Tim Hortons reorganization impacts net for Q3

Tim Hortons reorganization impacts net for Q3
Tags: Coffee/Bakery/Donut, Financing and capital improvements, Franchising & Growth, Operations Management
October 29, 2009

While most quick-service chains have seen sales fall 2 percent to 4 percent, Tim Hortons Inc. has reported strong sales performance for the third quarter ended Sept. 27.

Same-store sales were up 3.1 percent in Canada and 4.3 percent in the United States. For the year, comps are up 2.7 percent in Canada and 3.6 percent in the United States. The company attributed the increase to transaction growth and a slight improvement in the average check.

Total revenues were up 10.7 percent to $563.6 million (Canadian dollars) vs. $509.0 million in the same period last year. For the year, revenues were up 9.9 percent, to $1.6 trillion, compared to $1.5 trillion last year.

Revenues benefited from higher sales, consisting primarily of distribution sales, and from higher rents and royalties. Distribution sales growth was the largest component of the sales increase, driven by new products managed through the supply chain, systemwide sales growth and higher commodity costs. Sales growth was partially offset by fewer company-operated restaurants compared to last year and by lower sales from non-owned consolidated restaurants.

Net income attributable to Tim Hortons was down 22.3 percent to $61.2 million, compared to $78.8 million last year. This includes a $23.1 million impact in connection with its reorganization as a Canadian public company. The reorganization drove substantially all of the increase in effective tax rate for the third quarter, which rose to 50.5 percent compared to 32.5 percent last year. Lower net interest expense slightly offset the impact of the reorganization on net income attributable to Tim Hortons, and was $4.8 million in the third quarter compared to $5.3 million in the prior year.

For the year, net income was down 4.7 percent to $205.4 million, compared to $215.6 million last year.

"The underlying performance of our business was healthy in the third quarter and our results continue to demonstrate the strength and resilience of our brand," said Don Schroeder, Tim Hortons president and CEO. "Operating conditions continued to be challenging in the third quarter, but we remained focused on executing our growth initiatives and responding to the needs of our customers."

Cold Stone co-branding

By the end of the quarter, 12 co-branded Cold Stone Creamery locations had been opened in Canada. Based on positive results and customer response to date in these initial locations, Tim Hortons has reached an agreement with Kahala Corp., parent company of Cold Stone Creamery, for exclusive development rights in Canada. The timing and extent of future expansion will be evaluated on an annual basis commencing in early 2010 in conjunction with the company's overall development strategies.

In the United States, continued positive results at Cold Stone Creamery co-branded locations made significant contributions to same-store sales growth in the quarter, as the ice cream category entered into its final key selling months for the year. The U.S. segment also continued to benefit from promotional and menu activities. By the end of the third quarter, 65 co-branded Tim Hortons - Cold Stone Creamery locations had been opened, including two Cold Stone locations that were co-branded to include Tim Hortons' offering. A total of 20 restaurants were opened in the United States during the quarter.

As of Sept. 27, Tim Hortons had 3,527 systemwide restaurants, including 2,971 in Canada and 556 in the United States.

Conference call

Tim Hortons' conference call to discuss the third quarter results will be archived on the company's investment Web site for one year and will also be available under the Events and Presentations section. A replay of the call will be available for a period of one week and can be accessed at (416) 626-4100 or (800) 558-5253. The call replay reservation number is 21440280.