Tim Hortons posts strong sales, earnings

by Eric Schroeder
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OAKVILLE, ONT. — Tim Hortons Inc. posted net income of C$78,889,000 ($77,541,000), equal to C$0.45 per share on the common stock, in the first quarter ended April 4, up 19% from C$66,439,000 or C$0.37 per share, in the first quarter of fiscal 2009.

Net sales rose 5% to C$582,612,000 ($572,678,000), while same-store sales grew 5.2% in Canada and 3% in the United States. U.S. sales gains related to continued contributions from the Cold Stone Creamery partnership and transaction growth through promotional activity, including menu innovation, Tim Hortons said.

“Our business achieved strong sales and earnings performance this quarter,” said Don Schroeder, president and chief executive officer. “Our competitive advantages continue to position our business among the leading companies in our sector, and we look forward to further building upon that position.”

Tim Hortons said its U.S. business sustained a loss of C$246,000 ($242,000) in the first quarter, which compared with a loss of C$564,000 in the same period a year earlier. Total U.S. sales were C$27,713,000 ($27,199,000), down from C$34,327,000.

“One of our strategic planning initiatives is to grow differently in ways we have not grown before,” Tim Hortons said in a 10-Q filing with the Securities and Exchange Commission on May 13. “Initiatives in support of this strategy include the expansion of our Cold Stone Creamery co-branding concept. In 2009, we began a strategic initiative in the U.S. to co-brand certain stores with Cold Stone Creamery and later in 2009, we expanded this initiative to Canada.

“As of April 4, 2010, we had 88 co-branded locations including 70 co-branded locations in the U.S. (66 in Tim Horton restaurants and four in Cold Stone Creamery locations) and 18 co-branded Tim Hortons restaurants in Canada. In the fourth quarter of 2009, we entered into two separate licensing arrangements with Kahala Franchise Corp., the parent company of Cold Stone Creamery Inc. The nature and purpose of the arrangements are to expand both parties’ co-branding initiatives. We have exclusive development rights in Canada, and certain rights to use licenses within the U.S., to operate ice cream and frozen confections retail outlets in combination with Tim Hortons retail outlets.

“In addition to our co-branding initiative, in 2010, we will begin testing new concept restaurants in certain U.S. markets to differentiate our customer offering as a cafe and bake shop destination.”

In issuing its first-quarter results, Tim Hortons said it has determined it is the primary beneficiary of a 50-50 bakery joint venture and consolidated the operation. As a result, costs and the remaining 50% of operating income of the joint venture — which produces and supplies Tim Hortons restaurant system with par-baked donuts, Timbits, some bread products, and pastries — and from approximately 150 additional non-owned restaurants, also have been consolidated.

The company also said its board has approved the construction of a replacement distribution center in Kingston, Ont., to provide greater supply capacity for dry goods and to expand into frozen and refrigerated product distribution for the company’s restaurant owners. Tim Hortons expects total planned capital expenditures on the facility to be approximately C$45 million, with approximately C$20 million to be incurred in 2010. When fully operational in the second half of 2011, the facility is expected to serve more than 650 restaurants in eastern Ontario, and Quebec.

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