Tim Hortons net falls 22% on reorganization charge

by Eric Schroeder
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OAKVILLE, ONT. — Tim Hortons Inc. posted net income of C$61,179,000 ($56,613,000), equal to C$0.34 per share on the common stock, in the third quarter ended Sept. 27, down 22% from C$78,757,000, or C$0.43 per share, in the previous year’s third quarter. The most recent quarterly results included a C$23.1 million impact in connection with the reorganization of Tim Hortons as a Canadian public company.

Net sales rose 11% to C$563,554,000 ($521,638,000). Same-store sales grew 3.1% in Canada and 4.3% in the United States.

Operating income, meanwhile, rose 5% to C$129,235,000 ($119,606,000) behind higher system-wide sales.

"The underlying performance of our business was healthy in the third quarter and our results continue to demonstrate the strength and resilience of our brand," said Don Schroeder, president and chief executive officer. "Operating conditions continued to be challenging in the third quarter but we remained focused on executing our growth initiatives and responding to the needs of our customers."

Tim Hortons said its U.S. segment maintained sales momentum in the third quarter, boosted by positive results at Cold Stone Creamery co-branded locations. By the end of the third quarter, 65 co-branded Tim Hortons-Cold Stone Creamery locations had been opened. Also benefitting results were promotional and menu activities, including blueberry-themed products such as Blueberry Bloom donuts, Blueberry Glazed donuts and Whole Grain Blueberry muffins.

The U.S. segment had operating income of C$1,079,000 ($998,990) in the third quarter, which compared with a loss of C$2,119,000 in the same period a year ago.

"Consistent with the last quarter, several factors contributed to the significant improvement in profitability," the company said. "The decision in late 2008 to close certain underperforming corporate restaurants, and a related market asset impairment charge, resulted in improvement in company-operated restaurant losses, and lower depreciation and rent expense in the third quarter. These factors collectively benefited operating income in the U.S. segment by C$1.2 million. Higher distribution sales, lower general administrative expenses, higher same-store sales growth, and contributions from vertical integration in the segment also contributed to the operating income improvement."

Sales in the U.S. segment totaled C$38,909,000 ($36,014,000), up 25% from C$31,162,000 in the third quarter of fiscal 2008.

In a separate announcement, Tim Hortons said its board of directors approved resuming a share repurchase program beginning in the fourth quarter. The company said it expects to spend up to C$150 million during the remainder of the program until it ends on March 1, 2010.

"Our decision to resume our share repurchase program reflects in part efficiencies arising from our new corporate structure as well as our continued confidence in our strong cash flow generation capabilities," said Cynthia Devine, chief financial officer.

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