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Press release from CNW Group

Tim Hortons Inc. announces 2012 first quarter results: Continued sales momentum and strong earnings growth

Wednesday, May 09, 2012

Tim Hortons Inc. announces 2012 first quarter results: Continued sales momentum and strong earnings growth07:30 EDT Wednesday, May 09, 2012(Unaudited.  All amounts in Canadian dollars and presented in accordance with U.S. GAAP.)Financial & Highlights PerformanceQ1 2012Q1 2011%Year-over-Year ChangeTotal revenues$721.3 $643.5 12.1%Operating income$131.6 $120.69.1%Effective tax rate 27.7%29.1% Net income attributable to THI$88.8$80.710.0%Diluted earnings per shareattributable to THI (EPS)$0.56$0.4817.4%Fully diluted shares157.5168.0(6.3)%(All numbers in millions, except EPS and effective tax rate.  All numbers rounded.)      Same-Store Sales(1)  Q1 2012Q1 2011Canada   5.2%2.0%U.S.   8.5%4.9%(1) Includes average same-store sales at Franchised and Company-operated locations open for 13 months or more.Substantially all of our restaurants are franchised.HighlightsSolid execution of growth strategy resulted in continued sales growth and momentum in both Canada and the U.S.Recent product introductions contributed to strong same-store sales performanceRobust sales performance contributed to strong operating income and EPS growth, which also benefited from our share repurchase programOAKVILLE, ON, May 9th, 2012 /CNW/ - Tim Hortons Inc. (TSX: THI, NYSE: THI) today announced results for the first quarter ended April 1st, 2012. "We continue to execute our 'More than a Great Brand' growth strategy and focus our efforts in a disciplined manner.  By responding to our guests' needs, we have continued to build momentum, as positively reflected in our strong first quarter results," said Paul House, executive chairman, president and CEO. Consolidated ResultsAll percentage increases and decreases represent year-over-year changes for the first quarter of 2012 compared to the first quarter of 2011, unless otherwise noted.Systemwide sales(2) increased 9.4% on a constant currency basis in the first quarter of 2012. We increased total revenues by 12.1% to $721.3 million compared to $643.5 million last year. Our strong systemwide sales growth drove higher rents and royalties revenue.  Strength of our systemwide sales growth and new products managed through our supply chain drove our distribution sales, which was also impacted by higher pricing and favourable product mix.  Higher pricing resulted primarily from higher commodity costs, which impacted cost of sales as well. Rents and royalty growth was 7.4%, driven by higher same-store sales and sales from the year-over-year net addition of 211 new full-serve restaurants in Canada and the U.S.  Our growth was partially offset by a negative impact from an increased number of consolidated non-owned restaurants, which essentially replaces rents and royalties with restaurant sales, which are included as sales from variable interest entities (VIEs).  Excluding these impacts, rents and royalties grew approximately 9.1%, in line with systemwide sales growth.  Fewer standard restaurant openings compared to the same period last year, mostly due to timing, resulted in lower year-over-year franchise fees.First quarter cost of sales increased 15.7% compared to last year, with the increase primarily due to higher distribution cost of sales and higher cost of sales from VIEs.  Higher distribution cost of sales was mainly due to systemwide sales growth and new products managed through our supply chain, higher commodity costs, product mix and investments in resources to optimize service levels to our restaurant owners during the transition of our replacement distribution facility in Kingston, Ontario.Operating expenses were up 7.3% in the first quarter compared to last year as we continued to grow our system.  Depreciation and rent expense increased as a result of the higher number of properties we either own or lease, due to additional properties in our system compared to last year.  Franchise fee costs decreased approximately 4.9% due primarily to the fewer standard restaurant openings compared to last year.General and administrative expenses were essentially flat in the first quarter compared to last year. Higher salaries and benefits, required to support the growth of the business, were essentially offset by favourable timing of certain benefit and other costs.First quarter operating income was $131.6 million, increasing 9.1% compared to $120.6 million last year, driven by the factors described previously.Net income attributable to Tim Hortons Inc. was $88.8 million, rising 10.0% compared to $80.7 million in the first quarter last year.  Higher operating income and a lower effective tax rate contributed most to the increase, partially offset by higher net interest expense.EPS grew 17.4% to $0.56, compared to $0.48 in the first quarter last year.  The cumulative impact of our share repurchase programs continues to benefit EPS growth, as we had 6.3% fewer average fully diluted common shares outstanding this quarter compared to last year.Segmented Performance Commentary CanadaSame-store sales grew 5.2% in the first quarter in the Canadian segment.  All of our same-store sales growth came from an increase in average cheque, which resulted from both favourable product mix and pricing.  Recent menu innovation and a solid promotional calendar contributed to our strong Canadian same-store sales growth, and we believe mild, warm weather across several regions also contributed to our results. Recent menu items that supported our growth included espresso-based lattes, real fruit smoothies and beef lasagna casserole.  The new hot beverage cup sizing in Canada, including the introduction of the 24-ounce cup size, also proved popular with our guests.  We continue to focus on reinforcing the value we represent through new and existing product offerings to help offset the potential impact on frequency caused by continued high unemployment and high gasoline pricing.  We are also working to build incremental capacity, which should benefit peak day parts by enhancing speed of service for our guests.During the quarter we opened 22 restaurants in Canada.Canadian segment operating income was $140.5 million, increasing 6.8% compared to $131.5 million last year.  Solid systemwide sales growth of 8.6% drove higher rents and royalties and distribution income.  Lower franchise fee income and higher costs associated with increased investments in resources to help optimize the transition of the Kingston, Ontario distribution centre, offset some of these gains.United StatesThe U.S. segment had robust same-store sales growth of 8.5%. This performance was driven in part by average cheque gains stemming from a combination of pricing and favourable product mix. Continued transaction growth was also a significant contributor to the same-store sales performance.  Product mix changes benefited from recent menu innovation in our U.S. market, including contributions from Panini sandwiches, which guests have responded favourably towards.  Transaction growth during the first quarter of 2012 was supported by these new products, and by ongoing marketing and promotional efforts, which were designed to increase brand awareness, and guest traffic.  We believe favourable weather also contributed to the sales performance of our U.S. segment.Our U.S. strategy of allocating the majority of restaurant development capital to core growth markets to increase densities, heightened advertising and promotional spending, and brand positioning efforts designed to increase and sharpen brand awareness and identity as a Cafe and Bake shop, have all contributed to our progression in the U.S. market over the past few years.U.S. segment operating income was $3.2 million compared to $2.6 million last year.  Systemwide sales growth of 15.8% resulted in higher rents and royalties, and higher manufacturing income.  Higher relief relating mostly to restaurants open for less than 13 months, along with higher general and administrative costs to support growth of the business, offset some of the gains.We opened 7 restaurants in the U.S. in the first quarter of which 6 were full-serve standard and non-standard restaurants.Corporate Developments  CEO Succession Process UpdateOn May 24th, 2011 Paul House assumed the role of President and CEO of the Corporation, in addition to his role as the Board's Executive Chairman, pending the successful completion of a comprehensive CEO succession and global search process.  The Board of Directors is pleased to announce that Mr. House has committed to continue his current appointment as President and CEO until the earlier of December, 2013 and the appointment and transition to a successor CEO.  Mr. House will also continue in in his role as Executive Chairman.  His extensive industry knowledge, relevant experience and previous leadership of Tim Hortons continue to be highly valuable. Under Mr. House's leadership during the past year, the Company has enjoyed strong corporate performance and significantly advanced the strategic growth plan.  The strength of the Company's performance under Mr. House's leadership allows the Board the opportunity to continue to conduct its rigorous CEO succession process in a deliberate and highly selective manner, while also affording the flexibility to achieve a smooth transition in leadership."I am fully committed to a successful leadership transition, and until that time, my energy is focused on building on our momentum.  We have an outstanding team, a clear strategic plan and exciting growth initiatives that we will continue to execute," said Paul House, Executive Chairman, President and CEO.Board declares dividend payment of $0.21 per common shareA quarterly dividend of $0.21 per common share has been declared by the Board of Directors, payable on June 8th, 2012 to shareholders of record as of May 24th, 2012. Dividends are declared and paid in Canadian dollars to all shareholders with Canadian resident addresses. For U.S. resident 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.Annual and Special Meeting of ShareholdersThe annual and special meeting of shareholders (the "Annual Meeting") will be held on Thursday, May 10th, 2012 at 10:30 a.m. (EDST). A live web cast of the meeting, including presentation material, will be available at in the Events and Presentations section, where an archive of the web cast and presentation material will also be available for a period of one year.We are pleased to have received notification from The Humane Society of the United States (HSUS) that it has officially withdrawn its shareholder proposal pertaining to sow and hen housing systems due to recent commitments in these areas made by the Company.  As a result, the HSUS proposal will not be presented nor voted upon at the Annual Meeting.Tim Hortons conference call today at 2:30 p.m. (EDST) Wednesday, May 9th, 2012Tim Hortons will host a conference call today to discuss the first quarter results, scheduled to begin at 2:30 p.m. (EDST). 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 A replay of the call will be available until May 2013 and can be accessed at (416) 626-4100 or (800) 558-5253. The call replay reservation number is 21589542. The call and presentation material will also be archived for a period of one year in the Events and Presentations section.Safe Harbor StatementCertain information in this news release, particularly information regarding future economic performance, finances, and plans, expectations and objectives of management, and other information, constitutes forward-looking information within the meaning of Canadian securities laws and forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  We refer to all of these as forward-looking statements. Various factors including competition in the quick service segment of the food service industry, general economic conditions and others described as "risk factors" in the Company's 2011 Annual Report on Form 10-K filed February 28th, 2012, and our Quarterly Report on Form 10-Q expected to be filed today with the U.S. Securities and Exchange Commission and Canadian Securities Administrators, 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 to management's expectations as of the date hereof.  Forward-looking statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to, assumptions about: the absence of an adverse event or condition that damages our strong brand position and reputation; the absence of a material increase in competition within the quick service restaurant segment of the food service industry; cost and availability of commodities; continuing positive working relationships with the majority of the Company's restaurant owners; the absence of any material adverse effects arising as a result of litigation; there being no significant change in the Company's ability to comply with current or future regulatory requirements; and general worldwide economic conditions.We are presenting this information for the purpose of informing you of management's current expectations regarding these matters, and this information may not be appropriate for any other purpose.  We assume no obligation to update or alter any forward-looking statements after they are made, whether as a result of new information, future events, or otherwise, except as required by applicable law.  Please review the Company's Safe Harbor Statement at Total systemwide sales growth includes restaurant level sales at both Company and Franchised restaurants. Approximately 99.4% of our consolidated system is franchised as at April 1st, 2012. Systemwide sales growth is determined using a constant exchange rate where noted, 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 2012, systemwide sales on a constant currency basis increased 9.4% compared to the first quarter of 2011. Systemwide sales are important to understanding our business performance as they impact our franchise royalties and rental income, as well as our distribution income. Changes in systemwide sales are driven by changes in average same-store sales and changes in the number of systemwide restaurants, and are ultimately driven by consumer demand.We believe systemwide sales and same-store sales growth provide meaningful information to investors regarding the size of our system, the overall health and financial performance of the system, and the strength of our brand and restaurant owner base, which ultimately impacts our consolidated and segmented financial performance. Franchised restaurant sales are not generally included in our Condensed Consolidated Financial Statements (except for certain non-owned restaurants consolidated in accordance with applicable accounting rules); however, franchised restaurant sales result in royalties and rental revenues, which are included in our franchise revenues, and also supports growth in distribution sales.Tim Hortons Inc. OverviewTim 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, espresso-based hot and cold specialty drinks including lattes, cappuccinos and espresso shots, specialty teas, fruit smoothies, home-style soups, fresh sandwiches, wraps, hot breakfast sandwiches and fresh baked goods, including our trademark donuts. As of April 1st, 2012, Tim Hortons had 4,042 systemwide restaurants, including 3,315 in Canada, 721 in the United States and 6 in the Gulf Cooperation Council. More information about the Company is available at HORTONS INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENT OF OPERATIONS(in thousands of Canadian dollars, except share and per share data)      (Unaudited)                             First Quarter Ended         April 1, 2012 April 3, 2011 $ Change % Change              REVENUES         Sales$523,302 $454,477 $68,825 15.1%  Franchise revenues             Rents and royalties180,186 167,830 12,356 7.4%      Franchise fees17,796 21,180 (3,384) (16.0%)     197,982 189,010 8,972 4.7%  TOTAL REVENUES721,284 643,487 77,797 12.1%              COSTS AND EXPENSES         Cost of sales465,425 402,332 63,093 15.7%  Operating expenses66,716 62,154 4,562 7.3%  Franchise fee costs20,282 21,317 (1,035) (4.9%)  General and administrative expenses40,127 39,996 131 0.3%  Equity (income)(3,246) (3,113) (133) 4.3%  Other expense, net357 198 159 80.3%  TOTAL COSTS AND EXPENSES, NET589,661 522,884 66,777 12.8%              OPERATING INCOME131,623 120,603 11,020 9.1%              Interest (expense)(7,898) (7,376) (522) 7.1%  Interest income711 1,676 (965) (57.6%)              INCOME BEFORE INCOME TAXES124,436 114,903 9,533 8.3%              INCOME TAXES34,457 33,489 968 2.9%              Net Income89,979 81,414 8,565 10.5%  Net income attributable to noncontrolling interests1,200 735 465 63.3%              NET INCOME ATTRIBUTABLE TO TIM HORTONS INC.$88,779 $80,679 $8,100 10.0%              Basic earnings per common share attributable to TimHortons Inc.$0.57 $0.48 $0.09 17.5%              Diluted earnings per common share attributable to TimHortons Inc.$0.56 $0.48 $0.08 17.4%              Weighted average number of common shares outstanding -Basic 156,993 167,662 (10,669) (6.4%)              Weighted average number of common shares outstanding -Diluted 157,490 168,015 (10,525) (6.3%)              Dividends per common share $0.21 $0.17 $0.04                (all numbers rounded)          TIM HORTONS INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEET  (in thousands of Canadian dollars)          As at  April 1, January 1,  2012 2012       (Unaudited)        ASSETS        Current assets    Cash and cash equivalents$57,770 $126,497 Restricted cash and cash equivalents85,792 130,613 Accounts receivable, net187,569 173,667 Notes receivable, net9,916 10,144 Deferred income taxes7,238 5,281 Inventories and other, net147,629 136,999 Advertising fund restricted assets32,360 37,765Total current assets528,274 620,966     Property and equipment, net1,461,790 1,463,765     Intangible assets, net4,295 4,544     Notes receivable, net2,427 3,157     Deferred income taxes11,692 12,197     Equity investments42,670 43,014     Other assets59,967 56,307Total assets$2,111,115 $2,203,950 TIM HORTONS INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEET  (in thousands of Canadian dollars, except share and per share data)          As at  April 1, January 1,  2012 2012       (Unaudited)             LIABILITIES AND EQUITY        Current liabilities    Accounts payable$145,059 $177,918 Accrued liabilities        Salaries and wages12,995 23,531     Taxes13,887 26,465     Other142,074 179,315 Advertising fund liabilities71,164 59,420 Short-term borrowings25,000 0 Current portion of long-term obligations10,077 10,001Total current liabilities420,256 476,650     Long-term obligations    Long-term debt351,622 352,426 Capital leases97,171 94,863 Deferred income taxes4,951 4,608 Other long-term liabilities122,341 120,970Total long-term obligations576,085 572,867     Equity    Equity of Tim Hortons Inc.    Common shares    $2.84 stated value per share, Authorized:  unlimited shares,    Issued:  156,103,918 and 157,814,980 shares, respectively442,699 447,558 Common shares held in trust, at cost: 277,189 shares(10,136) (10,136) Contributed surplus9,163 6,375 Retained earnings811,144 836,968 Accumulated other comprehensive loss(139,418) (128,217)Total equity of Tim Hortons Inc.1,113,452 1,152,548Noncontrolling interests1,322 1,885Total equity1,114,774 1,154,433Total liabilities and equity$2,111,115 $2,203,950 TIM HORTONS INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands of Canadian dollars)                First Quarter Ended       April 1, 2012 April 3, 2011               (Unaudited)              CASH FLOWS PROVIDED FROM (USED IN) OPERATING ACTIVITIES       Net income$89,979 $81,414Adjustments to reconcile net income to net cash provided by (used in) operating activities             Depreciation and amortization30,750 27,982      Stock-based compensation expense7,181 4,660      Deferred income taxes303 (3,498)  Changes in operating assets and liabilities             Restricted cash and cash equivalents44,630 (1,999)      Accounts receivable(19,799) 975      Inventories and other(11,148) (18,809)      Accounts payable and accrued liabilities(70,481) (79,156)      Taxes(12,572) (52,074)  Other, net7,535 1,687          Net cash provided from (used in) operating activities66,378 (38,818)          CASH FLOWS (USED IN) PROVIDED FROM INVESTING ACTIVITIES       Capital expenditures (including Advertising Fund)(48,283) (34,627)    Proceeds from sale of restricted investments0 38,000    Other investing activities960 953              Net cash (used in) provided from investing activities(47,323) 4,326        CASH FLOWS USED IN FINANCING ACTIVITIES       Repurchase of common shares(86,416) (195,976)Dividend payments to common shareholders(33,046) (28,366)Short-term borrowings25,000 0Other financing activities7,691 (632)          Net cash used in financing activities(86,771) (224,974)          Effect of exchange rate changes on cash(1,011) (1,526)          (Decrease) in cash and cash equivalents (68,727) (260,992)          Cash and cash equivalents at beginning of period126,497 574,354        Cash and cash equivalents at end of period$57,770 $313,362 TIM HORTONS INC. AND SUBSIDIARIESSEGMENT REPORTING(in thousands of Canadian dollars)   First Quarter Ended April 1, 2012 April 3, 2011     (Unaudited)    REVENUES   Canada$604,254 $547,373U.S.38,529 35,459Total reportable segments642,783 582,832Variable Interest Entities78,501 60,655Total$721,284 $643,487    SEGMENT OPERATING INCOME   Canada $140,487 $131,529U.S.3,210 2,611Reportable segment operating income143,697 134,140Variable Interest Entities1,528 868Corporate charges (1)(13,602) (14,405)Consolidated operating income131,623 120,603Interest, net(7,187) (5,700)Income before income taxes$124,436 $114,903(1)Corporate charges include certain overhead costs which are not allocated to individual business segments, the impact of certain foreign currency exchange gains and losses, and the net operating results from the Company's Irish, United Kingdom and GCC International operations, which continue to be managed corporately.   First Quarter Ended April 1, 2012 April 3, 2011 $ Change % Change         (Unaudited)Sales is comprised of:           Distribution sales$439,728 $389,833 $49,895 12.8%    Company-operated restaurant sales5,560 4,174 1,386 33.2%    Sales from Variable Interest Entities78,014 60,470 17,544 29.0%Total Sales$523,302 $454,477 $68,825 15.1%         First Quarter Ended April 1, 2012 April 3, 2011 $ Change % Change         (Unaudited)Cost of sales is comprised of:           Distribution cost of sales$390,453 $344,320 $46,133 13.4%    Company-operated restaurant cost of sales6,080 4,489 1,591 35.4%    Cost of sales from Variable Interest Entities68,892 53,523 15,369 28.7%Total Cost of sales$465,425 $402,332 $63,093 15.7% TIM HORTONS INC. AND SUBSIDIARIESSYSTEMWIDE RESTAURANT COUNT    Increase/ Increase/ As atAs at(Decrease)As at(Decrease) April 1, 2012January 1, 2012From Year EndApril 3, 2011From Prior Year            Canada         Company-operated16106151    Franchised - standard and non-standard3,1793,166133,040139    Franchised - self-serve kiosks12011911146Total3,3153,295203,169146      % Franchised99.5%99.7% 99.5%       U.S.         Company-operated78(1)16    Franchised - standard and non-standard549542748465    Franchised - self-serve kiosks165164112837Total7217147613108      % Franchised99.0%98.9% 99.8%       International         Franchised - standard 65106Total65106      % Franchised100.0%100.0% n/a       Total system         Company-operated23185167    Franchised - standard and non-standard3,7343,713213,524210    Franchised - self-serve kiosks285283224243Total4,0424,014283,782260      % Franchised99.4%99.6% 99.6%   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 restaurant owners 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 or retailers for which we manage the supply chain logistics, which we include in distribution sales. Sales also include sales from Company-operated restaurants and sales from certain non-owned restaurants that are consolidated as Variable Interest Entities ("VIEs").   Rentsand royalties Includes royalties and rental revenues paid to us by restaurant owners, net of relief, and certain advertising levies associated with our Canadian Advertising Fund.   Franchise fees Includes the revenue from initial equipment packages, as well as fees for various costs and expenses related to establishing a restaurant owner's business. Franchisee fees for U.S. restaurant owners that had participated in our franchise incentive program ("FIP") are subject to certain revenue recognition criteria. Also included are revenues related to master license agreements.    Cost of sales  Includes costs associated with our distribution business, including cost of goods sold, direct labour and depreciation, as well as the cost of goods delivered by third-party distributors to the restaurants for which we manage the supply chain logistics, and for canned coffee sold through grocery stores. Cost of sales also includes food, paper and labour costs for Company-operated restaurants and certain non-owned restaurants that we consolidate as VIEs.    Operating Expenses Includes rent expense related to properties leased to restaurant owners and other property-related costs (including depreciation). Also included are certain operating expenses related to our distribution business such as order entry system connectivity costs and utilities.   Franchise fee costs Includes cost of equipment sold to restaurant owners as part of the commencement of their restaurant business, as well as training and other costs necessary to facilitate a successful restaurant opening. Franchisee fee costs for U.S. restaurant owners that had participated in our FIP are subject to certain revenue recognition criteria.   General and administrative Includes costs that cannot be directly related to generating revenue, including expenses associated with our corporate and administrative functions, and depreciation of head office buildings and office equipment, and the majority of our information technology systems.    Equity (income) Includes income from equity investments in partnerships and joint ventures and other minority investments over which we exercise significant influence, excluding joint ventures that we are required to consolidate. 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) expense, net Includes expenses (income) that are not directly derived from the Company's primary businesses. Items include foreign currency adjustments, gains and losses on asset sales, and other asset write-offs.   Noncontrolling interests Relates to the consolidation of certain non-owned restaurants that are consolidated as VIEs.      For further information: Investors: Scott Bonikowsky, (905) 339-6186 or Media: David Morelli, (905) 339-6277 or