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Tim Hortons Inc. Announces 2014 Second Quarter Results

By: Tim Hortons |  0 Shares     119 Reads

Significant top-line momentum in both Canada and the U.S. and strong operating performance contributes to 13.6% EPS increase.

(Unaudited. All amounts in Canadian dollars and presented in accordance with U.S. GAAP.)

Financial & Sales Highlights

Performance           Q2 2014       Q2 2013       % Change     YTD 2014   Total revenues           $ 874.3       $ 800.1       9.3%     $ 1,640.7   Operating income           $ 192.4       $ 176.6       8.9%     $ 337.7   Effective tax rate             28.3 %       26.1 %           28.5 % Net income attributable to THI           $ 123.8       $ 123.7       0.0%     $ 214.7   Diluted earnings per share attributable to THI ("EPS")           $ 0.92       $ 0.81       13.6%     $ 1.57   Fully diluted shares (weighted average)             134.4         152.6       (12.0)%       136.5   (All numbers in millions, except EPS and effective tax rate.  All numbers rounded.)

 

Same-Store Sales(1)						Q2 2014			Q2 2013			YTD 2014
Canada						2.6%			1.5%			2.1%
U.S.						5.9%			1.4%			3.9%

(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.

Highlights

• Acceleration in same-store sales growth contributed to strong operating performance
• Successful product innovation and launches, including the Crispy Chicken Sandwich in Canada and Frozen Hot Chocolate in the U.S., resulted in strong sales growth
• Significant advancements made in mobile technology introduced in the quarter, including new mobile payment capabilities
• Company expects 2014 EPS and U.S. same-store sales growth to be at the high end or slightly above target ranges

OAKVILLE, ON, Aug. 6, 2014 // PRNewswire // - Tim Hortons Inc. (TSX: THI, NYSE: THI) today announced results for the second quarter ended June 29, 2014.

"Guests have been responding favourably to our menu and technology innovation, resulting in good momentum in our business. Our second quarter results reflect strong organizational alignment and execution of our Winning in the New Era strategic plan," said Marc Caira, president and CEO.

Consolidated Results

All percentage increases and decreases represent year-over-year changes for the second quarter of 2014 compared to the second quarter of 2013, unless otherwise noted.

Systemwide sales(2) increased 6.5% on a constant currency basis. This growth resulted from new restaurant development in Canada and the U.S., and from same-store sales growth of 2.6% in Canada and 5.9% in the U.S.

Total revenues grew 9.3% to $874.3 million compared to $800.1 million last year. Systemwide sales growth was the primary driver of both a 9.2% increase in distribution sales and a 7.5% increase in rents and royalties revenue. Franchise fee revenues were significantly higher due to increased levels of restaurant renovations and development in Canada, which also resulted in a significant increase in associated franchise fee costs.

Cost of sales increased by 7.8%, due primarily to growth in distribution cost of sales. Operating expenses increased by 9.6%, due to higher rent and depreciation costs related to new restaurant openings and increased depreciation related to renovations. G&A expenses grew by 5.8% due to increased salaries and benefits resulting primarily from fewer vacancies in the organization this year, and higher professional fees related to initiatives to support the execution of our strategic plan. The comparable quarter of 2013 included $0.6 million of corporate reorganization expenses which did not recur this quarter.

Operating income increased 8.9% to $192.4 million, compared to $176.6 million a year earlier.

Net income attributable to Tim Hortons Inc. was flat at $123.8 million, as growth in operating income was offset by the effects of our recent recapitalization, which resulted in increased interest expense and a higher effective tax rate. The effective tax rate in the second quarter of 2013 was also favourably impacted by a change in reserve balances.

EPS of $0.92 grew by 13.6% due to our strong operating performance, as well as the recent recapitalization and resulting expanded share repurchase program, which led to a decrease of 18.3 million shares outstanding, on average, compared to the second quarter of 2013.

Given our strong sales progression and momentum going into the second half of the year, we expect our EPS for fiscal 2014 to be at the high end, or slightly above, our targeted range of $3.17 to $3.27.

Segmented Performance Commentary

Same-store sales growth rates strengthened considerably in comparison to recent quarters including the second quarter of 2013.

Canada

Canadian same-store sales growth of 2.6% was driven by gains in average cheque resulting from favourable product mix and pricing, partially offset by a decline in same-store transactions. Systemwide transactions grew as a result of new restaurants added to our system. Average cheque benefited from increased sales in the lunch daypart, led by the recent successful introduction of our Crispy Chicken Sandwich, as well as increased sales in the breakfast daypart, driven by new product introductions such as the Turkey Sausage Hot Breakfast Sandwich and our enhanced Hash Brown.

Operating income in the Canadian segment grew 8.1% to $188.9 million. Systemwide sales growth of 5.8% resulted in increased rents and royalties income and a higher allocation of supply chain income. The Canadian segment also benefited from increased franchise fee income. We opened 29 restaurants in Canada in the second quarter.

United States

U.S. same-store sales grew considerably year-over-year, up 5.9% in the quarter, driven by gains in average cheque resulting from favourable product mix and pricing. Cold beverage sales made a positive contribution due to successful new product introductions such as Frozen Hot Chocolate and ongoing innovation around our Iced Capp platform. Continued growth in the breakfast daypart also contributed to same-store sales growth.

On the basis of our significant sales progression year-to-date, we expect that same-store sales growth in the U.S. for 2014 will be at the high end, or slightly above, our targeted range of 2% to 4%.

Operating income in the U.S. segment was $9.3 million, an increase of $6.7 million compared to the second quarter of 2013. Systemwide sales growth of 12.3% resulted in growth in rents and royalties income and a higher allocation of supply chain income. U.S. operating income also benefited from the favourable timing of certain expenses. Our operating momentum in the U.S. has resulted in increasing operating income and continued cash flow contributions from that segment over the first half of 2014.

We opened one restaurant in the U.S. in the second quarter. Subsequent to the quarter, we signed a development agreement with a new partner to add 25 Tim Hortons locations in Richmond County, New York, and Middlesex County, New Jersey over the next 10 years. We have now completed six development agreements in the U.S. representing approximately 135 new restaurants over 10 years.

Corporate services

The Corporate services segment had an operating loss of $8.0 million, compared to a loss of $1.4 million in the second quarter of 2013. The increased loss was driven by increased corporate costs, and unfavourable product margins in our supply chain recognized in the second quarter of 2014 compared to favourable product margins recognized a year earlier. We expect product margin variability to generally reverse within the fiscal year.

Our international partner, Apparel FZCO, opened six restaurants in the Gulf Cooperation Council in the quarter.

Significant Developments & Initiatives

Board declares dividend payment of $0.32 per common share

The Board of Directors has declared a quarterly dividend of $0.32 per common share, payable on September 3, 2014, to shareholders of record as of the close of business on August 18, 2014. Dividends declared will be 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 CDS Clearing and Depository Services Inc. for beneficial shareholders.

Tim Hortons conference call today at 2:30 p.m. (EDT) Wednesday, August 6, 2014

Tim Hortons will host a conference call today to discuss second quarter results, scheduled to begin at 2:30 p.m. (EDT). The dial-in number is (416) 915-3239 or (800) 319-4610. 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 13, 2014 and can be accessed at (800) 319-6413. The call replay reservation number is 1447#. The call and presentation material will also be archived for one year in the Events and Presentations section of our website.

Safe Harbor Statement

Certain information in this news release, particularly information regarding future 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 2013 Annual Report on Form 10-K filed on February 25, 2014, and our Quarterly Report on Form 10-Q expected to be filed on August 6, 2014 with the U.S. Securities and Exchange Commission and the Canadian Securities Administrators, could affect the Company's actual results and cause such results to differ materially from those expressed in, or implied by, 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: (i) prospects and execution risks concerning our growth strategy; (ii) the absence of an adverse event or condition that damages our strong brand position and reputation; (iii) the absence of a material increase in competition or in volume or type of competitive activity within the quick service restaurant segment of the food service industry; (iv) cost and availability of commodities; (v) the absence of an adverse event or condition that disrupts our distribution operations or impacts our supply chain; (vi) continuing positive working relationships with the majority of the Company's restaurant owners; (vii) the absence of any material adverse effects arising as a result of litigation; (viii) there being no significant change in the Company's ability to comply with current or future regulatory requirements; (ix) the ability to retain our senior management team or the inability to attract and retain new qualified personnel; * the Company's ability to maintain investment grade credit ratings; (xi) the Company's ability to obtain financing on favorable terms; and (xii) 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 www.timhortons.com/ca/en/corporate/safe-harbor.php.

(2) Total systemwide sales growth includes restaurant level sales at both Company-operated and franchised restaurants. Approximately 99.6% of our systemwide restaurants were franchised as at June 29, 2014. 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 second quarter of 2014, systemwide sales on a constant currency basis increased 6.5% compared to the second quarter of 2013. Systemwide sales growth in Canadian dollars, including the effects of foreign currency translation, was 7.2% in the second quarter of 2014. 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). The amount of systemwide sales impacts our rental and royalties revenues, as well as distribution revenues.

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, hot and cold specialty drinks (including lattes, cappuccinos and espresso shots), specialty teas and fruit smoothies, fresh baked goods, grilled Panini and classic sandwiches, wraps, soups, prepared foods and other food products. As of June 29, 2014, Tim Hortons had 4,546 systemwide restaurants, including 3,630 in Canada, 866 in the United States and 50 in the Gulf Cooperation Council. More information about the Company is available at www.timhortons.com.

 

TIM HORTONS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (in thousands of Canadian dollars, except share and per share data) (Unaudited)
						Second quarter ended
						June 29, 2014				June 30, 2013				$ Change					% Change
Revenues
	Sales					$	613,829			$	568,562			$		45,267				8.0	%
	Franchise revenues
		Rents and royalties					224,953				209,289					15,664				7.5	%
		Franchise fees					35,565				22,288					13,277				59.6	%
							260,518				231,577					28,941				12.5	%
Total revenues							874,347				800,139					74,208				9.3	%
Costs and expenses
	Cost of sales						527,132				489,092					38,040				7.8	%
	Operating expenses						84,411				76,986					7,425				9.6	%
	Franchise fee costs						34,906				23,326					11,580				49.6	%
	General and administrative expenses						40,241				38,038					2,203				5.8	%
	Equity (income)						(3,975)				(3,916)					(59)				1.5	%
	Corporate reorganization expenses						—				604					(604)			n/m
	Other (income) expense, net						(735)				(570)					(165)				28.9	%
Total costs and expenses, net							681,980				623,560					58,420				9.4	%
Operating income							192,367				176,579					15,788				8.9	%
	Interest (expense)						(18,648)				(8,922)					(9,726)			n/m
	Interest income						1,138				791					347				43.9	%
Income before income taxes							174,857				168,448					6,409				3.8	%
Income taxes							49,425				43,886					5,539				12.6	%
Net income							125,432				124,562					870				0.7	%
Net income attributable to noncontrolling interests							1,682				826					856			n/m
Net income attributable to Tim Hortons Inc.						$	123,750			$	123,736			$		14				0.0	%
Basic earnings per common share attributable to  Tim Hortons Inc.						$	0.92			$	0.81			$		0.11				13.6	%
Diluted earnings per common share attributable  to Tim Hortons Inc.						$	0.92			$	0.81			$		0.11				13.6	%
Weighted average number of common shares  outstanding (in thousands) - Basic							133,899				152,083					(18,184)				(12.0)	%
Weighted average number of common shares  outstanding (in thousands) - Diluted							134,367				152,637					(18,270)				(12.0)	%
Dividends per common share						$	0.32			$	0.26			$		0.06

 

 

TIM HORTONS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (in thousands of Canadian dollars, except share and per share data) (Unaudited)
						Year-to-date period ended
						June 29, 2014				June 30, 2013				$ Change					% Change
Revenues
	Sales					$	1,154,859			$	1,092,449			$		62,410				5.7	%
	Franchise revenues
		Rents and royalties					424,462				396,743					27,719				7.0	%
		Franchise fees					61,428				42,484					18,944				44.6	%
							485,890				439,227					46,663				10.6	%
Total revenues							1,640,749				1,531,676					109,073				7.1	%
Costs and expenses
	Cost of sales						1,000,715				950,446					50,269				5.3	%
	Operating expenses						165,669				152,719					12,950				8.5	%
	Franchise fee costs						62,589				45,878					16,711				36.4	%
	General and administrative expenses						79,460				76,706					2,754				3.6	%
	Equity (income)						(7,321)				(7,265)					(56)				0.8	%
	Corporate reorganization expenses						—				10,079					(10,079)				n/m
	Other (income) expense, net						1,983				(1,383)					3,366				n/m
Total costs and expenses, net							1,303,095				1,227,180					75,915				6.2	%
Operating income							337,654				304,496					33,158				10.9	%
	Interest (expense)						(35,324)				(17,585)					(17,739)				n/m
	Interest income						2,115				1,719					396				23.0	%
Income before income taxes							304,445				288,630					15,815				5.5	%
Income taxes							86,658				77,145					9,513				12.3	%
Net income							217,787				211,485					6,302				3.0	%
Net income attributable to noncontrolling interests							3,128				1,578					1,550				n/m
Net income attributable to Tim Hortons Inc.						$	214,659			$	209,907			$		4,752				2.3	%
Basic earnings per common share attributable to  Tim Hortons Inc.						$	1.58			$	1.38			$		0.20				14.7	%
Diluted earnings per common share attributable  to Tim Hortons Inc.						$	1.57			$	1.37			$		0.20				14.7	%
Weighted average number of common shares  outstanding (in thousands) - Basic							136,007				152,597					(16,590)				(10.9)	%
Weighted average number of common shares  outstanding (in thousands) - Diluted							136,477				153,133					(16,656)				(10.9)	%
Dividends per common share						$	0.64			$	0.52			$		0.12

 

TIM HORTONS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (in thousands of Canadian dollars, except share and per share data) (Unaudited)
							As at
							June 29, 2014								December 29, 2013
Assets
	Current assets
	Cash and cash equivalents						$					25,087			$	50,414
	Restricted cash and cash equivalents											85,926				155,006
	Accounts receivable, net											220,157				210,664
	Notes receivable, net											7,619				4,631
	Deferred income taxes											9,985				10,165
	Inventories and other, net											117,776				104,326
	Advertising fund restricted assets											39,078				39,783
Total current assets												505,628				574,989
Property and equipment, net												1,681,010				1,685,043
Notes receivable, net												598				4,483
Deferred income taxes												11,693				11,018
Equity investments												40,372				40,738
Other assets												117,452				117,552
Total assets							$					2,356,753			$	2,433,823
Liabilities and equity
	Current liabilities
	Accounts payable						$					171,118			$	204,514
	Tim Card obligation											128,517				184,443
	Accrued liabilities											65,835				89,565
	Advertising fund liabilities											38,782				59,912
	Short-term borrowings											15,000				30,000
	Current portion of long-term obligations											18,336				17,782
Total current liabilities												437,588				586,216
	Long-term obligations
	Long-term debt											1,293,035				843,020
	Capital leases											125,048				121,049
	Deferred income taxes											8,123				9,929
	Other long-term liabilities											108,557				112,090
Total long-term obligations												1,534,763				1,086,088
Commitments and contingencies
Equity
	Equity of Tim Hortons Inc.
	Common shares ($2.84 stated value per share), Authorized: unlimited shares. Issued: 133,126,058 and 141,329,010 shares, respectively											377,442				400,738
	Common shares held in Trust, at cost: 329,089 and 293,816 shares, respectively											(15,422)				(12,924)
	Contributed surplus											11,914				11,033
	Retained earnings											131,926				474,409
	Accumulated other comprehensive loss											(123,066)				(112,102)
Total equity of Tim Hortons Inc.												382,794				761,154
Noncontrolling interests												1,608				365
Total equity												384,402				761,519
Total liabilities and equity							$					2,356,753			$	2,433,823

 

TIM HORTONS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands of Canadian dollars) (Unaudited)
							Year-to-date period ended
							June 29, 2014								June 30, 2013
Cash flows provided from (used in) operating activities
Net income							$					217,787			$					211,485
Adjustments to reconcile net income to net cash provided from operating activities
	Depreciation and amortization											79,774								72,368
	Stock-based compensation expense											886								12,535
	Deferred income taxes											2,149								(2,539)
Changes in operating assets and liabilities
	Restricted cash and cash equivalents											69,141								46,356
	Accounts receivable											(16,667)								(8,254)
	Inventories and other											(13,593)								(5,218)
	Accounts payable and accrued liabilities											(81,678)								(75,262)
	Taxes											(9,230)								4,144
Settlement of interest rate forwards												(4,851)								—
Deposit with tax authorities												(1,721)								—
Other												(14,274)								2,714
Net cash provided from operating activities												227,723								258,329
Cash flows (used in) provided from investing activities
	Capital expenditures											(94,442)								(88,272)
	Capital expenditures - Advertising fund											(4,438)								(5,224)
	Other investing activities											3,038								6,125
Net cash (used in) investing activities												(95,842)								(87,371)
Cash flows (used in) provided from financing activities
	Repurchase of common shares											(493,476)								(113,803)
	Dividend payments to common shareholders											(86,910)								(79,348)
	Net proceeds from issue of debt											448,299								—
	Short-term (repayments) borrowings, net											(15,000)								—
	Principal payments on long-term debt obligations											(8,280)								(8,543)
	Other financing activities											(1,980)								(5,001)
Net cash (used in) financing activities												(157,347)								(206,695)
Effect of exchange rate changes on cash												139								2,201
(Decrease) in cash and cash equivalents												(25,327)								(33,536)
Cash and cash equivalents at beginning of period												50,414								120,139
Cash and cash equivalents at end of period							$					25,087			$					86,603
Supplemental disclosures of cash flow information:
	Interest paid						$					30,712			$					17,131
	Income taxes paid						$					102,946			$					77,540
Non-cash investing and financing activities:
	Capital lease obligations incurred						$					14,173			$					19,219

 

TIM HORTONS INC. AND SUBSIDIARIES SEGMENT REPORTING (in thousands of Canadian dollars) (Unaudited)
							Second quarter ended								Year-to-date period ended
							June 29, 2014				June 30, 2013				June 29, 2014				June 30, 2013
Revenues(1)
	Canada						$	721,599			$	657,682			$	1,344,784			$	1,251,355
	U.S.							51,878				41,220				103,053				85,668
	Corporate services							3,636				5,204				9,305				9,329
Total reportable segments								777,113				704,106				1,457,142				1,346,352
VIEs(2)								97,234				96,033				183,607				185,324
Total							$	874,347			$	800,139			$	1,640,749			$	1,531,676
Operating Income (Loss)
	Canada						$	188,866			$	174,760			$	342,332			$	320,581
	U.S.							9,254				2,587				13,611				3,497
	Corporate services							(8,041)				(1,424)				(22,575)				(12,089)
Total reportable segments								190,079				175,923				333,368				311,989
VIEs(2)								2,288				1,260				4,286				2,586
Corporate reorganization expenses								—				(604)				—				(10,079)
Consolidated Operating Income								192,367				176,579				337,654				304,496
Interest, net								(17,510)				(8,131)				(33,209)				(15,866)
Income before income taxes							$	174,857			$	168,448			$	304,445			$	288,630

 

________________
(1)	There are no inter-segment revenues included in the above table.
(2)	Variable interest entities.

 

Consolidated Sales comprise the following:

							Second quarter ended								Year-to-date period ended
							June 29, 2014				June 30, 2013				June 29, 2014				June 30, 2013
Sales
	Distribution sales						$	511,762			$	468,597			$	964,115			$	899,748
	Company-operated restaurant sales							7,739				6,501				13,035				12,477
	Sales from VIEs							94,328				93,464				177,709				180,224
Total Sales							$	613,829			$	568,562			$	1,154,859			$	1,092,449

 

SOURCE Tim Hortons

News Provided by Acquire Media

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