TORONTO - Tim Hortons Inc. (TSX:THI) is boosting the price of a cup of coffee in Quebec, Manitoba and the Maritimes early next week as it contends with higher costs for running its franchised stores.
Executives for the iconic coffee shop told analysts in a conference call that the increase would be rolled out during in the first two weeks of November and that it would range from five to seven cents for a cup on coffee.
The decision comes as it grapples with higher costs that range from the price of coffee beans to higher minimum wages in some parts of the country.
In September, the company increased the price of some of its products at Ontario stores, mostly by five cents each.
"This year our store owners probably faced more of a combination of pressures, not only on the raw material side of things, but also from a labour perspective," said chief financial officer Cynthia Devine in an interview.
"They held the line on pricing for a very long time."
On Friday, Tim Hortons served investors with another quarter of revenue growth, even as profits shrank compared with a year ago, as it ate $23.1 million in costs associated with converting back into a Canadian corporation.
The company also warned that it could miss or come in at the lower end of its Canadian same-store sales targets targets of three to five per cent growth for the year, as the economy continues to affect results.
"Everyone had projected by the third quarter of this year that we would probably see some real recovery... but at best it's sluggish to date," said president and CEO Don Schroeder said in a conference call with analysts.
"Given those economic challenges we want to be conservative (about) where we think we'll come out at the end of the year."
Shares in the company lost 2.6 per cent, or 82 cents, to close at $30.97 on the Toronto Stock Exchange.
For the third quarter, revenue increased to $563.6 million, up 10.7 per cent from just under $509 million in the comparable period of 2008.
The biggest increase was at Tim's Canadian stores, which brought in $492 million, up $50 million from the third quarter of 2008.
But U.S. stores also increased total sales, which grew by $7.8 million or nearly 25 per cent to $38.9 million.
Same-store sales, which measure performance of locations open for at least a year, increased 3.1 per cent in Canada and 4.3 per cent in the United States.
"Performance was delivered in a tough operating environment that continued to be framed by persistently high unemployment levels as well as other pressures in the North American economy," said Schroeder.
"I think its fairly obvious to most observers that economic recovery has been a challenge and meaningful recovery has not been seen to this point."
Despite the sales growth, net income fell to $61.2 million or 34 cents per share in the quarter, down 22.3 per cent from a year ago.
Tim Hortons said the lower profit was due to $23.1 million in costs associated with reorganizing the company into a Canadian legal entity. It had formerly been a subsidiary of the Wendy's hamburger chain and was previously registered as a U.S. company.
Wendy's began selling off its stake about two years ago and the Canadian retail icon is now widely held.
Operating income increased 5.4 per cent to $129.2 million in the third quarter compared to $122.6 million in the prior year.
Adjusted operating income, excluding $3.2 million in professional advisory fees and shareholder-related transaction costs associated with the reorganization, was up eight per cent to $132.4 million.
Analysts estimates compiled by Thomson Reuters, which usually excludes unusual items and the impact of currency fluctuation, had been for revenue of $552 million and 43 cents per share of earnings.
CIBC analyst Perry Caicco said in a report that the third quarter numbers were "ahead of our forecast on most metrics, largely due to strong revenues."
Tim Hortons has been ramping up its presence in the United States this year, opening locations at several key tourist spots like Fort Knox and Times Square. The company also had its coffee featured on the U.S. sitcom "How I Met Your Mother."
The company also announced it would resume buying back shares up to $150 million worth of shares before March, after putting the initiative on hold while it converted back into a Canadian corporation.
Tim Hortons is the fourth largest publicly-traded fast-food restaurant chain in North America based on stock market value, and the largest in Canada. As of late September, the company had 3,527 restaurants, including 2,971 in Canada and 556 in the United States.
