Tim Hortons' profit up 8 percent, chain eyes more than coffee


* Third-quarter profit up 8 pct to C$0.75/share

* Revenue C$825.4 mln vs estimate C$824.5 mln

* U.S. same-store sales rose by 3 pct

* Shares edge higher after results

By Solarina Ho

TORONTO, Nov 7 (Reuters) - Canadian coffee and doughnutchain Tim Hortons Inc , which is exploring waysto expand in an intensely competitive market, reported an 8percent rise in quarterly profit as same-store sales improvedslightly in the United States.

Shares of the company, which says it sells nearly eight ofevery 10 cups of coffee sold in Canada, edged higher followingthe results, which included a 3 percent rise in revenue.

Tim Hortons reported that U.S. same-store sales grew by 3percent, while Canadian same-store sales rose 1.7 percent.

"The third quarter was one of progress and improved momentumfor us. And our key indicators are moving in the rightdirections," Chief Executive Officer Marc Caira told analysts ina conference call.

"However, while encouraging, we know that we have a lot ofwork more to do. Last quarter, I spoke to you about a newreality facing the food service industry."

Caira, a long-time Nestle SA executive, said thecompany has the capacity to expand the brand beyond thetraditional restaurant into alternative channels.

Tim Hortons needed to "set the agenda on coffee" in Canada,Caira said, but also attract new and younger consumers lookingfor more than black brewed coffee. The younger demographic looksfor specialty drinks like other milk-based beverages, juiceblends and alternative coffee roasts.

The chain is facing intense and growing competition fromU.S. competitors such as McDonald's Corp and StarbucksCorp, who have also ramped up their offerings andpromotions to attract new customers.

Last week, Tim Hortons said it would start offering a darkroast coffee option in pilot locations, the first time in itsnearly 50-year history that it has offered customers a new blendof coffee.

For the United States, Caira reiterated the company's plansto enter new markets with partners that are well capitalized,understand the local food-service market, and have access tomarket resource like supply chain and labor.

Internationally, Caira said Tim Hortons would remain focusedon its Middle East operations and that it "will get to the restof the world, in due time."

"In due time - it's not far down the road," he added. "I'mvery optimistic about international opportunities."

The company hopes to present its strategic plan around thefirst quarter of 2014.


Caira's plans are in line with the demands of activistshareholders who pressured Tim Hortons earlier this year toboost returns.

The company, led since July 2 by Caira, said in August itwould expand its share buyback plan by C$900 million to C$1billion.

During the quarter, the chain opened 13 restaurants in theUnited States and 34 in Canada. It also began implementingchanges, including structural enhancements at more than 500restaurants to help minimize drive-through wait times forcustomers, simplify navigating through the menu and speed upin-store line-ups.

The company's net income rose to C$113.9 million ($109.4million), or 75 Canadian cents per share, in the third quarterended Sept. 29 from C$105.7 million, or 68 Canadian cents pershare, a year earlier.

Total revenue rose 3 percent to C$825.4 million.

Analysts had expected a profit of 77 Canadian cents pershare and revenue of C$824.5 million, according to ThomsonReuters I/B/E/S.

Operating income was up 9.9 percent to C$168.8 million.

Tim Hortons' stock, which has risen some 28 percent thisyear, was trading up 17 Canadian cents, at C$62.77 on theToronto Stock Exchange.

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