(All amounts in Canadian dollars)
Revenues up 14.4%
Same-store Sales Momentum Continues
Financial and Operational Highlights
------------------------------------
-------------------------------------------------------------------------
July 1, July 2, %
Second Quarter Ended 2007 2006 Change
-------------------------------------------------------------------------
Revenues $ 465.3 $ 406.8 14.4%
Operating Income $ 106.3 $ 98.5 8.0%
Effective Tax Rate 33.8% 19.8% n/a
Net Income $ 67.2 $ 76.3 (11.9)%
EPS $ 0.36 $ 0.39 (7.7)%
Fully Diluted Shares 189.3 193.3 (2.1)%
-------------------------------------------------------------------------
$ million except EPS. Fully diluted shares in millions.
Second-Quarter Same-Store Sales Summary
-------------------------------------------------------------------------
Q2 2007 Q2 2006 2007 YTD 2006 YTD
-------------------------------------------------------------------------
Canada 6.5% 6.1% 6.4% 7.3%
U.S. 3.8% 8.4% 3.9% 9.1%
-------------------------------------------------------------------------
As of July 1, 2007, 99% of the Company's stores in Canada and 86% of
the stores in the U.S. were franchised.
Second Quarter Highlights
- Same-store sales grew 6.5% and 3.8% in Canada and the U.S.,
respectively
- 18 new restaurants opened in the second quarter of 2007
- Revenues up 14.4%, operating income up 8.0%
- Net income impacted by higher effective tax rate in the second
quarter of 2007
- Company declares fifth consecutive $0.07 quarterly dividend
- $45.0 million spent to repurchase 1.3 million shares in the second
quarter of 2007
OAKVILLE, ON, Aug. 3 /CNW/ - Tim Hortons Inc. (NYSE:THI, TSX: THI) today announced its results for the second quarter ended July 1, 2007.
Second quarter same-store sales increased 6.5% in Canada (6.1% in Q2 2006) and increased 3.8% in the U.S. (8.4% in Q2 2006). Tim Hortons(R) opened a total of 18 restaurants in the quarter compared to 30 restaurants in the second quarter last year. Systemwide sales growth(1) was 10.9% in the second quarter. Systemwide sales growth includes all franchised and Company-operated restaurants sales.
Featured promotions during the second quarter were the Triple Chocolate Donut, Iced Capp Supreme, Chicken Salad and Egg Salad Wrap sandwiches and, in the U.S., the introduction of Iced Coffee in late June. Pricing contributed approximately 1% of the same-store sales growth in both Canada and the U.S.
"Same-store sales performance in Canada through the second quarter of this year has continued to exceed our expectations, driven by our strong promotional calendar, product innovation, store level operations, and some price increases," said Chairman and Chief Executive Officer Paul House. "Although U.S. same-store sales fell below our long-term targeted growth, we are executing on our plan of developing selected markets and growing our brand in the U.S. We feel positive about our second quarter U.S. segment operating results, which improved significantly over the first quarter of 2007, to a slightly positive contribution."
Total revenues were $465.3 million in the second quarter, up 14.4% compared to $406.8 million in the second quarter of 2006. Revenues from our distribution business grew 19.6%, primarily as a result of systemwide sales growth and our continued roll out of three-channel delivery from our Guelph facility in Ontario. Rent and royalty revenues increased 10.5%, consistent with systemwide sales growth.
Cost of sales grew 17.7% in the second quarter of 2007 compared to the second quarter of 2006, which was reflective of the growth in systemwide sales and higher costs associated with frozen and refrigerated distribution. In the second quarter of 2007, operating expenses increased 14.5%, at a rate higher than our systemwide sales growth, in part due to a higher number of properties being leased and subleased and costs associated with research and development in the area of new store design incurred.
Operating income in the second quarter was $106.3 million compared to $98.5 million for the same period in 2006. The $7.8 million year-over-year improvement in operating income was primarily due to the higher revenues. Operating gains in the second quarter of 2007 were offset, in part, by the factors discussed above and higher general and administrative expenses. General and administrative costs increased due primarily to costs associated with restricted stock units (RSUs) and higher public company costs. The Company made its RSU grant to officers and certain employees in May 2007 versus the third quarter of 2006.
Operating income growth of 8.0% was lower than revenue growth, in part, as a result of the change in business mix, with distribution contributing a higher proportion of the revenue and cost growth. Distribution operating margins are generally lower than margins from other areas of our business, but remain a critical element of our overall strategy and are contributing positively to our operating income.
Net interest expense in the second quarter of 2007 was $4.8 million compared to $3.3 million in the same period last year primarily due to lower cash balances on-hand throughout this quarter.
The effective tax rate in the second quarter of 2007 was 33.8% compared to 19.8% in 2006. The low 2006 rate reflected certain benefits that did not recur in 2007.
Second quarter net income was $67.2 million compared to $76.3 million last year. Reported diluted earnings per share (EPS) were $0.36 compared to $0.39 in the second quarter of 2006. The primary factor contributing to reductions in net income and EPS for the quarter was the higher effective tax rate in 2007.
Diluted weighted average shares outstanding in the second quarter of 2007 were 189.3 million compared to 193.3 million in the same period last year. The 2.1% lower share count was due to the Company's share repurchase program.
"In addition to the continued same-store sales momentum, we are pleased with the top-line revenue growth and operating results achieved through the end of the second quarter," said Cynthia Devine, Executive Vice President and Chief Financial Officer. "Our operating income is ahead of our expectations for the first six months of 2007, and if that trend continues, we would expect to meet or exceed our 2007 operating income growth target of 10%."
MasterCard(R) Implementation
----------------------------
As previously announced, Tim Hortons continues to aggressively install MasterCard payment terminals in Tim Hortons locations across Canada. Adding the option of MasterCard payment gives our customers more choice and flexibility and is a great way to enhance our customer experience. As of July 20th, approximately 1,000 restaurant locations have been installed and are accepting MasterCard. We anticipate that all participating stores will be up and running with MasterCard by late 2007.
Camp Day
--------
On June 6, all of our systemwide restaurants participated in "Camp Day." Over 3,000 Tim Hortons stores in North America donated their entire coffee sales and funds raised through Camp Day events and activities to the Tim Horton Children's Foundation, raising $8.3 million. This amount is a new record, exceeding last year's total of $7.2 million. These contributions will give over 12,000 deserving kids the opportunity to experience a camping adventure of a lifetime this year at one of the six Tim Horton Children's Foundation camps.
Share repurchase program in the second quarter
----------------------------------------------
In the second quarter, the Company purchased 1.3 million shares at an average cost of $34.45 for a total cost of $45.0 million. The Company has now completed $155 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 August 27, 2007, to shareholders of record as of August 15, 2007. 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 August 20, 2007 at the daily noon rate established by the Bank of Canada and paid in U.S. dollars on August 27, 2007.
Tim Hortons to host conference call at 8:00 a.m. today, August 3
----------------------------------------------------------------
Tim Hortons will host a conference call beginning at 8:00 a.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) 641-6712. No access code is
required. A replay of the call will be available until midnight,
August 10 and can be accessed at (416) 626-4100. The reservation
number for the replay call is 21342467.
- Simultaneous Web Cast: Available at www.timhortons.com. The call
will also be archived at that site.
(1) Systemwide Sales Growth
---------------------------
Total systemwide sales growth includes restaurant level sales at both
Company and franchise restaurants. Approximately 97.5% of our system is
franchised as at July 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 second quarter of 2007, systemwide sales growth was 10.9% over
the second 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 July 1, 2007, Tim Hortons system-wide restaurants numbered 2,733 in Canada and 345 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)
Second Quarter Ended
July 1, July 2, $ %
2007 2006 Change Change
---------- ---------- ---------- ----------
REVENUES
Sales $307,994 $263,453 $ 44,541 16.9%
Franchise revenues
Rents and royalties 140,114 126,843 13,271 10.5%
Franchise fees 17,149 16,475 674 4.1%
---------- ---------- ---------- ----------
157,263 143,318 13,945 9.7%
---------- ---------- ---------- ----------
TOTAL REVENUES 465,257 406,771 58,486 14.4%
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Cost of sales 269,847 229,278 40,569 17.7%
Operating expenses 50,088 43,748 6,340 14.5%
Franchise fee costs 17,074 17,011 63 0.4%
General & administrative
expenses 30,810 27,493 3,317 12.1%
Equity (income) (9,235) (9,144) (91) 1.0%
Other (income) expense, net 333 (123) 456 N/M
---------- ---------- ---------- ----------
TOTAL COSTS & EXPENSES, NET 358,917 308,263 50,654 16.4%
---------- ---------- ---------- ----------
OPERATING INCOME 106,340 98,508 7,832 8.0%
Interest (expense) (6,143) (6,652) 509 (7.7%)
Interest income 1,324 4,433 (3,109) (70.1%)
Affiliated interest (expense),
net - (1,087) 1,087 N/M
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 101,521 95,202 6,319 6.6%
INCOME TAXES 34,282 18,892 15,390 81.5%
---------- ---------- ---------- ----------
NET INCOME $67,239 $76,310 ($9,071) (11.9%)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic earnings per share of
common stock $0.36 $0.39 ($0.03) (7.7%)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted earnings per share
of common stock $0.36 $0.39 ($0.03) (7.7%)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic shares of common stock
(in thousands) 189,017 193,303 (4,286) (2.2%)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted shares of common stock
(in thousands) 189,253 193,303 (4,050) (2.1%)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Dividend per share of common
stock (post initial
public offering) $0.07 $0.00 $0.07
---------- ---------- ----------
---------- ---------- ----------
N/M - not meaningful
TIM HORTONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of Canadian dollars, except per share data)
(Unaudited)
Year-to-Date Ended
July 1, July 2, $ %
2007 2006 Change Change
---------- ---------- ---------- ----------
REVENUES
Sales $586,344 $506,104 $80,240 15.9%
Franchise revenues
Rents and royalties 267,354 242,367 24,987 10.3%
Franchise fees 36,167 31,058 5,109 16.4%
---------- ---------- ---------- ----------
303,521 273,425 30,096 11.0%
---------- ---------- ---------- ----------
TOTAL REVENUES 889,865 779,529 110,336 14.2%
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Cost of sales 517,251 443,190 74,061 16.7%
Operating expenses 97,264 86,743 10,521 12.1%
Franchise fee costs 33,477 30,928 2,549 8.2%
General & administrative
expenses 59,560 55,779 3,781 6.8%
Equity (income) (19,012) (17,597) (1,415) 8.0%
Other (income) expense, net 780 (1,133) 1,913 N/M
---------- ---------- ---------- ----------
TOTAL COSTS & EXPENSES, NET 689,320 597,910 91,410 15.3%
---------- ---------- ---------- ----------
OPERATING INCOME 200,545 181,619 18,926 10.4%
Interest (expense) (11,764) (10,768) (996) 9.2%
Interest income 3,320 6,862 (3,542) (51.6%)
Affiliated interest (expense),
net - (7,876) 7,876 N/M
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 192,101 169,837 22,264 13.1%
INCOME TAXES 65,601 29,937 35,664 119.1%
---------- ---------- ---------- ----------
NET INCOME $126,500 $139,900 ($13,400) (9.6%)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic earnings per share of
common stock $0.67 $0.79 ($0.12) (15.2%)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted earnings per share
of common stock $0.67 $0.79 ($0.12) (15.2%)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic shares of common
stock (in thousands) 189,732 177,544 12,188 6.9%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted shares of common stock
(in thousands) 189,981 177,544 12,437 7.0%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Dividend per share of common
stock (post initial public
offering) $0.14 $0.00 $0.14
---------- ---------- ----------
---------- ---------- ----------
N/M - not meaningful
TIM HORTONS INC. AND SUBSIDARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of Canadian dollars)
July 1, Dec 31,
2007 2006
------------- ------------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $98,610 $176,083
Accounts receivable, net 117,466 110,403
Notes receivable, net 13,351 14,248
Deferred income taxes 12,717 6,759
Inventories and other, net 69,560 53,888
Advertising fund restricted assets 25,072 25,513
------------- ------------
336,776 386,894
Property and equipment, net 1,148,047 1,164,536
Notes receivable, net 13,152 16,504
Deferred income taxes 21,542 23,579
Intangible assets, net 3,414 3,683
Equity investments 139,050 139,671
Other assets 9,869 10,120
------------- ------------
$1,671,850 $1,744,987
------------- ------------
------------- ------------
TIM HORTONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of Canadian dollars)
July 1, Dec 31,
2007 2006
------------- ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $99,299 $115,570
Accrued expenses:
Salaries and wages 11,951 18,927
Taxes 20,717 27,103
Other 48,669 66,262
Advertising fund restricted liabilities 42,192 41,809
Current portion of long-term obligations 5,826 5,518
------------- ------------
228,654 275,189
------------- ------------
Long-term obligations
Term debt 325,483 325,590
Advertising fund restricted debt 18,876 23,337
Capital leases 46,590 44,774
------------- ------------
390,949 393,701
------------- ------------
Deferred income taxes 17,449 17,879
Other long-term liabilities 53,698 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 919,063 918,043
Treasury stock, at cost: 4,479,621 and
1,930,244 shares, respectively (154,577) (64,971)
Common stock held in trust, at cost: 421,344
and 266,295 shares, respectively (14,659) (9,171)
Retained earnings 342,185 248,980
Accumulated other comprehensive income (loss):
Cumulative translation adjustments and
other (111,201) (74,766)
------------- ------------
981,100 1,018,404
------------- ------------
$1,671,850 $1,744,987
------------- ------------
------------- ------------
TIM HORTONS INC. AND SUBSIDIARIES
SEGMENT REPORTING
(In thousands of Canadian dollars)
(Unaudited)
Second Quarter Ended
July 1, % July 2, %
2007 of Total 2006 of Total
---------- ---------- ---------- ----------
REVENUES
Canada $425,531 91.5% $373,590 91.8%
U.S. 39,726 8.5% 33,181 8.2%
---------- ---------- ---------- ----------
Total Revenues $465,257 100.0% $406,771 100.0%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
SEGMENT OPERATING INCOME
(LOSS)
Canada $115,969 99.9% $104,334 99.5%
U.S. 79 0.1% 495 0.5%
---------- ---------- ---------- ----------
Reportable Segment Operating
Income 116,048 100.0% 104,829 100.0%
---------- ----------
---------- ----------
Corporate Charges (9,708) (6,321)
---------- ----------
Consolidated Operating Income 106,340 98,508
Interest, net (4,819) (3,306)
Income taxes (34,282) (18,892)
---------- ----------
Net Income $67,239 $76,310
---------- ----------
---------- ----------
Year-to-Date Ended
July 1, % July 2, %
2007 of Total 2006 of Total
---------- ---------- ---------- ----------
REVENUES
Canada $813,743 91.4% $712,930 91.5%
U.S. 76,122 8.6% 66,599 8.5%
---------- ---------- ---------- ----------
Total Revenues $889,865 100.0% $779,529 100.0%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
SEGMENT OPERATING INCOME
(LOSS)
Canada $222,653 101.8% $196,244 99.5%
U.S. (4,039) (1.8%) 888 0.5%
---------- ---------- ---------- ----------
Reportable Segment Operating
Income 218,614 100.0% 197,132 100.0%
---------- ----------
---------- ----------
Corporate Charges (18,069) (15,513)
---------- ----------
Consolidated Operating Income 200,545 181,619
Interest, net (8,444) (11,782)
Income taxes (65,601) (29,937)
---------- ----------
Net Income $126,500 $139,900
---------- ----------
---------- ----------
TIM HORTONS INC. AND SUBSIDIARIES
SYSTEMWIDE RESTAURANTS
Increase/ Increase/
(Decrease) (Decrease)
As of As of From As of From
July 1, April 1, Prior July 2, Prior
2007 2007 Quarter 2006 Year
------------------------------------------------------
Tim Hortons
-----------
U.S.
Company 50 55 (5) 62 (12)
Franchise 295 285 10 235 60
------------------------------------------------------
345 340 5 297 48
% Franchised 85.5% 83.8% 79.1%
Canada
Company 26 35 (9) 40 (14)
Franchise 2,707 2,689 18 2,585 122
------------------------------------------------------
2,733 2,724 9 2,625 108
% Franchised 99.0% 98.7% 98.5%
Total Tim Hortons
Company 76 90 (14) 102 (26)
Franchise 3,002 2,974 28 2,820 182
------------------------------------------------------
3,078 3,064 14 2,922 156
------------------------------------------------------
------------------------------------------------------
% Franchised 97.5% 97.1% 96.5%
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 the sales revenue from initial equipment
packages, less fees for various costs and expenses
related to establishing a franchisee's business.
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. Cost of
sales 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, the majority of our
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 closure costs, currency
adjustments, real estate sales, minority interest
related to the consolidation of franchised restaurants
pursuant to FIN 46R, and other asset write-offs.
Comprehensive
Income Represents the change in our net assets during the
reporting period from transactions and other events
and circumstances from non-owner sources. It includes
net income and other comprehensive income such as
foreign currency translation adjustments and the
impact of cash flow hedges.
