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Tim Hortons Slows Captial to U.S. in New Five-Year Plan

Feb. 25 (Bloomberg) -- Tim Hortons Inc., the Canadian coffee-and-doughnuts chain under pressure from activist investors, will use less capital and more franchises in a “must-win battle” for U.S. customers.

Tim Hortons plans to add 800 locations in Canada and internationally in the next five years, including 300 south of the border, the Oakville, Ontario-based company said in a statement outlining a new five-year strategy today.

The company is aiming for earnings per share growth of 11 percent to 13 percent compounded annually from 2015 to 2018, operating income of C$50 million ($45 million) in the U.S. by 2018 through a “less capital-intense model,” and to free up C$2 billion in cash by the end of 2018.

“We are energizing the Tim Hortons brand in all of our geographic markets and we are focusing on driving long-term, sustainable, profitable growth,” Chief Executive Officer Marc Caira said in the statement.

The moves come after Tim Hortons faced criticism of its U.S. strategy last year from activist investors Scout Capital Management LLC of New York, and Highfields Capital Management LP of Boston, which hold 3 and 1.5 percent of the company’s shares respectively, according to data compiled by Bloomberg. Scout pressured the company to scale back its U.S. expansion, and instead direct capital to share buybacks. The chain announced Feb. 20 it would repurchase up to C$400 million in stock.

FMR LLC, the holding company for Boston-based Fidelity Investments, is Tim Hortons’s second-biggest shareholder with a 5.3 percent stake, according to the data.

Healthy Menu

Tim Hortons rose 0.8 percent to C$58.39 at the close in Toronto today. The shares have gained 18 percent over the past 12 months.

Tim Hortons said it will add healthy menu items and use technology more in marketing. In Canada, the focus will be on increasing items per order and adding 500 new locations by 2018 in offices, sports venues, and hospitals.

In the U.S., where Tim Hortons plans a “disciplined approach,” the chain has signed franchise agreements where partners deploy their capital and local market knowledge in St. Louis, Missouri, Youngston, Ohio, and Fort Wayne, Indiana.

The company aims for 220 new locations in Gulf countries, and will enter new foreign markets next year.

Tim Hortons said it announced compensation changes that reflect stock value creation, same-store sales, and the new strategy, without elaborating.

To contact the reporter on this story: Katia Dmitrieva in Toronto at edmitrieva1@bloomberg.net

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

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