Negative consumer perceptions of Tim Hortons has prompted BMO Capital Markets to downgrade the stock of parent company Restaurant Brands International (RBI) a day ahead of its first-quarter earnings report, after a survey showed people are considering frequenting the coffee chain less.
BMO downgraded Restaurant Brands’ stock rating to “market perform” from “outperform” in a note Monday, citing that Tim Hortons’ same-store sales could be negatively impacted by a decline in the brand’s reputation by consumers.
“Due to the ongoing negative press on Tim Hortons, and Restaurant Brands International, we believe it is warranted to consider whether the company’s traffic and same-store sales results will be impacted in the upcoming quarters,” BMO analyst Peter Sklar wrote in the report.
BMO conducted an online survey of more than 700 Canadians and found that 28 per cent of the respondents said their perception of Tim Hortons had become more negative over the past year. Of that group, more than 70 per cent said they would consider going to Tim Hortons less, while 27 per cent said they would prefer going to another coffee shop.
“We are concerned that the Tim Hortons upcoming [first-quarter same-store sales] results could be impacted by the deterioration in brand perception as a result of negative traffic trends,” Sklar said.
“We have revised our 2018 quarterly same-store sales estimates for Tim Hortons Canada downwards, and specifically, we have revised our first quarter 2018 same-store sales estimate to zero per cent from 0.8 per cent.”
BMO also lowered its target price for RBI’s stock by more than 17 per cent, from US$70 to US$58.
Shares in RBI, which also owns Burger King, were down nearly 2 per cent in mid-afternoon trading Monday.
The company’s shares are down almost 12 per cent this year amid a growing dispute between RBI and Tim Hortons franchisees over a range of issues, including cost-cutting measures.
Earlier this month, the federal government said it was looking into complaints that RBI was not meeting the terms set by Ottawa when Tim Hortons was taken over and merged with Burger King in 2014.
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