OAKVILLE, ONT. — Tim Hortons Inc. on Nov. 11 said it will close 36 restaurants, 34 of which are located in the Providence, R.I., and Hartford, Conn., markets, in the fourth quarter “in order to focus on and reinvest in our core growth markets in the Northeast and Midwest U.S. where the brand continues to demonstrate strengthening average unit volumes, cash flows and brand progression.”
Additionally, the company said it has decided to deploy approximately C$400 million of the C$430 million in after-tax cash proceeds from the sale of its joint venture interest in Maidstone Bakeries to repurchase shares through an amended 2010 program, and through a 2011 share repurchase program. The company also has committed to use the remaining C$30 million from the sale for supporting a key relationship with restaurant owners to help to partially mitigate anticipated rising operating costs.
The announcements were made as part of the company’s release of its third-quarter financials.
Tim Hortons Inc. posted net income of C$73,828,000 ($73,600,000), equal to C$0.43 per share on the common stock, in the third quarter ended Oct. 3, up 21% from C$61,179,000, or C$0.34 per share, in the third quarter of fiscal 2009.
Net sales rose 10% to C$670,520,000 ($668,236,000) from C$610,714,000. Same-store sales grew 4.3% in Canada and 3.3% in the United States.
Operating income, meanwhile, fell 3% to C$133,010,000 ($132,502,000) behind a C$20.9 million asset impairment charge.
“We continued to create sales momentum in the third quarter with strong operating performances in both our Canadian and U.S. segments,” said Don Schroeder, president and chief executive officer. “However, at the same time, we incurred an asset impairment charge and subsequently made the decision to close all of our underperforming restaurants in two markets in the New England region. We expect this decision to have a positive impact on our U.S. business in terms of our continued business progression and management focus.”
The U.S. segment had an operating loss of C$17,483,000 ($17,408,000) in the third quarter, which compared with income of C$1,079,000 in the same period a year ago. Not including the C$20.9 million asset impairment charge related to three markets in the New England region, the company would have posted operating income of C$3.4 million. Net sales in the United States totaled C$33,573,000 ($33,429,000), up from C$32,071,000.
“We are profitably growing our U.S. business in our core Northeast and Midwest U.S. markets and overall we are seeing sales develop consistent with our expectations and long-term views of success,” Mr. Schroeder said. “The restaurants we are closing in the New England region have detracted from that performance and our overall development in the U.S. We believe this step removes a significant impediment to our long-term growth and development. These restaurants represent a small portion of our overall system in the U.S., but had a disproportionately large negative impact on earnings, average unit volumes and same-store sales growth in the segment.”
Tim Hortons said it expects to record an accounting gain on the sale of Maidstone Bakeries in the fourth quarter of fiscal 2010 of between C$355 million and C$365 million, and between C$310 million and C$320 million after taxes.