Tim Hortons' Q2 net income up 1.5% to C$95.5M, as total revenues rose 9.8% to C$702.8M, same-store sales grew 3.8% in Canada and 6.6% in the U.S.

OAKVILLE, Ontario , August 11, 2011 (press release) – (Unaudited. All amounts in Canadian dollars and presented in accordance with U.S. GAAP)

Financial & Sales Highlights

  Q2 2011 Q2 2010 %
Year-over
Year
Change
YTD 2011
Total revenues $ 702.8 $ 639.9 9.8% $ 1,346.2
Operating income $ 143.2 $ 149.9 (4.4)% $ 263.8
Operating income attributable to THI(1) $ 142.1 $ 142.1 - $ 261.8
Effective tax rate 29.4% 29.5%   29.3%
Net income attributable to THI $ 95.5 $ 94.1 1.5% $ 176.2
Diluted earnings per share (EPS) (2) $ 0.58 $ 0.54 8.3% $ 1.06
Fully diluted shares 164.0 174.9 (6.2)% 166.0
(All numbers in millions, except EPS and effective tax rate. All numbers rounded.)
(1) Operating income attributable to THI is a non-GAAP measure. Please refer to "Information on non-GAAP Measure" at the end of this release for further details.
(2) EPS includes a charge of $0.03 per share for the separation related costs and expenses pertaining to the former president and CEO.
Same-Store Sales(3) Q2 2011 Q2 2010 YTD 2011
Canada 3.8% 6.4% 2.9%
U.S. 6.6% 3.1% 5.7%
(3) Includes average sales at Franchised and Company-operated restaurants open for 13 months or more.
  Substantially all of our restaurants are franchised.

Highlights

* Strengthened same-store sales performance in Canada and robust performance in the U.S. market
o Canadian same-store sales grew 3.8%, strengthening during the quarter and delivering two-year cumulative growth of more than 10%
o U.S. strategy execution continues to demonstrate momentum, strong same-store sales growth of 6.6%, two-year cumulative growth up close to 10%
* Total revenues increased 9.8%, driven by systemwide sales growth and higher distribution sales due to commodity pricing
* Operating income continued to be affected as expected by lost contribution due to Maidstone Bakeries joint venture disposition, however EPS up 8.3% due to significantly higher share repurchases
* EPS impacted by $0.03 from separation charge pertaining to former president and CEO, up 13.5% absent this charge

Tim Hortons Inc. (TSX: THI) (NYSE: THI) today announced results for the second quarter ended July 3rd, 2011.

"Our business performed well in the second quarter with strong top-line results in both Canada and the U.S. We overcame softness early in the quarter in Canada and delivered strong same-store sales growth in both Canada and the U.S. We continue to focus on executing our strategic plan, taking advantage of market opportunities and our strengths, to grow our business and respond to our guests' needs," said Paul House, executive chairman, and president and CEO.

Consolidated Results

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

Systemwide sales(4) grew 7.2% on a constant currency basis in the second quarter. Total revenues grew 9.8% to $702.8 million compared to $639.9 million last year. Our total revenue growth was driven by distribution sales that outpaced systemwide sales growth, due to higher commodity pricing primarily related to coffee. Rents and royalties benefited from same-store sales growth and new restaurant growth. Franchise fees were slightly lower, down 1.7% during the quarter.

Costs and expenses were higher year-over-year primarily due to two factors. Increased cost of sales reflected the impacts of the bakery disposition and the significantly higher underlying cost of coffee. General and administrative expenses were negatively impacted by the $6.3 million charge, including advisory and other related costs and expenses pertaining to the separation agreement with the former president and CEO.

Second quarter operating income declined 4.4% to $143.2 million compared to $149.9 million last year, due primarily to the lost contribution from Maidstone Bakeries in the comparable period results and the impact of the separation agreement previously noted. Systemwide sales growth benefited higher rents and royalties and distribution income in both Canada and the U.S. Absent costs related to the separation agreement and the net $12.4 million negative year-over-year impact of the sale of Maidstone Bakeries, operating income would have increased 8.9%.

Net income attributable to Tim Hortons increased by 1.5% to $95.5 million in the second quarter, compared to $94.1 million last year, benefiting from a slightly lower effective tax rate during the quarter.

In the second quarter EPS rose 8.3% to $0.58, compared to $0.54 last year. Our EPS benefited from higher share repurchases related to net proceeds used from our Maidstone Bakeries joint venture sale. We spent approximately $206 million to repurchase 4.6 million shares in the second quarter, contributing to the cumulative reduction of our average diluted outstanding shares by 6.2% from the comparable period. The separation agreement relating to the former president and CEO negatively impacted EPS by $0.03. Absent this charge, EPS would have increased by 13.5%.

Segmented Performance Commentary

Canada

Same-store sales in the Canadian segment grew by 3.8% as a result of average cheque growth, which benefited from favourable pricing and product mix, resulting in two-year cumulative same-store sales growth of more than 10%. Successful menu initiatives such as Real Fruit Smoothies, which helped grow our cold beverage category, contributed to product mix changes in the quarter. Same-store sales were softer in April reflecting the partial shift of the Easter holiday, but strengthened sequentially as the quarter progressed.

During the second quarter we opened 24 restaurants in Canada, the majority of which were standard restaurants.

Canadian segment operating income in the second quarter grew 3.8% to $156.4 million compared to $150.7 million last year. Higher systemwide sales growth and higher distribution income were partially offset by the lost earnings contribution from Maidstone Bakeries. Higher distribution income was due in part to the temporary positive impact from the timing of coffee pricing and underlying costs in our supply chain, which we expect will reverse in the second half of 2011 and have a neutral effect on the year.

United States

Our U.S. segment continued its same-store sales performance momentum with year-over-year growth of 6.6%, and two-year cumulative growth of just under 10%. Higher average cheque drove much of our growth, benefiting from pricing in the system, and to a lesser extent, from favourable product mix. Targeted advertising and promotional efforts to increase brand awareness contributed to this strong performance.

We continue to focus restaurant development and enhanced advertising in our core growth markets. During the second quarter, we opened 10 new locations in the U.S., including a mix of standard, non-standard and self-serve kiosks.

The U.S. segment had second quarter operating income of $4.0 million, growing 12.0% compared to $3.6 million last year. Continued profitability improvement reflects higher rents and royalties and distribution income from continued systemwide sales growth. Planned incremental investments in advertising and marketing, and leveraging savings from previous closures in the New England region, also contributed to our overall U.S. segment performance.

Corporate Developments

Board declares dividend payment of $0.17 per common share

A quarterly dividend of $0.17 per common share has been declared by the Board of Directors, payable on September 7th, 2011 to shareholders of record as of August 22nd, 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.

Tim Hortons conference call today at 2:30 p.m. (EDT) Thursday, August 11th, 2011

Tim Hortons will host a conference call today to discuss the second quarter results, scheduled to begin at 2:30 p.m. (EDT). The dial-in number is (416) 641-6712 or (800) 785-6502. No access code is required. A simultaneous web cast of the call, including presentation material, will be available at www.timhortons-invest.com. A replay of the call will be available until August 18th, 2011 and can be accessed at (416) 626-4100 or (800) 558-5253. The call replay reservation number is 21533407. The call and presentation material will also be archived for a period of one year in the Events and Presentations section at the same website.

Tim Hortons Inc. Overview

Tim Hortons is one of the largest publicly-traded restaurant chains in North America based on market capitalization, and the largest in Canada. Operating in the quick service segment of the restaurant industry, Tim Hortons appeals to a broad range of consumer tastes, with a menu that includes premium coffee, flavored cappuccinos, specialty teas, home-style soups, fresh sandwiches, wraps, hot breakfast sandwiches and fresh baked goods, including our trademark donuts. As of July 3rd, 2011, Tim Hortons had 3,811 systemwide restaurants, including 3,189 in Canada and 622 in the United States. More information about the Company is available at www.timhortons.com.

TIM HORTONS INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (In thousands of Canadian dollars, except share and per share data)

(Unaudited)

  Second Quarter Ended        
  July 3, 2011   July 4, 2010   $ Change   % Change
               
REVENUES              
Sales $498,058   $444,344   $53,714   12.1%
Franchise revenues:              
  Rents and royalties 185,389   175,879   9,510   5.4%
  Franchise fees 19,313   19,639   (326)   (1.7%)
  204,702   195,518   9,184   4.7%
TOTAL REVENUES 702,760   639,862   62,898   9.8%
               
COSTS AND EXPENSES              
Cost of sales 434,051   375,347   58,704   15.6%
Operating expenses 65,102   61,560   3,542   5.8%
Franchise fee costs 20,419   20,379   40   0.2%
General and administrative expenses 43,969   36,745   7,224   19.7%
Equity (income) (3,820)   (3,760)   (60)   1.6%
Other expense (income), net (179)   (260)   81   n/m
TOTAL COSTS AND EXPENSES, NET 559,542   490,011   69,531   14.2%
               
OPERATING INCOME 143,218   149,851   (6,633)   (4.4%)
               
Interest (expense) (7,427)   (6,878)   (549)   8.0%
Interest income 851   113   738   n/m
               
INCOME BEFORE INCOME TAXES 136,642   143,086   (6,444)   (4.5%)
               
INCOME TAXES 40,202   42,161   (1,959)   (4.6%)
               
Net Income 96,440   100,925   (4,485)   (4.4%)
Net income attributable to noncontrolling interests 891   6,804   (5,913)   n/m
               
NET INCOME ATTRIBUTABLE TO TIM HORTONS INC. $95,549   $94,121   $1,428   1.5%
               
Basic earnings per common share attributable to Tim Hortons Inc. $0.58   $0.54   $0.04   8.4%
               
Diluted earnings per common share attributable to Tim Hortons Inc. $0.58   $0.54   $0.04   8.3%
               
Weighted average number of common shares outstanding - Basic (in thousands) 163,448   174,586   (11,138)   (6.4%)
               
Weighted average number of common shares outstanding - Diluted (in thousands) 163,961   174,873   (10,912)   (6.2%)
               
Dividend per common share $0.17   $0.13   $0.04    

n/m - not meaningful (all numbers rounded)

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