Tim Hortons Inc., THI-T the big Canadian coffee and snacks chain with U.S. ambitions, said Friday it plans to increase its outlets by 25 per cent over the next three years, mainly in its home market.
The company, which has been criticized by analysts for a haphazard growth strategy, especially in the United States, said two-thirds of the 900 new stores will be located in Canada where it already dominates the coffee-shop market.
The remainder will be opened in New York, Ohio and Michigan, where it has gained a foothold.
The U.S. outlets, however, must compete against the likes of Starbucks and Dunkin' Donuts and will be redesigned as upscale cafe/bake shops, with a different menu than the Canadian stores.
Analysts have long called for the company to define its U.S. strategy more sharply, including spelling out the number of stores it wants to open south of the border. Some say it has less than five years of growth left in Canada before the market is fully saturated. It currently has 3,015 shops in Canada and 563 more in the United States.
Starbucks Corp. SBUX-Q has more than 11,000 outlets in the United States and Dunkin' Donuts has 6,400.
Uncertainty about expansion strategy has spurred a number of analysts to place “hold” or “neutral” ratings on Tim Hortons stock.
Brian Yarbrough, an analyst at Edward Jones in St. Louis, Mo., who currently has a “hold” rating on the stock, said the U.S. strategy will work only if the company targets key areas.
“If you just start throwing up 100 stores in the U.S. that's the wrong way to do it,” he said. “They are making the right move by targeting current markets. You just can't continue to throw more stores out there. It's like throwing bad money after bad money.”
By the end of 2013, the company expects to have about 4,000 stores in Canada with new openings targeted for Ontario, Quebec and British Columbia. Focus will be on smaller rural markets and kiosk stores in gas stations, airports and in the outlets of large retailers. It is also testing an upscale format in Canada with expensive fixtures and furniture.
As well, it plans to open 60 new Cold Stone specialty ice cream shops in Canada this year. The company signed an exclusive Canadian agreement with the U.S. ice cream chain in 2009.
The company forecast earnings per share growth of 12 per cent to 15 per cent over the next three years. For 2010, it sees EPS of $1.95 to $2.05. Last month it reported 2009 EPS of $1.64.
Also for 2010, the company expects sales at stores open for at least a year to increase by 3 per cent to 5 per cent in Canada and by 2 per cent to 4 per cent in the United States. The company plans to spend $180-million to $200-million this year mostly on the new store expansion.
In 2009, sales growth in Canada was 2.9 per cent, and in the United States it was 3.2 per cent.
“The bottom line is that the Tim Hortons you know today, will be dramatically different in four years from now,” Don Schroeder, Tim Hortons chief executive officer, told an investor presentation Friday. “It will be an improved company. It will be bigger. It will be more productive and it will be in a growth mode.”
