

The Tim Hortons brand was engulfed by negative publicity last month after some of its Ontario franchisees cut employee benefits and paid breaks in response to the province’s minimum wage hikes. At the time, its owner Restaurant Brands International (RBI) Inc. said the actions did not reflect the brand and blamed a “rogue group” of franchisees.

It followed a year of antagonism with Tim Hortons’ Canadian franchisees, who formed an association and filed class action lawsuits against the master franchisor, accusing head office of misusing advertising funds and hiking the prices of products they buy through the company such as sugar and bacon.

In an interview Monday, RBI chief executive Daniel Schwartz would not comment on whether ongoing franchisee issues had weighed down the company ’s reputation or share price performance.

“We made a lot of good progress last year in building a strong and positive agenda with the restaurant owners,” Schwartz said. “We think the brand and the business are both healthy.”

RBI shares jumped seven per cent in Toronto after the company reported net earnings of US$395 million in the period ended Dec. 31, or US$1.59 per share, compared with US$118.4 million (US50 cents) in the same period a year ago. Adjusted earnings were US66 cents, compared with US44 cents last year, beating analyst estimates of US57 cents from Thomson Reuters. The shares ended the day at $75.48, up 6.18 per cent.

Revenue was US$1.2 billion, up from US$1.1 billion a year ago.

Comparable sales, an important measure of system health that tracks volume at locations open for at least a year, were mixed, up 0.1 per cent at Tim Hortons for the quarter, 4.6 per cent at Burger King, and down 1.3 per cent at Popeye’s.

But Tim Hortons’ comparable sales slid 0.1 per cent for the full year, the fifth straight quarter of flat or falling same-store sales at the coffee chain.

Overall system-wide sales at Tim Hortons rose 2.4 per cent to US$1.75 billion, but were far more robust at the rapidly-expanding Burger King and Popeye’s, rising 12.3 per cent and 6.8 per cent, respectively.