TORONTO -- Heightened competition in the coffee and snacks market added pressure to Tim Hortons during the third quarter as the company squeezed out an improved profit, even though fewer customers visited its restaurants.
President and chief executive Paul House said Thursday Tim Hortons is dealing with numerous entrants into the coffee market who are stepping up their promotional campaigns, all while consumers are spending cautiously in a tough economy.
"Everyone's trying to crowd into the coffee category so the competition has intensified from many positions," House said in a conference call, pointing toward McDonald's and Subway as competitors.
"Everyone's trying to find some share from somebody else."
Those factors kept some of Tim Hortons customers from visiting its stores, or at least visiting less frequently as they have in the past. The company, which doesn't provide specific traffic numbers, said same-store sales transactions were lower in both the U.S. and Canada.
Earnings at the Oakville, Ont.-based coffee, doughnut and fast-food chain grew to $105.7 million, or 68 cents per diluted share, in the three months ended Sept. 30. That fell short of the 72 cents per share expected by analysts, a poll by Thomson Reuters found.
The profits were up from $103.6 million or 65 cents per diluted share in the same period a year earlier.
Total revenues increased 10.3 per cent to $802 million from $726.9 million.
Same-store sales, a key metric measuring results from stores open at least a year, rose 1.9 per cent in Canada and 2.3 per cent in the U.S.
Tim Hortons (TSX:THI) has launched a wider array of lunch options and specialty drinks in an effort to keep coffee fans coming through their doors after the morning rush, but House said the company is also facing challenges with capacity as some new products take longer to prepare.
Edward Jones analyst Brian Yarbrough said capacity constraint could become a major challenge for fast-food operators as they try to expand beyond their traditional offerings.
"The volumes are just so high in some of these stores that you can't get more out of them," he said.
-- The Canadian Press