Tim Hortons’ same-store sales impress in 3Q14

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What drives revenues in the restaurant business?

Same-store sales drive revenues. Revenues eventually drive earnings per share (or EPS). Same-store sales are an important value metric for restaurants.

Tim Hortons (THI) had 4,590 restaurants at the end of the second quarter. About 80%, or 3,650, of THI’s restaurants are in Canada. About 20%, or 869, of THI’s restaurants are in the US. Over 99%, or 4,516, of THI’s restaurants in the US and Canada are franchised. The other 18 restaurants are company operated. THI had ~56 of its restaurants in international locations.

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Third quarter same-store sales

THI’s same-store sales grew 6.8% in the US and 3.5% in Canada. Same-store sales are driven by the number of customers that come into the restaurant—the traffic—and the average amount that a customer spends in the restaurant—the ticket or average check.

Same-store sales in Canada grew mainly because of the average check. We’ll discuss this in more detail in the next part of this series.

THI’s same-store sales in the US were driven by higher average unit volume from the breakfast daypart. The breakfast daypart increased customer traffic during non-peak hours. This made restaurants increase their store sales. It also allowed restaurants to drive revenues without making significant investments.

Peers

In comparison, Burger King (BKW) had a -3.3% same-store sales decline in the US. To increase traffic, restaurants use various strategies. McDonald’s (MCD) and Taco Bell—under the umbrella of Yum! Brands (YUM)—offer breakfast to increase customers during non-peak lunch and dinner hours.

During the same quarter, Dunkin’ Donuts’ (DNKN) same-store sales only grew 2% year-over-year (or YoY).

MCD and YUM are both part of exchange-traded funds (or ETFs)—like the Consumer Discretionary Select Sector SPDR Fund (XLY).

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