(All amounts in Canadian dollars)
Revenues up 13.9%
Operating Income Increased by 13.3%
Financial and Operational Highlights
------------------------------------
-------------------------------------------------------------------------
($ million except EPS. Fully diluted shares in millions)
First Quarter Ended 4/1/2007 4/2/2006 % Change
------------------- -------- -------- --------
Revenue $ 424.6 $ 372.8 13.9%
Operating Income $ 94.2 $ 83.1 13.3%
Effective Tax Rate 34.6% 14.8% n/a
Net Income $ 59.3 $ 63.6 -6.8%
EPS $ 0.31 $ 0.39 -20.5%
Fully Diluted Shares 190.6 161.8 17.8%
-------------------------------------------------------------------------
-----------------------------------------------
Same Store Sales 4/1/2007 4/2/2006
---------------- -------- --------
Tim Hortons Canada 6.3% 8.7%
Tim Hortons U.S. 4.0% 9.8%
-----------------------------------------------
As of April 1, 2007, 99% of the Company's stores in Canada - and 84% of
the stores in the U.S. - were franchised.
- Same-store sales grew 6.3% and 4.0% in Canada and the U.S.,
respectively
- 21 new restaurants opened in the first quarter of 2007
- Revenue up 13.9%, operating income up 13.3%
- Company declares fourth consecutive $0.07 quarterly dividend
- $45.0 million spent to repurchase 1.26 million shares in the first
quarter of 2007
OAKVILLE, ON, May 3 /CNW/ - Tim Hortons Inc. (NYSE:THI, TSX: THI) today announced its results for the first quarter ended April 1, 2007.
Total revenues were $424.6 million in the first quarter, up 13.9% compared to $372.8 million in the first quarter of 2006. First quarter same-store sales increased 6.3% in Canada (8.7% in Q1 2006) and increased 4.0% in the U.S. (9.8% in Q1 2006). Tim Hortons(R) opened a total of 21 restaurants in the quarter compared to 27 restaurants in the first quarter last year. Systemwide sales growth(1), which includes both franchised and Company-operated restaurants, was 10.4%.
During the quarter, the company launched its annual Roll Up the Rim to Win contest. As of April 30, 2007, millions of food prizes were awarded to customers in Canada and the U.S. as well as grand prizes including 24 Toyota Camry Hybrids, 83 Panasonic plasma televisions, 386 cash prizes of $1,000 and 5,584 Apple iPod Nano Digital Music Players.
Other featured promotions during the quarter were Yogurt and Berries, the Breakfast Sandwich, Cherry Cake Ring donut, Mini Cinnamon Rolls and a Cinnamon Roll Hot Smoothie in both Canada and the U.S. Flavoured coffee with a bagel was also marketed in the U.S.
"Tim Hortons continued to deliver strong revenue growth and operating income growth in the first quarter," said Chairman and Chief Executive Officer Paul House. "In Canada, our same store sales increased 6.3%, which was above our long-term expectations. In the U.S. market, which represents approximately 10% of our stores, same store sales growth of 4% in the first quarter was below our long term target. We believe this is a result of a milder winter last year compared to this year and heavier competition, as well as the number of new stores opened late in 2006. We remain optimistic we can achieve our previously-announced targets for 2007."
Operating income in the first quarter was $94.2 million compared to $83.1 million for the same period in 2006. The $11.1 million year-over-year improvement in operating income was primarily due to:
- Higher year-over-year revenue due to system wide sales growth; - An increase in franchise sales due to a higher number of resales in the first quarter of 2007 compared to the first quarter of 2006. - Continued expansion of three-channel delivery in Ontario through our Guelph distribution centre; - Higher equity income primarily from a non-cash tax benefit at one of our joint ventures, as well as a moderate gain in operating income at our two key joint ventures. The Company does not expect its investment to realize tax benefits of a similar nature in subsequent periods; and Our operating gains were offset in part by: - U.S. operating segment loss of $4.1 million compared to a profit of $0.4 million in the first quarter of 2006 due to the following factors: increased relief given to franchisees, in part due to the number of new store openings late in 2006; higher general and administrative expenses; lower profit in the Company's coffee roasting operations; higher corporate store losses; and lower franchise fee revenues; and - Lower other income in the first quarter of 2007 of $1.5 million, primarily driven by foreign exchange gains recognized in the first quarter of 2006 that did not recur.
Net interest expense in the first quarter of 2007 was $3.6 million compared to $8.5 million in the same period last year. The lower net interest expense in 2007 was mainly the result of the repayment of a $1.1 billion note owing to Wendy's in early 2006. Proceeds from the Company's IPO in March, 2006, together with proceeds from its debt issuance in February, 2006, were used to repay the Wendy's note.
First quarter net income was $59.3 million compared to $63.6 million last year. Reported diluted earnings per share (EPS) were $0.31 compared to $0.39 in the first quarter of 2006. Factors primarily contributing to reductions in net income and EPS for the quarter were:
- The effective tax rate in the first quarter of 2007 was 34.6% compared to 14.8% in 2006. The low 2006 rate reflected certain benefits that did not recur in 2007. The effective tax rate in the first quarter of 2007 reflects the implementation of FASB No. 48, Accounting for Uncertainty in Income Taxes, which was the primary reason the effective tax rate was approximately 0.6% over management's previously announced expectations of 34%; and - diluted weighted average shares outstanding in the first quarter in 2007 of 190.6 million compared to 161.8 million in the same period last year. The 17.8% higher share count was as a result of the Company's IPO in March, 2006.
During the first quarter, the Guelph distribution facility continued to expand its operations with over 700 stores on three-channel delivery as at April 1, 2007. Three-channel delivery includes dry, refrigerated and frozen product all on the same truck. The increase in revenues associated with the additional stores drove a positive operating income contribution versus the first quarter of 2006. As previously announced, the Company expects to complete full implementation of the facility by late 2007. Once fully operational, this distribution centre will service approximately 85% of our Ontario stores for three-channel delivery.
Share repurchase program in the first quarter
---------------------------------------------
In the first quarter, the Company purchased 1.26 million shares at an average cost of $35.86 for total cost of $45.0 million. The company has now completed $110 million of the previously announced $200 million share repurchase program.
Board declares quarterly dividend
---------------------------------
The Board of Directors has approved a $0.07 quarterly dividend. The dividend is payable on May 30, to shareholders of record as of May 14. The payment of future dividends remains subject to the discretion of the Company's Board of Directors.
Tim Hortons dividend is paid in Canadian dollars to all shareholders with Canadian resident addresses whose shares are registered with Computershare (the Company's transfer agent). For all other shareholders, including all shareholders who hold their shares indirectly (i.e. through their broker) and regardless of country of residence, the dividend will be converted to U.S. dollars on May 22 at the daily noon rate established by the Bank of Canada and paid in U.S. dollars on May 30.
Shan Atkins added to the Board of Directors
-------------------------------------------
On March 6, 2007, the Board appointed Ms. M. Shan Atkins to the Board. Ms. Atkins has been a managing director of Chetrum Capital LLC, a private investment firm, since 2001. Prior to her current position, Ms. Atkins held various positions with Sears Roebuck & Co., and Bain & Company, Inc. Ms. Atkins serves as a director of The Pep Boys - Manny, Moe & Jack, Spartan Stores Inc., and Shoppers Drug Mart Corporation.
Tim Hortons to host conference call at 4:30 p.m. today, May 3
-------------------------------------------------------------
Tim Hortons will host a conference call beginning at 4:30 p.m. (Eastern) today. Investors and the public may listen to the conference call in either one of the following ways:
- Phone: The dial-in number is (416) 641-6675. No access code is
required. A replay of the call will be available until midnight,
May 10 and can be accessed at (416) 626-4100. The reservation number
for the replay call is 21315855.
- Simultaneous Web Cast: Available at www.timhortons.com. The call will
also be archived at that site.
Tim Hortons Annual Shareholders' Meeting
----------------------------------------
Tim Hortons will hold its Annual Shareholders' Meeting on Friday, May 4, 2007, at 10:00 a.m., (Eastern) at Theatre Aquarius, 190 King William Street, Hamilton, Ontario, Canada. A live web cast of the event will also be available at www.timhortons.com.
(1) Systemwide Sales Growth
---------------------------
Total systemwide sales growth includes restaurant level sales at both Company and franchise restaurants. Approximately 97% of our system is franchised as at April 1, 2007. Systemwide sales growth is determined using a constant exchange rate to exclude the effects of foreign currency translation. U.S. dollar sales are converted to Canadian dollar amounts using the average exchange rate of the base year for the period covered. For the first quarter of 2007, systemwide sales growth was 10.4% over the first quarter of 2006. Systemwide sales impact our franchise royalties and rental income, as well as our distribution sales. Changes in systemwide sales are driven by changes in average same store sales and changes in the number of restaurants.
Safe Harbor Statement
---------------------
Certain information in this news release, particularly information regarding future economic performance and finances, and plans, expectations and objectives of management, is forward-looking. Factors set forth in the Company's Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995, including by reference the "risk factors" outlined in the Company's most recent Form 10-K filed March 9, 2007, in addition to other possible factors not listed or described in the Safe Harbor Statement, could affect the Company's actual results and cause such results to differ materially from those expressed in forward-looking statements. As such, readers are cautioned not to place undue reliance on forward-looking statements contained in this news release, which speak only as of the date hereof. Except as required by federal or provincial securities laws, the Company undertakes no obligation to publicly release any revisions to the forward looking statements contained in this release, or to update them to reflect events or circumstances occurring after the date of this release, or to reflect the occurrence of unanticipated events, even if new information, future events or other circumstances have made the forward-looking statements incorrect or misleading. Please review the Company's Safe Harbor Statement at http://www.timhortons.com/safeharbor.html.
Tim Hortons Inc. Overview
-------------------------
Tim Hortons is Canada's largest quick service restaurant chain. Founded in 1964 as a coffee and donut shop, Tim Hortons has evolved to meet consumer tastes, with a menu that now includes premium coffee, flavored cappuccinos, specialty teas, home-style soups, fresh sandwiches and fresh baked goods. As of April 1, 2007, Tim Hortons system-wide restaurants numbered 2,724 in Canada and 340 in the United States. More information about the Company is available at www.timhortons.com.
TIM HORTONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of Canadian dollars, except per share data)
(Unaudited)
First Quarter Ended
April 1, April 2,
2007 2006 $ Change % Change
----------- ----------- ----------- -----------
REVENUES
Sales $ 278,350 $ 242,651 $ 35,699 14.7%
Franchise revenues
Rents and royalties 127,240 115,524 11,716 10.1%
Franchise fees 19,018 14,583 4,435 30.4%
----------- ----------- ----------- -----------
146,258 130,107 16,151 12.4%
----------- ----------- ----------- -----------
TOTAL REVENUES 424,608 372,758 51,850 13.9%
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of sales 247,404 213,912 33,492 15.7%
Operating expenses 47,176 42,995 4,181 9.7%
Franchise fee costs 16,403 13,917 2,486 17.9%
General &
administrative expenses 28,750 28,286 464 1.6%
Equity (income) (9,777) (8,453) (1,324) 15.7%
Other (income) expense,
net 447 (1,010) 1,457 N/M
----------- ----------- ----------- -----------
TOTAL COSTS & EXPENSES,
NET 330,403 289,647 40,756 14.1%
----------- ----------- ----------- -----------
OPERATING INCOME 94,205 83,111 11,094 13.3%
Interest (expense) (5,621) (4,116) (1,505) 36.6%
Interest income 1,996 2,429 (433) (17.8%)
Affiliated interest
(expense), net - (6,789) 6,789 N/M
----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAXES 90,580 74,635 15,945 21.4%
INCOME TAXES 31,319 11,045 20,274 183.6%
----------- ----------- ----------- -----------
NET INCOME $ 59,261 $ 63,590 ($4,329) (6.8%)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic earnings per
share of common
stock $ 0.31 $ 0.39 ($0.08) (20.5%)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted earnings per
share of common
stock $ 0.31 $ 0.39 ($0.08) (20.5%)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic shares of
common stock (in
thousands) 190,383 161,785 28,598 17.7%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted shares of
common stock (in
thousands) 190,563 161,785 28,778 17.8%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Dividend per share
of common stock
(post initial
public offering) $ 0.07 $ 0.00 $ 0.07
----------- ----------- -----------
----------- ----------- -----------
N/M - not meaningful
TIM HORTONS INC. AND SUBSIDARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of Canadian dollars)
April 1, Dec 31,
2007 2006
----------- -----------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $82,921 $176,083
Accounts receivable, net 114,151 110,403
Notes receivable, net 13,057 14,248
Deferred income taxes 10,524 6,759
Inventories and other, net 62,024 53,888
Advertising fund restricted assets 21,760 25,513
----------- -----------
304,437 386,894
Property and equipment, net 1,167,984 1,164,536
Notes receivable, net 15,444 16,504
Deferred income taxes 22,543 23,579
Intangible assets, net 3,549 3,683
Equity investments 140,149 139,671
Other assets 10,243 10,120
----------- -----------
$1,664,349 $1,744,987
----------- -----------
----------- -----------
TIM HORTONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of Canadian dollars)
April 1, December 31,
2007 2006
----------- -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $89,115 $115,570
Accrued expenses:
Salaries and wages 6,980 18,927
Taxes 16,413 27,103
Other 42,965 66,262
Deferred income taxes 119 -
Advertising fund restricted liabilities 38,362 41,809
Current portion of long-term obligations 5,500 5,518
----------- -----------
199,454 275,189
----------- -----------
Long-term obligations
Term debt 325,523 325,590
Advertising fund restricted debt 21,139 23,337
Capital leases 44,743 44,774
----------- -----------
391,405 393,701
----------- -----------
Deferred income taxes 13,785 17,879
Other long-term liabilities 51,300 39,814
Stockholders' equity
Common stock, (US$0.001 par value per share),
Authorized: 1,000,000,000 shares,
Issued: 193,302,977 shares 289 289
Capital in excess of par value 919,040 918,043
Treasury stock, at cost: 3,185,544 and
1,930,244 shares, respectively (109,974) (64,971)
Common stock held in trust, at cost:
283,722 and 266,295 shares, respectively (9,811) (9,171)
Retained earnings 288,195 248,980
Accumulated other comprehensive income
(expense):
Cumulative translation adjustments and other (79,334) (74,766)
----------- -----------
1,008,405 1,018,404
----------- -----------
$1,664,349 $1,744,987
----------- -----------
----------- -----------
TIM HORTONS INC. AND SUBSIDIARIES
SEGMENT REPORTING
(In thousands of Canadian dollars)
(Unaudited)
First Quarter Ended
April 1, April 2,
2007 % of Total 2006 % of Total
----------- ----------- ----------- -----------
REVENUES
Canada $388,212 91.4% $339,340 91.0%
U.S. 36,396 8.6% 33,418 9.0%
----------- ----------- ----------- -----------
Total Revenues $424,608 100.0% $372,758 100.0%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SEGMENT OPERATING
INCOME (LOSS)
Canada $106,684 104.0% $91,910 99.6%
U.S. (4,118) (4.0%) 393 0.4%
----------- ----------- ----------- -----------
Reportable Segment
Operating Income 102,566 100.0% 92,303 100.0%
----------- -----------
----------- -----------
Corporate Charges (8,361) (9,192)
----------- -----------
Consolidated Operating
Income 94,205 83,111
Interest, net (3,625) (8,476)
Income taxes (31,319) (11,045)
----------- -----------
Net Income $59,261 $63,590
----------- -----------
----------- -----------
TIM HORTONS INC. AND SUBSIDIARIES
SYSTEMWIDE RESTAURANTS
Increase/ Increase/
(Decrease) (Decrease)
As of As of From As of From
April 1, December 31, Prior April 2, Prior
2007 2006 Quarter 2006 Year
----------------------------------------------------------
Tim Hortons
-----------
U.S.
Company 55 61 (6) 63 (8)
Franchise 285 275 10 229 56
----------------------------------------------------------
340 336 4 292 48
% Franchised 83.8% 81.8% 78.4%
Canada
Company 35 34 1 35 0
Franchise 2,689 2,677 12 2,576 113
----------------------------------------------------------
2,724 2,711 13 2,611 113
% Franchised 98.7% 98.7% 98.7%
Total Tim Hortons
Company 90 95 (5) 98 (8)
Franchise 2,974 2,952 22 2,805 169
----------------------------------------------------------
3,064 3,047 17 2,903 161
----------------------------------------------------------
----------------------------------------------------------
% Franchised 97.1% 96.9% 96.6%
TIM HORTONS INC. AND SUBSIDIARIES
Income Statement Definitions
Sales Primarily includes sales of products, supplies and
restaurant equipment (except for initial equipment
packages sold to franchisees as part of the establishment
of their restaurant's business - see "Franchise Fees")
that are shipped directly from our warehouses or by third
party distributors to the restaurants, which we refer to
as warehouse or distribution sales. Sales include canned
coffee sales through the grocery channel. Sales also
include sales from company-operated restaurants and sales
from franchise restaurants that are consolidated in
accordance with FIN 46R.
Rents and
Royalties Includes franchisee royalties and rental revenues.
Franchise Fees Includes fees for various costs and expenses related to
establishing a franchisee's business and include the
sales revenue from initial equipment packages.
Cost of Sales Includes costs associated with our distribution
warehouses, including cost of goods, direct labour and
depreciation as well as the cost of goods delivered by
third party distributors to the restaurants and for
canned coffee sold through grocery stores. It also
includes food, paper and labour costs for company-
operated restaurants and franchise restaurants that are
consolidated in accordance with FIN 46R.
Operating
Expenses Includes rent expense related to properties leased to
franchisees and other property-related costs (including
depreciation).
Franchise fee
costs Includes costs of equipment sold to franchisees as part
of the initiation of their restaurant business, as well
as training and other costs necessary to ensure a
successful restaurant opening.
General and
Administrative Includes costs that cannot be directly related to
generating revenue, including expenses associated with
our corporate and administrative functions, allocation of
expenses related to corporate functions and services
historically provided to us by Wendy's and depreciation
of office equipment, information technology systems and
head office real estate.
Equity Income Includes income from equity investments in joint ventures
and other minority investments over which we exercise
significant influence. Equity income from these
investments is considered to be an integrated part of our
business operations and is therefore included in
operating income. Income amounts are shown as reductions
to total costs and expenses.
Other Income
and Expense Includes expenses (income) that are not directly derived
from the Company's primary businesses. Items include
restaurant closures, currency adjustments, real estate
sales and other asset write-offs.
