Tim Hortons Takes On the Market

Tim Hortons (NYS: THI) , the Canadian restaurant chain, announced excellent earnings this week. The company grew same-store sales, revenue, income, and pretty much everything else -- except the number of shares outstanding, because it bought back shares in 2011. Honestly, it's going to be hard to summarize this earnings statement without having the result sound like a fluff piece.

What went right
The company increased total revenue by 12% on Q1 2011, because of new products and better cross-selling. U.S. same-store sales increased 8.5%, while in Canada they grew 5%. In Q1 2011, same-store sales grew in both nations, but at a slower pace.

Net-income margins fell slightly, from 12.5% to 12.3%, but are still strong. Tim's has taken a page from the McDonald's (NYS: MCD) franchising playbook, in that the company operates only 0.6% of its locations. While franchise fees fell in Q1, royalty charges from increased sales made up the difference. Earnings per share also increased, rising 17.4% to $0.56.

What went not quite so right
The stock fell slightly after the announcement, as Wall Street had predicted higher earnings growth. Investors are also worried about expansion potential in Canada. While the company says it's going to focus on western Canada and metro areas, it's still too early to say whether that expansion will succeed.

Tim's also still has the thriving McDonald's McCafe and industry titan Starbucks (NAS: SBUX) in its path. The McCafe has continued to support McDonald's attempt to reinvent itself as a classy joint. Same-store sales increased 3.3% in April for the fast-food giant. Plans to release new beverages in 2012 should support that continued growth.

Starbucks increased same-store sales by 9% through ticket and transaction growth. In the company's Q1 earnings call, it specifically pointed out renewed strength in the Canadian market, Tim's home turf. Both Tim Hortons and Starbucks cited an economic recovery in eastern Canada as sales drivers in Q1.

The bottom line
Tim Hortons is doing great. The company continues to expand at an even pace, and stores are getting more profitable. The only things standing in its way are its own Canadian market saturation and competition from big brands. So far, those brands haven't been able to deter the Canadian's strong growth, either here in the U.S. or over the border. I think Tim's has a long way to grow.

Tim Hortons isn't the only company looking to expand beyond its national borders. Check out the Fool's free report, "3 American Companies Set to Dominate the World," to see which U.S.-based companies are making a go of it.

At the time thisarticle was published Fool contributorAndrew Marderdoesn't own any of the stocks mentioned in this article, but he does enjoy Tim Hortons' blueberry muffins. Nom. The Motley Fool owns shares of Starbucks.Motley Fool newsletter serviceshave recommended buying shares of Starbucks, Tim Hortons, and McDonald's and writing covered calls on Starbucks. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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