Operating income increases 2.4% to $96.5 million for the quarter
(All amounts in Canadian dollars)
Financial & Sales Highlights
----------------------------
-------------------------------------------------------------------------
First Quarter Ended March 30, 2008 April 1, 2007 % Change
-------------------------------------------------------------------------
Revenues $ 460.3 $ 424.6 8.4%
Operating Income $ 96.5 $ 94.2 2.4%
Effective Tax Rate 32.9% 34.6%
Net Income $ 61.8 $ 59.3 4.3%
Diluted Earnings Per Share $ 0.33 $ 0.31 7.0%
Fully Diluted Shares 185.8 190.6 (2.5)%
-------------------------------------------------------------------------
($ in millions except EPS. Fully diluted shares in millions. All numbers
rounded)
-------------------------------------------------------------------------
Same-Store Sales Q1 2008 Q1 2007
-------------------------------------------------------------------------
Canada 3.5% 6.3%
United States 1.0% 4.0%
-------------------------------------------------------------------------
Same-store sales calculation methodology includes restaurants beginning
the 13th month after opening.
As of March 30, 2008, 99.2% of the Company's restaurants in Canada and
90.0% of the U.S. restaurants were franchised.
Highlights
----------
- First quarter systemwide sales(1) increased 7.2%
- Operating income increased to $96.5 million, up 2.4%: higher revenues
partially offset by lower franchise resales and lower equity income
- 25 restaurants opened
- Board declares quarterly dividend of $0.09 per share
- 1.5 million shares purchased as part of the share repurchase program
OAKVILLE, ON, April 30 /CNW/ - Tim Hortons Inc. (NYSE:THI, TSX: THI) today announced its results for the first quarter ended March 30, 2008.
Systemwide sales(1), which includes sales from Company-operated and Franchise restaurants, grew 7.2% in the quarter. Same-store sales increased 3.5% in Canada and 1.0% in the U.S. in the first quarter. Total revenues were $460.3 million, up 8.4% compared to $424.6 million in the same period last year. Net income was $61.8 million in the first quarter, an increase of 4.3% compared to $59.3 million last year. Earnings per diluted share were $0.33, an increase of 7.0% compared to $0.31 in the first quarter of 2007.
"Our strong promotional and menu programs during the quarter helped overcome the significant impact of unprecedented snowfalls in key markets, the introduction of a new statutory holiday in the provinces of Ontario and Manitoba, and the timing of Easter in 2008 compared to 2007," said Don Schroeder, President and CEO. "Our first quarter performance was below our full-year targets but we expected a challenging quarter and have continued confidence in our ability to meet our sales growth targets for the full year," added Schroeder.
Consolidated Performance
During the quarter, a total of 25 restaurants were opened compared to 21 in the first quarter of last year.
In the first quarter the company introduced the Bagel B.E.L.T. breakfast sandwich in Canada, and promoted Toasted Almond Flavor Shots, Tuscan Vegetable Soup and larger size Gourmet Cookies. The Company also began its highly popular Roll Up the Rim to Win(C) contest on February 25, 2008, offering customers the chance to win millions in prizes including 35 Toyota Matrix XR AWD cars, 100 Bayliner Boats and 5,000 Garmin Navigation Devices, as well as $50 TimCards and food prizes. In addition to these activities, the Canadian segment benefited from pricing which contributed approximately 2.5% to same-store sales growth of 3.5% for the quarter. There was no pricing impact on U.S. same-store sales growth of 1.0% for the quarter.
Total revenues were $460.3 million in the first quarter, an increase of 8.4% compared to $424.6 million in the comparable period of 2007. Sales, the largest component of revenues, consisting primarily of distribution sales, grew by 10.1% to $306.5 million compared to $278.4 million in the same quarter last year. There were 26 fewer corporate stores in the first quarter compared to a year ago, offset in part by a higher number of stores consolidated under FIN 46R. Rent and royalties grew 6.8% to $135.9 million compared to $127.2 million last year, consistent with systemwide sales growth, and were offset in part by increased relief in the U.S. segment. Franchise fees, based primarily on restaurant openings and resales, decreased 5.7% to $17.9 million compared to $19.0 million in the first quarter last year due to lower revenues mainly from resales and replacements year-over-year.
Cost of sales grew 10.1% in the first quarter compared to the same period last year. Increased cost of sales reflects systemwide sales growth, higher distribution costs and more stores consolidated under FIN 46R than in the comparable period, offset in part by a lower number of corporate stores. Operating expenses increased 6.0% in the quarter compared to the first quarter of 2007.
Franchise fee costs increased 11.4% in the first quarter compared to the same period last year. Higher costs were due to a larger number of unit sales compared to last year, more renovations with higher equipment costs and increased franchise support costs.
General and administrative costs rose 7.4% in the first quarter over the comparable period of 2007, which was lower than revenue growth. Equity income was $7.4 million, down 24.7% from $9.8 million in the first quarter of 2007, due to a tax benefit in 2007 that did not recur, a product supply issue, as well as commissioning costs for a new pastry line installed at the Company's joint venture Maidstone Bakeries. This new pastry line will supply restaurants with high quality European pastries including danish, croissants and puff pastry.
First quarter operating income was $96.5 million, an increase of 2.4% compared to $94.2 million for the same period in 2007. Increased revenues from higher same-store sales and number of restaurants, and a reduced loss in the U.S. segment positively impacted operating income but were in large part offset by lower franchise fees due to a fewer number of resales and lower equity income.
Net interest expense was higher in the first quarter, increasing to $4.4 million compared to $3.6 million in the first quarter of 2007. The higher expense is due primarily to higher interest on capital leases and external debt.
In the first quarter net income was $61.8 million, up 4.3% from $59.3 million in 2007. A lower effective tax rate during the quarter of 32.9% compared to 34.6% in the first quarter of 2007 positively contributed to net income growth, offset in part by higher interest expense.
Diluted earnings per share (EPS) were $0.33 compared to $0.31 in the first quarter last year. EPS growth of 7.0% reflects higher net income and lower weighted average shares outstanding in the quarter, which decreased 2.5% to 185.8 million shares due to the Company's share repurchase program.
Segmented Performance
In the Canadian segment, same-store sales for the first quarter were up 3.5%. Growth in the first two months of the quarter was considerably stronger than March, which was impacted by the timing of Easter compared to 2007 and by significant snowfall in key markets. New statutory holidays in the quarter in the provinces of Ontario and Manitoba also impacted sales growth. The timing of Easter and the new statutory holidays had an estimated same-store sales impact of up to 1%. Previous price increases contributed approximately 2.5% to same-store sales growth.
Segment margins in Canada were down somewhat in the quarter due to lower franchise fee income and lower equity income. The Canadian segment had operating income of $106.5 million for the quarter. A total of 22 restaurants were opened in Canada during the quarter.
In the U.S. segment, same-store sales increased 1.0% during the quarter. Heavy snowfalls in the Midwest and Northeast U.S. also negatively impacted our U.S. segment as did the timing of the Easter holiday. Pricing did not contribute to same-store sales growth in the quarter.
The U.S. business had a loss of $2.9 million in the quarter, a significant reduction from the comparable period of 2007. The lower U.S. operating loss was a result of two factors, which were improved performance at our coffee roasting facility and the positive impact of foreign exchange translation in the quarter. Three restaurants were opened in the U.S. during the quarter. The 15 new self-serve kiosks opened in December in U.S. Shell(c) stations received positive customer response in the first quarter. These kiosks leverage the successful platform in our expanding Irish and U.K. licensed business, which at the end of the first quarter had 168 locations.
Executive Structure Strengthened and Streamlined
------------------------------------------------
Coinciding with this earnings release, the Company has separately announced changes to its executive structure to both strengthen and streamline executive oversight of key business operations. In addition, certain employees are leaving the organization under various retirement arrangements. A restructuring charge of approximately $3.8 million will be taken in the second quarter, to implement the changes to the executive structure, which is expected to result in future annualized savings of approximately $1.5 million. Our 2008 operating income target of 10% growth excludes this one-time charge. Please refer to the news release issued in parallel with this earnings release for additional information.
$200 million share repurchase program activities
------------------------------------------------
The Company spent $51.4 million to purchase a total of approximately 1.5 million shares as part of its 2007-2008 share repurchase program to return value to shareholders.
Board declares dividend payment of $0.09 per share
--------------------------------------------------
The Board of Directors has declared a quarterly dividend of $0.09 per share payable on June 13th, 2008 to shareholders of record as of May 30th, 2008. The Company's current dividend policy is to pay a total of 20-25% of prior year, normalized annual net earnings in dividends each year.
Dividends are 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 June 6th, 2008 at the daily noon rate established by the Bank of Canada and paid in U.S. dollars on June 13th, 2008.
Tim Hortons to host conference call at 2:30 p.m. today, May 1st, 2008
---------------------------------------------------------------------
Tim Hortons will host a conference call beginning at 2:30 p.m. Eastern Daylight Time (EDT) on Thursday May 1st, 2008. Investors and the public may listen to the conference call in either one of the following ways: by phone, the dial-in number is (647) 427-3420 or 1-888-300-0053. No access code is required. Alternatively, a simultaneous webcast of the conference call will be available at www.timhortons.com. A replay of the call will be available for one year at our web-site under the "audio archives" tab under the "Investor Information" section, and can be accessed at 1-888-567-0782, enter passcode: 43574174. A slide presentation will be available to coincide with the conference call, and can be accessed at www.timhortons.com under the investor information section, by clicking on the "Presentations" tab.
Annual Meeting of Shareholders
Tim Hortons Inc. will host its Annual Meeting of Shareholders on May 2nd, 2008 at The Design Exchange at 234 Bay Street, Toronto, Ontario, Canada, beginning at 10:30 a.m. EST. A live webcast of the event will be available under the "Investor Information" section at www.timhortons.com under the "Event Calendar". A slide presentation will be available to coincide with the meeting, and can be accessed at www.timhortons.com under the investor information section by clicking on the "Presentations" tab. The webcast will also be available for replay one year under the "Audio Archives" section.
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 February 26, 2008 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.
(1) Total systemwide sales growth includes restaurant level sales at both
Company and Franchise restaurants. Approximately 98.0% of our system
is franchised as at March 30, 2008. 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 2008,
systemwide sales growth was up 7.2% compared to the first quarter of
2007. 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 systemwide restaurants.
Tim Hortons Inc. Overview
Tim Hortons is the fourth largest publicly-traded quick service restaurant chain in North America based on market capitalization, and the largest in Canada. Tim Hortons appeals to a broad range of consumer tastes, with a menu that includes premium coffee and donuts, flavored cappuccinos, specialty teas, home-style soups, fresh sandwiches and fresh baked goods. As of March 30, 2008, Tim Hortons had 3,238 systemwide restaurants, including 2,839 in Canada and 399 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 share and per share data)
(Unaudited)
First Quarter Ended
March 30, April 1,
2008 2007 $ Change % Change
----------- ----------- ----------- -----------
REVENUES
Sales $306,506 $278,350 $28,156 10.1%
Franchise revenues
Rents and royalties 135,880 127,240 8,640 6.8%
Franchise fees 17,931 19,018 (1,087) (5.7%)
----------- ----------- ----------- -----------
153,811 146,258 7,553 5.2%
----------- ----------- ----------- -----------
TOTAL REVENUES 460,317 424,608 35,709 8.4%
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of sales 272,283 247,404 24,879 10.1%
Operating expenses 50,009 47,176 2,833 6.0%
Franchise fee costs 18,280 16,403 1,877 11.4%
General & administrative
expenses 30,886 28,750 2,136 7.4%
Equity (income) (7,362) (9,777) 2,415 (24.7%)
Other (income) expense,
net (283) 447 (730) N/M
----------- ----------- ----------- -----------
TOTAL COSTS & EXPENSES,
NET 363,813 330,403 33,410 10.1%
----------- ----------- ----------- -----------
OPERATING INCOME 96,504 94,205 2,299 2.4%
Interest (expense) (6,351) (5,621) (730) 13.0%
Interest income 1,990 1,996 (6) (0.3%)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAXES 92,143 90,580 1,563 1.7%
INCOME TAXES 30,323 31,319 (996) (3.2%)
----------- ----------- ----------- -----------
NET INCOME $61,820 $59,261 $2,559 4.3%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic earnings per
share of common stock $0.33 $0.31 $0.02 7.1%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted earnings per
share of common stock $0.33 $0.31 $0.02 7.0%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic shares of common
stock (in thousands) 185,515 190,383 (4,868) (2.6%)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted shares of common
stock (in thousands) 185,811 190,563 (4,752) (2.5%)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Dividend per share of
common stock $0.09 $0.07 $0.02
----------- ----------- -----------
----------- ----------- -----------
N/M - not meaningful
(all numbers rounded)
TIM HORTONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of Canadian dollars)
March 30, December 30,
2008 2007
----------- -----------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $77,541 $157,602
Restricted cash 17,897 37,790
Accounts receivable, net 104,529 104,889
Notes receivable, net 13,178 10,824
Deferred income taxes 12,640 11,176
Inventories and other, net 61,107 60,281
Advertising fund restricted assets 20,952 20,256
----------- -----------
307,844 402,818
Property and equipment, net 1,218,075 1,203,259
Notes receivable, net 15,045 17,415
Deferred income taxes 23,198 23,501
Intangible assets, net 3,011 3,145
Equity investments 134,115 137,177
Other assets 9,879 9,816
----------- -----------
$1,711,167 $1,797,131
----------- -----------
----------- -----------
TIM HORTONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of Canadian dollars)
March 30, December 30,
2008 2007
----------- -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $100,139 $133,412
Accrued liabilities:
Salaries and wages 6,240 17,975
Taxes 14,352 34,522
Other 60,369 95,777
Advertising fund restricted liabilities 40,334 39,475
Current portion of long-term obligations 5,902 6,137
----------- -----------
227,336 327,298
----------- -----------
Long-term obligations
Term debt 328,370 327,956
Advertising fund restricted debt 12,024 14,351
Capital leases 54,834 52,524
----------- -----------
395,228 394,831
----------- -----------
Deferred income taxes 15,218 16,295
Other long-term liabilities 60,922 56,624
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 932,644 931,084
Treasury stock, at cost: 8,219,926 and
6,750,052 shares, respectively (286,554) (235,155)
Common stock held in trust, at cost: 421,344
and 421,344 shares, respectively (14,628) (14,628)
Retained earnings 504,059 458,958
Accumulated other comprehensive income (loss):
Cumulative translation adjustments and other (123,347) (138,465)
----------- -----------
1,012,463 1,002,083
----------- -----------
$1,711,167 $1,797,131
----------- -----------
----------- -----------
TIM HORTONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Canadian dollars)
(Unaudited)
First Quarter Ended
March 30, April 1,
2008 2007
----------- -----------
NET CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES $18,473 $1,769
----------- -----------
CASH FLOWS (USED IN) PROVIDED FROM INVESTING
ACTIVITIES
Capital expenditures (32,511) (38,525)
Principal payments on notes receivable 689 2,996
Other investing activities (127) (63)
----------- -----------
Net cash used in investing activities (31,949) (35,592)
----------- -----------
CASH FLOWS (USED IN) PROVIDED FROM FINANCING
ACTIVITIES
Purchase of treasury stock (51,399) (45,013)
Dividend payments (16,719) (13,338)
Purchase of common stock held in trust - (630)
Proceeds from issuance of debt, net of
issuance costs 1,257 1,308
Principal payments on other long-term debt
obligations (1,271) (1,351)
----------- -----------
Net cash used in financing activities (68,132) (59,024)
----------- -----------
Effect of exchange rate changes on cash 1,547 (315)
----------- -----------
Decrease in cash and cash equivalents (80,061) (93,162)
Cash and cash equivalents at beginning of period 157,602 176,083
----------- -----------
Cash and cash equivalents at end of period $77,541 $82,921
----------- -----------
----------- -----------
Other data:
Depreciation and amortization $21,866 $19,758
----------- -----------
----------- -----------
TIM HORTONS INC. AND SUBSIDIARIES
SEGMENT REPORTING
(In thousands of Canadian dollars)
(Unaudited)
First Quarter Ended
March 30, April 1,
2008 % of Total 2007 % of Total
----------- ----------- ----------- -----------
REVENUES
Canada $426,488 92.7% $388,212 91.4%
U.S. 33,829 7.3% 36,396 8.6%
----------- ----------- ----------- -----------
Total Revenues $460,317 100.0% $424,608 100.0%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SEGMENT OPERATING
INCOME (LOSS)
Canada $106,535 102.8% $106,684 104.0%
U.S. (2,879) (2.8)% (4,118) (4.0)%
----------- ----------- ----------- -----------
Reportable Segment
Operating Income 103,656 100.0% 102,566 100.0%
----------- -----------
----------- -----------
Corporate Charges (7,152) (8,361)
----------- -----------
Consolidated Operating
Income 96,504 94,205
Interest, net (4,361) (3,625)
Income taxes (30,323) (31,319)
----------- -----------
Net Income $61,820 $59,261
----------- -----------
----------- -----------
First Quarter Ended
March 30, April 1,
2008 2007 $ Change % Change
----------- ----------- ----------- -----------
Sales is comprised of:
Warehouse sales $264,705 $235,335 $29,370 12.5%
Company-operated
restaurant sales 11,598 15,707 (4,109) (26.2)%
Sales from restaurants
consolidated under
FIN46R 30,203 27,308 2,895 10.6%
----------- ----------- ----------- -----------
$306,506 $278,350 $28,156 10.1%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
TIM HORTONS INC. AND SUBSIDIARIES
SYSTEMWIDE RESTAURANT COUNT
Increase/ Increase/
As of As of (Decrease) As of (Decrease)
March 30, December 30, From Prior April 1, From Prior
2008 2007 Quarter 2007 Year
-----------------------------------------------------------
Tim Hortons
-----------
Canada
Company-
operated 24 30 (6) 35 (11)
Franchise 2,815 2,793 22 2,689 126
-----------------------------------------------------------
2,839 2,823 16 2,724 115
% Franchised 99.2% 98.9% 98.7%
U.S.
Company-
operated 40 42 (2) 55 (15)
Franchise 359 356 3 285 74
-----------------------------------------------------------
399 398 1 340 59
% Franchised 90.0% 89.4% 83.8%
Total Tim Hortons
Company-
operated 64 72 (8) 90 (26)
Franchise 3,174 3,149 25 2,974 200
-----------------------------------------------------------
3,238 3,221 17 3,064 174
-----------------------------------------------------------
-----------------------------------------------------------
% Franchised 98.0% 97.8% 97.1%
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 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, as well as fees related to establishing a
franchisee's business.
Cost of Sales Includes costs associated with our distribution
business, 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 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 commencement 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, 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 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.
