Tim Hortons new markets to reach 500 U.S. stores

by Jeff Gelski
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NEW YORK — Canada-based Tim Hortons wants to enter U.S. markets adjacent to established U.S. markets in its goal of reaching up to 500 restaurants in the United States this year, said Paul House, chairman and chief executive officer, at the Cowen and Company Consumer Conference held Jan. 15 in New York.

Tim Hortons, Oakville, Ont., had 352 U.S. units on Sept. 30, 2007, or at the end of the fiscal year’s third quarter, Mr. House said.

"Our plan is to continue to build our existing markets," Mr. House said. "Plus, we will continue to enter markets that are adjacent established markets to leverage brand awareness built up over time in communities nearby.

"A recent example is in Michigan. We started in Detroit and southern Michigan, and in 2007 we moved into the Lansing market, where we opened six stores in the fourth quarter of the past year."

Tim Hortons also will continue to pursue strategic alliances in the United States, similar to what it has done in Canada, he said.

In Canada, Tim Hortons had 2,758 restaurants at the end of the third quarter. Mr. House said the company was underrepresented in the Western provinces and Quebec. Urban settings were underrepresented as well, he said.

"We have locations that are very successful in major cities and view urban locations in cities such as Vancouver (B.C.), Toronto and Montreal as a great opportunity for future unique growth in Canada," Mr. House said.

Capital structure is sufficient to support short-term needs, according to Tim Hortons. The company in 2006 had free cash flow of C$272 million, which the company defines as EBITDA less capital expenditures, said Cynthia Devine, chief financial officer and executive vice-president, finance.

Debt currently consists of a C$300 million ($291.2 million), five-year loan maturing in 2011. Tim Hortons also has a U.S. $100 million revolver and C$200 million ($194.2 million) Canadian revolver, both of which are undrawn.

A strong Canadian dollar has benefited Tim Hortons.

"If you take the Canadian dollar e.p.s. number and translate it into U.S. dollars, and if you just look at the stock performance in Canada, we’ve had good improvement in our stock price in Canadian dollars as well," Ms. Devine said. "But on the U.S. side of it, it was obviously boosted by the strengthening of the Canadian dollar."

Companywide, Tim Hortons wants to drive sales throughout the day.

"We believe there is a significant potential opportunity for a signature hot sandwich for the lunch daypart where we already have a No. 2 share in Canada," Mr. House said. "We believe this is a great opportunity for us."

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