Tim Hortons Continues Momentum with Robust Fourth Quarter Sales and Earnings Results

Quarterly dividend increased 23.5% to $0.21 per common share, New share repurchase program of up to $200 million announced

Tim Hortons



Financial & Sales Highlights

Q4 2011


Q4 2010




Full Year


Full Year



Total Revenues $ 779.8 $ 643.5   21.2% $ 2,853.0 $ 2,536.5   12.5%
Operating income(1) $ 152.8 $ 461.6   N/M $ 569.5 $ 872.2   N/M
Adjusted operating income(2) $ 150.8 $ 131.7   14.5% $ 567.8 $ 519.3   9.4%
Effective Tax Rate(3)   28.7%   16.6%       29.0%   23.7%    
Net Income attributable to THI $ 103.0 $ 377.1   N/M $ 382.8 $ 624.0  


Diluted Earnings Per Share (EPS) $ 0.65 $ 2.19   N/M $ 2.35 $ 3.58   N/M
Fully Diluted Shares   158.4   172.2   (8.0)%   162.6   174.2   (6.7)%

N/M - Not meaningful 

($ in millions, except EPS. Fully diluted shares in millions.  All numbers rounded.)

(1) Fourth quarter and full-year 2010 operating income included a gain of $361.1 million from the sale of our 50% joint-venture interest in Maidstone Bakeries, offset in part by $30 million, related to the sale, allocated to our restaurant owners.  Operating income for 2010 included earnings contributions from Maidstone Bakeries prior to the sale.  Fourth quarter 2010 operating income included a net charge of $7.4 million, and $28.3 million for the full-year, from asset impairment and related restaurant closure costs.
(2) Adjusted operating income is a non-GAAP measure.  For additional details, please refer to "Detailed Information on non-GAAP Measure" and the reconciliation information in this release.
(3) Fourth quarter and full-year 2010 effective tax rates were significantly lower compared to 2011 due primarily to a lower effective tax rate arising from the gain from the Maidstone Bakeries sale.


Same-Store Sales Growth(4)           Q4 2011           2011 Full Year
Canada           5.5%           4.0%
U.S.           7.2%           6.3%


(4) Includes sales at Franchised and Company-operated locations open for 13 months or more.  Substantially all of our restaurants are franchised.


  • Same-store sales growth accelerated in both Canada and the U.S.
  • Fourth quarter adjusted operating income(2) increased 14.5%
  • Quarterly dividend increased 23.5% to $0.21 per common share
  • New share repurchase program of up to $200 million announced
  • New performance and financial targets released for 2012

Tim Hortons Inc. (TSX: THI, NYSE: THI) today announced its results for the fourth quarter and full-year ended January 1st, 2012.

"Our disciplined focus on responding to our guests' needs, evolving our business and executing our growth strategies resulted in great momentum in the fourth quarter and a strong finish to the year.  We are pleased with our system's performance in persistently challenging operating conditions throughout 2011 and believe we have created a strong foundation on which we will continue to build," said Paul House, Executive Chairman and President and CEO.

Consolidated Results

All percentage increases and decreases represent year-over-year changes for the fourth quarter of 2011 compared to the fourth quarter of 2010, unless otherwise noted. On a comparative basis, the fourth quarter of 2010 included a substantial gain from the sale of our 50% joint-venture interest in Maidstone Bakeries (the "Bakery"), which had a significant impact on earnings and other line items in that quarter.

We grew fourth quarter 2011 systemwide sales(5) by 9.2% on a constant currency basis.  This performance benefited from strong same-store sales growth and continued implementation of our new restaurant development strategies.

Our total revenues increased 21.2%, to $779.8 million, compared to $643.5 million last year.  In the fourth quarter of 2010, we allocated $30.0 million to our restaurant owners from the proceeds of the sale of our joint-venture interest in the Bakery, which reduced our revenues in the comparable fourth quarter of 2010. In addition, rents and royalties benefited from same-store sales growth and new restaurant openings. Distribution sales growth outpaced our system growth due to the continued impact of higher commodity costs and new products being delivered through our replacement Kingston distribution centre.  Franchise fees were up significantly year-over-year due to a higher number of restaurant openings, resales and replacements.

In 2011, cost of sales increased 19.4% during the fourth quarter, reflecting systemwide sales growth and higher commodity costs, which contributed to higher distribution sales as noted previously.  Cost of sales also included start-up costs associated with our new Kingston distribution centre.

Operating expenses grew modestly, increasing 3.3%, reflecting a higher number of restaurants, partially offset by the timing of certain expenses in the prior year.  General and administrative expenses rose 6.6%, primarily due to higher salaries and benefits, and increased investments in U.S. marketing to grow our business.  Increased costs in these areas were partially offset by lower year-over-year professional fees associated with strategic planning activities last year.

Fourth quarter operating income was $152.8 million compared to $461.6 million last year.  For comparison purposes, operating income in the fourth quarter of 2010 included the net impacts from the Bakery sale and restaurant closure and impairment costs.

Absent these items, adjusted operating income grew 14.5% to $150.8 million compared to $131.7 million last year.  (Adjusted operating income is a non-GAAP measure.  See reconciliation to operating income, the nearest GAAP measure, below under "Detailed Information on non-GAAP Measure").  Our performance benefited from robust system sales growth and other factors described previously.

Fourth quarter net income attributable to THI was $103.0 million compared to $377.1 million in 2010.  The factors affecting operating income comparisons between 2011 and 2010 also affected our net income.  Net interest expense was also slightly higher this year compared to last year due to a shift in our debt to fixed rates and an increased number of capital leases in our system. The Bakery sale also contributed to a significantly lower effective tax rate of 16.6% in the fourth quarter of 2010 compared to 28.7% in the fourth quarter of 2011.

Diluted earnings per share (EPS) in the fourth quarter was $0.65 compared to $2.19 last year. Excluding the net impact of the Bakery sale and restaurant closure and impairment costs in the New England region in the prior year, EPS in the fourth quarter of last year would have been $0.52, representing a year-over-year increase of 25.8%.  In addition to the factors affecting net income, fourth quarter EPS benefited from 8.0% fewer shares outstanding in the quarter compared to the same period last year due to the Company's share repurchase activities, including deployment of the net proceeds from the sale of the Bakery to repurchase shares.

On a full-year basis, systemwide sales(5) increased 7.4% on a constant currency basis.  Total revenues rose 12.5% to $2.85 billion compared to $2.54 billion last year.  Our 2011 operating income was $569.5 million compared to $872.2 million, with the year-over-year decline driven by the Bakery impact, partially offset by the restaurant closure and impairment costs in the prior year.  Net income attributable to THI in 2011 was $382.8 million.  EPS for the full year was $2.35.  This includes a $0.03 per share impact from the separation and other costs related to our former President and CEO.  Our full-year EPS benefited from 6.7% fewer shares due to our share repurchase program.  The effective tax rate for the full year was 29.0% compared to 23.7% last year.

Segmented Performance Commentary

Our Canadian and U.S. segments both delivered robust same-store sales growth during the fourth quarter, with positive growth in transactions and average cheque in both markets.


Fourth quarter same-store sales grew by 5.5% in our Canadian segment, significantly outpacing growth earlier in the year.  Increases in average cheque due to product innovation and previous pricing in the system, and slightly positive same-store transactions growth, contributed to this strong performance.  In addition, we benefited in the quarter from milder weather compared to the year-ago period.

We opened 79 restaurants in the fourth quarter, including 50 standard restaurants, 26 non-standard full-serve locations and 3 self-serve kiosks.

Canadian segment operating income was $159.4 million, compared to $478.0 million last year, with the significant year-over-year decrease reflecting the 2010 gain on the sale of the Bakery less the restaurant owner allocation.  Absent the Bakery sale and related earnings impacts, operating income would have increased 9.9% year-over-year. Strong systemwide sales was the most significant factor contributing to our underlying performance, which also benefited from a property disposition, partially offset by higher general and administrative costs and lower coffee margins due primarily to prior favourability which reversed as anticipated because of the timing of coffee prices and underlying costs in our supply chain.

On a full-year basis, our Canadian segment increased same-store sales 4.0%, within our targeted range of 3% to 5%.  We opened 175 restaurants in 2011, toward the higher end of our targeted range of 160-180 openings.  Operating income in the segment for the full-year was $607.7 million, up 7.0% over the prior year absent the gain on the sale of the Bakery and related income impacts.

United States

Our U.S. segment had the strongest quarter of same-store sales growth since 2006, increasing 7.2% on top of 6.3% same-store sales growth it delivered in the same period of 2010.

We drove solid gains in average cheque from pricing previously in the system and product innovation, and same-store sales also benefited from transaction growth. We believe our continued momentum in the U.S. has benefited from our strategic focus on brand differentiation and awareness, product innovation, enhanced marketing and promotional initiatives and capital deployment to increase restaurant penetration in our core growth markets.  We also benefited from milder weather compared to the fourth quarter of 2010.

A total of 70 new locations were opened in the fourth quarter of 2011, including 44 standard and non-standard full-serve locations and 26 self-serve kiosks, which are designed to increase brand penetration and convenience.

We had fourth quarter operating income of $5.6 million in the U.S. segment compared to an operating loss of $4.2 million last year.  Last year's results include the New England restaurant closure and impairment costs of approximately $7.4 million. Our underlying performance resulted from very strong systemwide sales growth, which benefited from higher rents, royalties and distribution income.  Our topline growth was driven in part by increased investments we are making to enhance our advertising and marketing scale and reach.

In 2011 on a full-year basis, we grew same-store sales in the U.S. segment by 6.3%, our healthiest rate of growth since before the recessionary environment took hold, and ahead of our targeted range of 3% to 5% growth.  We opened 114 locations in the U.S. in 2011, comprised of 30 standard full-serve restaurants, 42 full-serve non-standard locations and 42 self-serve kiosks, leveraging opportunities to significantly increase our brand penetration.  We had targeted opening 70 to 90 full-serve restaurants.

The U.S. segment achieved record earnings in 2011 with $15.1 million (US$15.2 million) in operating income, approaching the top-end of our targeted range of US$13 million to US$16 million.  Absent the restaurant closure and impairment charges recorded in 2010 and a related recovery in 2011, operating income would have increased $4.6 million over 2010, demonstrating continued progress and momentum in the business.

Internationally, we opened four restaurants in the fourth quarter as part of our international strategy, through our master licensee, in the Gulf Cooperation Council, and five locations for the full- year.

Corporate Developments

Quarterly dividend payment increased 23.5% to $0.21 per common share

We are increasing our quarterly dividend by approximately 23.5%, to $0.21 per common share, within our 30% to 35% targeted payout range, reflecting our continued confidence in our cash flow generation ability.  Accordingly, the Board has declared a quarterly dividend of $0.21 per common share payable on March 20th, 2012 to shareholders of record as of March 5th, 2012.  Payout of future dividends and our targeted payout range remains subject to Board approval.  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 Clearing and Depository Services Inc. for beneficial shareholders.

New share repurchase program of up to $200 million announced

Tim Hortons will commence a new share repurchase program for up to $200 million in common shares, not to exceed the regulatory maximum of 13,668,332 shares, representing 10% of the Company's public float as of February 20th, 2012, as defined under the Toronto Stock Exchange ("TSX") rules. The bid is planned to commence on March 5th, 2012 and is due to terminate on March 4th, 2013.

Subject to the negotiation and execution of a broker agreement, the Company's common shares will be purchased under the program through a combination of a 10b5-1 automatic trading plan as well as at Management's discretion in compliance with regulatory requirements, and given market, cost and other considerations.

Repurchases will be made through the facilities of the TSX (and/or other Canadian marketplaces), the New York Stock Exchange ("NYSE"), or by such other means as may be permitted by the TSX and/or the NYSE, and under applicable laws, including private agreements permitted under issuer bid exemption orders issued by a securities regulatory authority in Canada. Purchases made by way of private agreements under an issuer bid exemption order by a securities regulatory authority will be at a discount to the prevailing market price as provided in the exemption order.

There can be no assurance as to the precise number of shares that will be repurchased under the share repurchase program, or the aggregate dollar amount of the shares purchased. Tim Hortons may discontinue purchases at any time, subject to compliance with applicable regulatory requirements. Shares purchased pursuant to the share repurchase program will be cancelled.

The maximum number of shares that may be purchased during any trading day may not exceed 25% of the average daily trading volume on the TSX, excluding purchases made by Tim Hortons under its current normal course issuer bid, based on the previous six completed calendar months, for a daily total of 103,928 common shares. This limit, for which there are permitted exceptions, is determined in accordance with regulatory requirements. Under the 2011 program, up to February 20th, 2012, Tim Hortons purchased 9,373,968 shares at an average net price of $45.94. As of February 20th, 2012, we had 157,430,411 common shares outstanding.

2012 Outlook

"Our 'More than a Great Brand' strategic plan is designed to deliver innovation to our guests, build upon our clear market leadership position and enable us to pursue new avenues of growth.  In 2012, we will continue to invest in a focused manner to differentiate our business and deliver shareholder value," said Paul House, Executive Chairman, and President and CEO.

The Company has established the following 2012 performance targets:

  • Diluted earnings per share (EPS) of $2.65 to $2.75.
  • 2012 same-store sales growth of 3% to 5% in Canada and 4% to 6% in the U.S.
  • A total of 250 to 290 restaurant openings, including:
    • 155 to 175 restaurant openings in Canada
    • 80 to 100 full-serve restaurant openings in the U.S
    • Approximately 15 restaurant openings in the Gulf Cooperation Council
  • Capital expenditures between $220 million to $260 million. Our increased level of capital expenditures reflects enhanced design elements and continued restaurant development activity in both Canada and the U.S., and the Company's share of investments to increase restaurant drive-thru capacity in Canada, including initiatives such as selectively implementing order station relocations, double-order stations and, double-lane drive-thrus.  Our increased capital expenditures also reflect investments to accelerate renovations in Canada, which will feature more contemporary design elements similar to our new restaurant development sites.
  • In addition, our Canadian advertising fund will be investing up to $100 million to expand the use of digital menu boards in our Canadian restaurants in fiscal 2012 along with new drive-thru rotating menu boards. These expenditures will be funded primarily through third-party financing, which will be secured by the Canadian advertising fund's assets. For accounting purposes, advertising funds are consolidated as variable interest entities, and as a result, will be reflected in our Consolidated Financial Statements.
  • Effective tax rate of approximately 28%.

These targets are for 2012 only, are forward-looking, and are based on our expectations and outlook and shall be effective only as of the date the targets were originally issued.  The operational objectives and financial outlook (collectively, "targets") established for 2012 are based on accounting, tax and/or other regulatory or legislative rules in place at the time the targets were issued.  The impact of future changes in accounting, tax and/or other regulatory or legislative rules that may or may not become effective in fiscal 2012, changes to our share repurchase activities, and accounting, tax, audit or other matters not contemplated at the time the targets were established that could affect our business, are not included in the determination of these targets.

Except as required by applicable securities laws, we do not intend to update our annual financial targets. These targets and our performance generally are subject to various risks and uncertainties ("risk factors") which may impact future performance and our achievement of these targets. Refer to our safe harbor statement, which incorporates by reference our "risk factors," set forth at the end of this release, and our Annual Report on Form 10-K for 2010 filed on February 25th, 2011 and our Annual Report on Form 10-K for 2011 (expected to be filed on or about February 27th, 2012).

Annual and Special Meeting of Shareholders

The Board of Directors has set a record date of March 15th, 2012 for the annual and special meeting of shareholders.  The meeting will be held on Thursday, May 10th at 10:30 a.m. EST at the School of Hospitality Management, Ryerson University, 55 Dundas Street West, 7th Floor Auditorium in Toronto, Ontario.

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