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Tim Hortons, which plans to add hundreds more stores in North America (500 of them in Canada) and the Middle East, has posted a revenue increase of 4.8 per cent in the latest quarter. (Brendan McDermid/REUTERS)
Tim Hortons, which plans to add hundreds more stores in North America (500 of them in Canada) and the Middle East, has posted a revenue increase of 4.8 per cent in the latest quarter. (Brendan McDermid/REUTERS)

Morning Business Briefing

Not so sweet: Analysts take dimmer view of Tim Hortons stock Add to ...

These are stories Report on Business is following Thursday, May 8, 2014.

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No sweetener
Analysts are trimming their outlook for shares of Tim Hortons Inc., though only slightly, as they cite heightened competition for the coffee and doughnut king.

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“We continue to believe that the operating environment for Tim Hortons remains highly competitive, as evidenced by the recent declining same-store transaction trend,” said analyst Derek Dley of CanaccordGenuity, who cut his target price on the stock to $58 from $59 in the wake of the chain’s first-quarter results yesterday.

“In our view, the company is taking the appropriate steps to try and increase the productivity of its existing store base, through initiatives such as double lane drive-thrus and product innovation,” he added in a research note.

“However, given the stepped-up focus on the breakfast daypart by a number of its competitors, the environment remains more challenging than we have witnessed in the past.”

Yesterday, as The Globe and Mail’s Bertrand Marotte reports, Tims profit rose 5.5 per cent in the first three months of the year, to $90.9-million or 66 cents a share, from $86.2-million or 56 cents a year earlier.

Revenue rose 5.8 per cent to $766.4-million.

Both profit and revenue, however, were shy of what analysts had projected.

Same-store sales, a key measure in retailing, rose by 1.6 per cent in Canada and 1.9 per cent in the United States.

Like the analysts, chief executive officer Marc Cara cited the improvements at the chain, including new menu items.

It is, however, a highly competitive market in an increasingly on-the-run world, which is why some stock analysts have a slightly dimmer view.

Like Mr. Dley, Raymond James analyst Kenric Tyghe also cut the target on Tim Shares, to $65 from $66, though with an “outperform” rating, citing not just the competition but also the poor winter weather.

His outlook, though, suggests the chain is doing the right things.

“Our positive bias on Tim Hortons is predicated on the traction of its ongoing key strategic initiatives, specially accelerated renovations, menu simplification with coffee-centric combos, single-serve introduction in retail, and increased focus on loyalty in the short- to medium-term,” Mr. Tyghe said.

“With the breakfast item digital menu board rollout driving solid average ticket increases, we are cautiously optimistic of the impact of the lunch rollout currently in process,” he added.

Tim Hortons shares have underperformed the S&P/TSX composite by more than 17 per cent in the past year, having lost 5 per cent.

Scotiabank in Canadian Tire deal
Bank of Nova Scotia is buying 20 per cent of Canadian Tire’s financial services arm, a deal that demonstrates just how serious the lender is about expanding its credit card footprint, The Globe and Mail's Tim Kiladze reports.

In exchange for $500-million in cash and a commitment to fund up to $2.25-billion in credit card receivables, Scotiabank gets one-fifth of the retailer’s financial services unit, which is dominated by credit cards, and becomes the exclusive partner for any of its new products and marketing initiatives.

Canadian Tire also has the option to sell up to 29 per cent more of its financial services arm to the bank at a fair market price over the next ten years.

Central banks hold firm
Apparently convinced that the euro one recovery will soon eliminate the region’s deflation threat, the European Central Bank has left interest rates intact.

The ECB’s hold-the-course approach today was widely expected, but will not please some countries, among them France, which has been lobbying the ECB to take steps to lower the euro, our European correspondent Eric Reguly writes.

The ECB held its key rate at a record low of 0.25 per cent, while the Bank of England also left its policy rate unchanged, at 0.5 per cent.

Housing starts surge
Canada’s residential construction industry picked up speed last month, though observers don’t see that lasting.

Housing starts surged in April to an annual pace of 194,809 units, Canada Mortgage and Housing Corp. said today, from 156,592 in March.

The longer term trend – a six-month moving average – showed construction starts dipping to 183,515 from 184,602.

The April surge was large driven by condo construction.

“A bounce-back in new home construction activity in April had been expected following the sharp outsized drop in the previous month that likely reflected the negative, though transitory, impact of lingering severe winter weather,” said economist Laura Cooper of Royal Bank of Canada, suggesting the possibility of “pent-up demand” continuing to drive construction for the next while.

“However, we anticipate that the rebound will be relatively short-lived and housing starts will resume a gradual downward trend,” she added.

Earnings flood in
From factories to theatres, Canadian corporate reports are flooding in today. Here's a sampling:

Streetwise (for subscribers)

Real estate

ROB Insight (for subscribers)

Business ticker

 

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