OAKVILLE, ONT. — North American restaurant chain Tim Hortons Inc. has pulled the plug on a number of underperforming restaurants in various U.S. markets, one of two moves that dragged down operating income during the fourth quarter.
“We have many restaurants in the U.S. that are doing quite well and many others where we can see a path to profitability, but there were a small number of underperforming restaurants where we felt the best course of action was to close them and focus on continuing to drive AUVs at our other locations,” Marc Caira, president and chief executive officer, during a Feb. 20 conference call with analysts.
Operating income in the fourth quarter ended Dec. 29, 2013, was C$147,771,000 ($132,662,000), down nearly 2% from C$150,404,000 in the same period a year ago. Operating income was affected negatively by $6.6 million of restaurant closure costs in the fourth quarter. In the fiscal year the company in the United States closed 24 restaurants and opened 79 new locations.
Cynthia Devine, chief financial officer, said Tim Hortons expects to invest approximately C$30 million in its U.S. business during fiscal 2014, down from the C$48 million invested in 2013. The company still plans to open between 40 and 60 full-service restaurants in the United States during the year, though.
The other factor adversely affecting income during the quarter was the company’s decision to remove Cold Stone Creamery from Tim Hortons locations in Canada.
“While this is an excellent brand and a very high-quality product offering, we have determined that the fit was not ideal with our strategy of price value and speed in the Canadian restaurants,” Mr. Caira said. “We have participated in the ice cream category for several seasons reaching approximately 150 co-branded locations in Canada and performance has been below our expectations. By de-branding Cold Stone Creamery from our restaurants in Canada, our restaurant owners can simplify their operations and focus entirely on their core business. This is consistent with our goal of improving capacity, reducing lineups, and driving for more simplicity by focusing on our core business.
“Many of the restaurants will now be able to add express beverage lines that we have discussed in the past, which also addresses capacity and shortens lines.”
Mr. Caira said the decision does not affect Tim Hortons’ U.S. Cold Stone Creamery co-branded locations.
“In the U.S. market, Cold Stone Creamery brand is more established and plays a role as a destination point for our restaurants,” he said. Tim Hortons and Cold Stone have been partners in the U.S. and Canada markets since 2009.Overall, net income at Tim Hortons in the fiscal year ended Dec. 29, 2013, was $424,369,000 ($380,953,000), equal to C$2.83 per share on the common stock, up 5% from C$402,885,000, or C$2.60 per share, in fiscal 2012. Total revenues were C$3,255,533,000 ($2,921,766,000), up 4% from C$3,120,504,000.