A long cold winter left earnings short at Tim Hortons Inc. (THI) during the first quarter of 2008.
Canada's top coffee and doughnut retailer said profit for the first three months of the year rose 7% to C$0.33 per share, C$0.03 shy of consensus estimates. RBC Capital analyst Irene Nattel, who had forecasted earnings of 35¢, said the shortfall was due to higher operating expenses, not revenues which were in line with her estimates.
She told clients in a note:
Weather was challenging across all of Tim Hortons' regions in Q1. Still Tim Hortons generated 3.5% same store sales growth in Canada, 100 basis points above our forecast, aided by price increases that contributed 2.5% to growth. In the U.S., same store sales growth of 1% was in line with forecast, and there was no pricing benefit in the U.S.
She said that while equity markets will not be pleased with the earnings miss, she believes Tim Hortons will be able to make up the difference over subsequent quarters, noting management reaffirmed its operating income growth target of 10%. In early trading Thursday morning, the stock was down 3% or C$1.08 to C$33.40.
Ms. Nattel "tweaked" her 2008 earnings per share estimate from C$1.60 to C$1.62 and her 2008 estimate from C$1.89 to C$1.88, but continues to forecast close to 15% average annual EPS growth over our forecast period.
Her "outperform" rating and C$41 price target remain unchanged.
UBS analyst Vishal Shreedhar also blamed weak margins on adverse weather but felt same store sales were a little light as well, blaming a calendar shift of Easter into Q1 and new statutory holidays in Ontario and Manitoba.
If we normalize EBIT margins to 22.1% and increase sales by 1% to account for transient factors, EBIT would have increased 9% or more in line with UBS at 9.4%.
He maintained his "buy" rating and C$43 price target.