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Tim Hortons to miss U.S. sales targets, close stores


TORONTO (Reuters) - Coffee and doughnut retailer Tim Hortons Inc said on Friday economic gloom in the United States will force it to close several restaurants in New England and has put its U.S. sales targets out of reach.

The company posted a higher third-quarter profit as robust sales in its home market of Canada offset the lackluster performance in the United States, where it has been trying to oust rival Dunkin Donuts in some areas.

"We expect rationalization of underperforming restaurants will ultimately contribute to improved profitability, and improve sales performance at our remaining restaurants nearby," said Don Schroeder, president and CEO, in a release.

The company said it would likely shut fewer than 15 of its corporate stores in southern New England.

The outlook from Canada's biggest restaurant chain comes in the midst of a raft of disappointing results from other retailers operating in the United States, where a soured housing market and credit crunch have slammed consumer confidence.

Same-store sales in Canada in the quarter rose by 3.8 percent, but dropped 0.6 percent in the United States. Tim Hortons said it would likely miss its 2008 U.S. same-store sales target of 2 to 4 percent growth.

"Our earnings performance and positive same-store sales growth in Canada demonstrates our brand strength in the face of unprecedented economic and consumer challenges," Schroeder said in the release.

"While our brand in the United States is less developed and we faced sales and earnings challenges due in large part to the current economic conditions, we delivered strong consolidated performance in the third quarter," he said.

Third-quarter earnings per share rose to 43 Canadian cents from 36 Canadian cents a year earlier, beating analysts' average estimate of 41 Canadian cents.

The company said net income was C$78.8 million ($66.8 million), up from C$67.4 million in the year-before quarter.

Revenue came in at C$509 million, up from C$490.5 million in the same quarter last year, but below analysts' average estimate of C$537 million.

Schroeder said in a conference call after the results were released that he was hopeful U.S. sales would rebound as gasoline prices retreat, leaving consumers more discretionary money to spend.

The company announced a 9 Canadian cent per share dividend for the quarter as part of its policy to pay out 20 to 25 percent of the previous year's net earnings.

The company's shares were up 70 Canadian cents at C$30.10 on the Toronto Stock Exchange at midday on Friday.

($1=$1.18 Canadian)

(Reporting by Richard Valdmanis; Editing by Peter Galloway)

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