Tim Hortons operator sees growth

TORONTO — 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 donut 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 when asked about the state of head office’s relationship with its Canadian franchisees. “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. 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.

Tim Hortons has struggled to gain a strong foothold in the U.S., where it opened its first location in 1984. When Burger King merged with Tim Hortons 30 years later, executives of the newly formed Restaurant Brands International said U.S. and international market expansion would be a critical thrust for the brand’s future growth. But three years later and after closing weaker locations, the brand still has fewer restaurants in the U.S. than it did at the time of the merger.

“In the U.S. it’s going a bit slowly,” Schwartz said. “We have 700 restaurants, which is quite a big size and I think if you look back in time and look at how the brand expanded in places like Western Canada, it took some time and some hard work before the brand really took off.”

The executives faced several questions on a call from analysts about Tim Hortons in Canada, where added costs from the minimum wage hike in Ontario came into play in the current quarter.

“It’s our primary objective together with our franchise partners around the world to drive sales growth in order to offset any cost inflations that we may face from year to year,” Schwartz said.

When asked specifically whether franchisees would be allowed to raise their prices to consumers, as some chains such as McDonald’s have done, Schwartz said the company puts through price increases “from time to time.”

“We look at a variety of factors to consider the pace and the amount of price we take, and that hasn’t changed.”