Tim Hortons says the money-losing New England stores it has slated for closure have cost the chain $4.4 million so far this year and that a retreat from the fledgling market will improve its U.S. profits.
The company announced late Wednesday that it plans to close the doors at 36 coffee and doughnut shops and 18 self-service kiosks in the northeastern United States, a move that will cost the company $50 million.
“Even though these restaurants which are closing represent a small portion of our overall system, they had a disproportionately negative effect on our business performance in the U.S. in 2010 and in prior years and overshadowed the overall progress we have made and continue to make,” said Tim Hortons president and CEO Don Schroeder.
Tims closed some locations in New England in 2008 and has tried to boost sales in the remaining area locations since. However, performance has fallen short of the expectations Tims had when it acquired a small chain of coffee shops as a platform for growth, Schroeder said on a conference call Wednesday to discuss the company’s third-quarter results.
“In hindsight, while we have benefited tremendously through the experience we gained through this acquisition, the fact is, it did not turn out the way we expected,” he said.
“The most prudent course of action is to focus our U.S. (efforts) in our core growth markets where we are experiencing greater success.”
The iconic Canadian restaurant operator has been making inroads into the American market, but said the closures are necessary because the stores are situated in some of the most intensely competitive markets for quick-service restaurants.
However, Schroeder stressed Tim Hortons is in the U.S market to stay as its brand profile continues to grow.
“We see the same size of sales progression and customer acceptance that we experienced in Canadian markets in early stages of development and continue to see traction,” he added.
The closures, which represent a small fraction of the 600-plus stores Tims has in the United States, were largely responsible for the company’s third-quarter profit missing analysts’ expectations.
Tim Hortons earned $73.8 million in the third quarter or 42 cents per share–up more than 20% from last year, but falling short of an average analysts target of 53 cents per share.
