Tim Hortons: announces results for Q3/2011

Oakville / CA. (thi) Tim Hortons Inc. (THI) announces 2011 third quarter results. Sales momentum contributed to strong performance, the company said in its news release. Financial and sales highlights:

	Q3/2011	Q3/2010	% Change	YTD 2011
Total revenues	726,9 Mio. CAD	670,5 Mio. CAD	08,4%	2’073,2 Mio. CAD
Operating income	152,8 Mio. CAD	133,0 Mio. CAD	14,9%	416,6 Mio. CAD
Adjusted operating income	151,1 Mio. CAD	137,4 Mio. CAD	10,0%
Effective tax rate	29,0%	35,7%		29,2%
Net income attributable to THI	103,6 Mio. CAD	73,8 Mio. CAD	40,4%	279,9 Mio. CAD
Diluted earnings per share (EPS)	0,65 CAD	0,42 CAD	52,4%	1,71 CAD
Fully diluted shares	160,1	173,7	(07,9)%	164,0

Adjusted operating income excludes 100 percent of the operating income and the related adjustments specific to Maidstone Bakeries and excludes 2010 and 2011 net asset impairment charges and restaurant closure cost recovery. Adjusted operating income is a non-GAAP measure.

Same-Store Sales	Q3/2011	Q3/2010	YTD 2011
Canada	4,7%	4,3%	3,5%
U.S.	6,3%	3,3%	5,9%

Includes average sales at Franchised and Company-operated restaurants open for 13 months or more. Substantially all of the restaurants are franchised.

Highlights

• Canadian and U.S. segments both delivered strong same-store sales performance, increasing 4l,7 percent in Canada and 6,3 percent in the United States.
• Healthy systemwide sales contributed to strong earnings growth. Prior-year comparison affected by the 2010 asset impairment charge, partially offset by the Maidstone Bakeries sale.
• 64 restaurant locations opened in Canada and the U.S.
• Kingston, Ontario replacement distribution centre opened and ramping up operations.
• Tim Hortons Inc. announced (its results for the third quarter ended October 02nd, 2011.

«Operating conditions in North America continued to be challenging and the strength of our sales performance is a great testament to our strong price-value brand position with our guests. We continued to innovate in the third quarter and execute our strategic growth plans to build our business», said Paul House, executive chairman, president and CEO.

Consolidated Results

All percentage increases and decreases represent year-over-year changes for the third quarter of 2011 compared to the third quarter of 2010, unless otherwise noted.

Third quarter systemwide sales increased 8,2 percent on a constant currency basis. Total revenues grew 8,4 percent to 726,9 million CAD compared to 670,5 million CAD in the prior year. The strength of our systemwide sales helped drive rents and royalties revenues, which increased 6,8 percent, and distribution sales, which grew 11,9 percent. Higher distribution sales outpaced system growth due to higher pricing of underlying commodities, particularly coffee, moving through our supply chain. Franchise fees increased modestly during the quarter, rising 3,6 percent.

Total costs and expenses grew 6,8 percent during the quarter, below the rate of systemwide sales growth. Cost of sales was up 13,5 percent in the third quarter, due in part to higher systemwide sales, and also due to higher underlying commodity costs, which increased product costs and also increased distribution sales as noted previously. Cost of sales also reflects the impact from the previous sale of Maidstone Bakeries in 2010. Cost of sales subsequent to the bakery sale is recorded at essentially the selling price from the bakery versus the manufacturing costs. In addition, we also incurred start-up costs associated with the replacement distribution centre in Kingston, Ontario. Growth in operating expenses was moderate during the third quarter, and general and administrative expenses declined year-over-year. The decline was primarily due to lower professional fees compared to last year offset in part by additional investments to support advertising and promotional activities in the U.S. market and our Cold Stone Creamery© brand-building activities in Canada.

Consolidated operating income increased by 14,9 percent in the third quarter, to 152,8 million CAD, compared to 133,0 million CAD in the prior year. On a comparable basis, our 2010 third quarter results included a 20,9 million CAD asset impairment charge compared to an asset impairment charge, net of a recovery of previously accrued closure costs, of 0,4 million CAD in the third quarter this year. In addition, our 2010 results included 16,5 million CAD of contributions from Maidstone Bakeries, which are not in our 2011 results. However, we benefited from a 2,1 million CAD deferred gain in the third quarter this year related to the 2010 Maidstone Bakeries sale. Adjusted operating income, absent the impacts of the net asset impairment charges and Maidstone Bakeries sale, was up 10,0 percent, driven by systemwide sales growth and more moderate growth in expenses.

Net income attributable to THI rose 40,4 percent to 103,6 million CAD compared to 73,8 million CAD last year. In addition to the earnings factors noted above, our net income attributable to THI was impacted by a lower effective tax rate in the third quarter of 29,0 percent compared to 35,7 percent in the same period last year. A significant portion of the year-over-year difference in effective tax rates was related to the asset impairment charge taken in 2010 for which a deduction was not available.

Third quarter EPS was 0,65 CAD, increasing significantly from 0,42 CAD last year. The increase includes a 0,12 CAD per share impact in 2010 arising from the asset impairment charge. Absent this factor, and a restaurant closure cost recovery this year, our EPS growth would have been 18,2 percent for the quarter. The cumulative impact of our share repurchase programs has been a substantial contributor to our EPS growth. The company had approximately 64 million CAD available in its current share repurchase program as at the end of the third quarter. The current program is expected to be completed by March 02nd, 2012. The company had 7,9 percent fewer fully diluted shares outstanding in the third quarter of 2011 compared to the same period last year.

«During the quarter we continued to reinforce our market-leading position with innovation in our product offerings such as Real Fruit Smoothies and Specialty Bagels, and through disciplined execution of our strategic growth initiatives. Following the quarter, we also announced our plans to extend our coffee leadership by introducing espresso-based lattes, mocha lattes and cappuccinos under the Tim´s Café Favourites umbrella at nearly 3’000 locations in Canada and the U.S. Our system also plans to introduce digital menu boards across the chain in Canada, which we believe will enhance the overall guest experience, and we are also extending our breakfast hours nationally to 12:00 noon», said Paul House.

Segmented Performance Commentary

Canada: Canadian segment same-store sales increased by 4,7 percent in the third quarter, outpacing growth in the first half of the year. Our Canadian growth was driven by gains in average cheque due to a combination of favourable product mix related to new product introductions and promotions and pricing previously in the system. Our same-store sales growth was achieved against a backdrop of continued economic weakness and generally challenging macro-operating conditions that we believe were factors that contributed to moderately lower same-store transactions during the quarter. Total system transactions increased during the quarter due to new restaurants in the system.

We continued to execute our restaurant development strategy in the third quarter and opened 41 restaurants. Consistent with historical patterns, our restaurant development in Canada is weighted to the fourth quarter of 2011.

Operating income in the Canadian segment rose 4,5 percent to 160,4 million CAD compared to 153,5 million CAD in the same period last year. Operating income benefited from an 8,3 percent increase in Canadian systemwide sales. Higher systemwide sales drove increased rents and royalties and resulted in higher distribution income. Our Canadian segment operating income performance includes a 6,2 million CAD net reduction compared to last year arising from the loss of contribution from Maidstone Bakeries due to the disposition of our 50 percent joint-venture interest. We also incurred start-up and transition costs associated with our replacement distribution facility in Kingston, Ontario, which began to ramp up operations in the third quarter.

United States: The U.S. segment experienced robust same-store sales growth of 6,3 percent. Our same-store sales performance benefited from increased average cheque due to pricing in the system and favourable product mix, and also due to moderately higher transactions. Our growth was supported by enhanced menu, marketing and promotional efforts designed to create higher brand awareness and increase guest traffic.

Our restaurant development activity in the U.S. market, primarily focused on our core growth markets, resulted in 23 new openings, including twelve full-serve restaurants and eleven self-serve locations.

We had operating income of 2,9 million CAD in the U.S. segment in the third quarter compared to a 17,5 million CAD loss in the same period last year.

The third quarter of 2010 included asset impairment charges of 20,9 million CAD related to the Company´s Portland, Providence and Hartford markets. The third quarter of 2011 included a net 0,5 million CAD benefit related to a 1,5 million CAD reversal of previously accrued closure costs related to the Company´s New England markets, partially offset by an asset impairment charge of 1,0 million CAD, which reflects current real estate values in the Company´s Portland market. In addition, 0,9 million CAD relating to equipment value in the Portland market was recorded as a charge in variable interest entities due to the impairment.

U.S. segment operating income of 2,9 million CAD in the quarter was driven by strong systemwide sales growth in the U.S., which resulted in higher rents and royalties and higher distribution income from underlying product demand. Absent the net impact from impairment, as noted above, the U.S. segment was down slightly compared to last year due primarily to an allowance on notes receivable under our U.S. franchise incentive program resulting from a decline in the value of associated collateral.

Tim Hortons declares quarterly dividend of 0,17 CAD per common share

Tim Hortons Inc. (THI) announced the Board of Directors has approved a dividend of 0,17 CAD per common share payable to shareholders of record as of November 30th, 2011. The dividend is payable on December 14th, 2011. Dividends are declared and paid in Canadian Dollars to all shareholders with Canadian resident addresses. For U.S. shareholders, dividends paid will be converted to U.S. Dollars based on prevailing exchange rates at the time of conversion by Tim Hortons for registered shareholders and by Clearing and Depository Services Inc. for beneficial shareholders.