Must-know: Why management initiatives affected Tim Hortons’ sales

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Sep. 11 2014, Updated 9:01 a.m. ET

Initiatives recap

In the last few parts of this series, you saw how Tim Hortons (THI) has introduced new items in its menu, opened new locations, implemented a digital strategy, and pursued other initiatives to grow revenue. Let’s now see how effective these initiatives have turned out for Tim Hortons’ sales through all its restaurants.

System-wide sales

The company’s total system-wide sales grew 6.5% on a constant currency basis compared to 5.0% over the same quarter last year. Breaking this down further, system-wide sales in Canada grew 5.8% and they grew 12.3% in the U.S. So the menu changes and other initiatives have worked well for the company, which we can see from the spike in the chart above for 2Q14.

System-wide sales include the total revenues earned from company-operated as well as franchised restaurants. Click here to learn more about the franchise business model, which is widely used by Yum! Brands (YUM), Wendy’s (WEN), and McDonald’s (MCD).

The Consumer Discretionary Select Sector SPDR Fund (XLY) includes both McDonald’s and Yum! Brands. It gives you wider exposure to the restaurant industry.

Constant currency excludes the effect of changes in foreign currency. Read Market Realist’s McDonald’s series to learn more about constant currency calculations.

Other revenue measures

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Tim Hortons reported a 9.2% increase in distribution (or supply chain) sales and a 7.5% increase in rents and royalties as a result of growth in system-wide sales. Distribution sales include sales of products, supplies, and restaurant equipment to the franchisee. The franchise fee increased due to an increase in new restaurant development and renovations. This also increased the company’s costs, which we’ll discuss in the next part of this series.

It’s critical to look not only at revenues but also at the cost of doing business, which shows how effective the company has been in running operations. We’ll also discuss the cost of operations in the next part of this series.

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