Tim Hortons reported a flat operating income in 3Q14
An overview of Tim Hortons' 3Q14 earnings (Part 7 of 11)
Cost of operations
In the last part of this series, we learned that Tim Hortons’ (THI) revenues grew 5% year-over-year (or YoY). The growth was due to initiatives—like unit growth and introducing new products. However, it’s also important for THI to manage its cost of operations so that the increase in revenues reaches the bottom line.
In this part of the series, we’ll see how THI did in the third quarter.
The biggest expense
In the above chart, you can see that cost of sales was THI’s biggest cost of operations. Cost of sales increased 3.7%—from $483 million to $501 million YoY. It included distribution costs. Distribution costs contributed to 6% of the overall increase in sales. This cost was also impacted by an increase in the product mix. It’s important to note that these costs are driven by commodities—like coffee, sugar, wheat.
Other expenses
Other operating expenses increased 3.7% to $104 million. This was mainly driven by an increase in rent cost and depreciation expense related to properties. This cost increased because the number of restaurant units grew over the quarter. THI’s restaurant units increased by 44.
The franchise fee increased 10% to $40 million. This came from renovation and franchise development expenses.
General and administrative (or G&A) expenses increased 2% to $38 million. This was due to an increase in salaries and benefits. During the quarter, the company also held its 50th Anniversary Convention for restaurant owners.
The above costs resulted in an operating income of $155 million. THI’s operating income declined 4% YoY. Operating margins’ results squeezed to 18.5%—from 20% YoY.
Dunkin’ Donuts (DNKN) had an operating margin of 47%. Starbucks (SBUX) reported an operating margin of 24.9%. McDonald’s (MCD) reported an operating margin of 29% over the same period.
These stocks can also be found in the Consumer Discretionary Select Sector SPDR Fund (XLY).
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