What drives revenues and earnings in a restaurant business?
Same-store sales drive revenues, which eventually drive earnings per share. Same-store sales are an important value metric for restaurants.
Tim Hortons (THI) had a total of 4,546 restaurants as of the second quarter’s end. About 79%, or 3,630, of Tim Hortons restaurants are in Canada. About 19%, or 866, restaurants are in the U.S. Over 99%, or 4,478, of the all Tim Hortons restaurants in the U.S. and Canada are franchised. The remaining 18 restaurants are company-operated. Tim Hortons had about 50 of its restaurants at international locations.
Second quarter same-store sales
Same-store sales grew 5.9% in the U.S and 2.6% in Canada. Same-store sales are driven by the number of customers walking into a restaurant (the traffic) and the average amount a customer spends in the restaurant (the ticket or average check).
Same-store sales in Canada grew primarily because of average check, which was driven by menu items (product mix). For the U.S., too, same-store sales were driven by average check and product mix, with the biggest contribution coming from breakfast items along with cold beverages.
We’ll discuss Tim Hortons’ menu innovation in the next part of this series.
Burger King (BKW), in comparison, saw 1% growth in global same-store sales over the same period.
To increase traffic, restaurants have often used various strategies. McDonald’s (MCD) and Taco Bell, which is under the umbrella of Yum! Brands (YUM), both offer breakfast to increase customer walk-ins during non-peak lunch and dinner hours.
McDonald’s and Yum! Brands are both part of exchange-traded funds (or ETFs) like the Consumer Discretionary Select Sector SPDR Fund (XLY).