While Tim Hortons Inc. profits and sales continue to improve, Canada's biggest coffee chain says growth may be constrained as frugal consumers are cutting back on afternoon snacks.
The chain's 13 per cent improvement in secondquarter earnings may not suggest Tims is taking a hit from weaker consumer confidence, but it noted that a modest 1.8 per cent increase in 91原创 same-store sales reflected "a challenging macro-environment."
"When a local economy is impacted, we certainly feel it in our stores," said Tim Hortons' CEO Paul House in a conference call Thursday.
Results may have been even better if consumer confidence was stronger, as negative sentiment about the economy has hit companies across the restaurant industry, said chief financial officer Cynthia Devine.
"The economic environment in both Canada and the U.S. remains volatile and the continued uncertainty appears to be impact-ing consumer confidence," she said.
"We too noticed that some of the more moderated growth in the second quarter that carried through into July."
Devine said that, while sales during the morning remain robust, Tims has noticed softness in sales during the afternoon, a trend that appears to be consistent with consumers looking to trim spending.
"The consumer, if they've got to cut back a little bit during some of these challenging times, then quite likely it's that snacking day part."
Devine noted that an unseasonably warm spring may have eaten into afternoon sales. "You're not coming back in the afternoon for that hot coffee when the climate was what it was."
Tims' ever-expanding line of cold beverages - which include iced coffees, smoothies and now frozen lemonade - have helped to offset declining coffee sales in warm months, but only partially, she said.
House noted that, along with unfavourable weather and economic conditions, the chain is "not hiding" from the fact that the coffee and breakfast market is getting more competitive as McDonald's and Starbucks increase their offerings.
"Everybody's trying to get into the coffee business and the coffee business as a whole is flat, and so there's more people chasing the same dollar," said House, who stepped in as interim CEO after the departure of Don Schroeder last May.
For the three months ended July 1, Tims earned $108.1 million or 69 cents per share, up from $95.5 million, or 58 cents per share, in the same yearearlier period and in line with analysts estimates.
Revenue rose 11.8 per cent to $785.6 million from $702.8 million. The increase included a six per cent increase in system-wide sales, boosted in particular by a 4.9 per cent jump in same-store sales in the competitive U.S. market.
BMO analyst Peter Sklar noted that same-store sales in both Canada and the U.S. were below expectations, but added that U.S. growth compared favourably with competitors McDonald's and Dunkin' Donuts.
"Although [same-store sales] for both segments were below our expectation, revenues exceeded our forecast due to strong distribution sales and an increase in the number of restaurants consolidated as opposed to accounted for on a royalty basis as franchisees," Sklar said.
Tims shares closed down 2.75 per cent or $1.44, at $50.84 on the Toronto Stock Exchange.
