Tim Hortons Falls as Canadian Store Sales Drop

Tim Hortons Inc. (THI), Canada’s largest coffee and doughnuts chain, fell the most in almost three months after a slowing economy prompted sales at its Canadian stores to drop for the first time since the company went public.

Shares in the Oakville, Ontario-based company fell 2.6 percent to C$57.13 in Toronto today after falling as much as 4.1 percent earlier, the biggest intraday drop since Nov. 8.

Sales at stores in Canada that have been open more than a year declined 0.3 percent in the first quarter from the same period a year ago, the company said in a statement with earnings. That was the first drop since 2006, according to data compiled by Bloomberg.

“Obviously they’re not growing as fast as they were when they went public,” Bobby Hagedorn, an analyst with Edward Jones & Co. in said by phone from St. Louis. “When you’re growing faster your younger stores tend to compare a bit better, so you don’t have that tailwind behind you. The market is obviously more competitive than it was.”

Tim Hortons reported net income fell 2.9 percent to C$86.2 million ($86 million) in the first quarter, or 56 cents a share, compared with estimates of 61 cents. Revenue rose 1.4 percent to C$731.5 million, compared with the average estimate of C$748.9 million.

The company faces a Canadian unemployment rate that’s been above 7 percent for four years and record consumer debt, as well as increased competition from McDonald’s Corp.’s expanded coffee offering.

New CEO

“In Canada, we believe consumer confidence and discretionary spending have been negatively impacted by rising unemployment, high consumer debt and the cooling housing market,” the company said in its statement.

The company appointed Marc Caira, 59, a former executive with Nestle SA (NESN) as its new president and chief executive officer to take over in July. Paul House had been acting CEO since May 2011. The company will hold its annual shareholders’ meeting tomorrow.

Tim Hortons said on its earnings call that it’s committed to the U.S. market, sees potential to add debt to its balance sheet and rejected the idea of transferring its real estate to a real estate income trust. The company also said it has more bias toward share buybacks than special dividends.

Boston-based hedge fund Highfields Capital Management LP said May 1 it had increased its stake in Tim Hortons to 4 percent and met with the company to recommend using debt to fund “capital return” and to halt a push into the U.S.

To contact the reporter on this story: Ari Altstedter in Toronto at aaltstedter@bloomberg.net

To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net

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