OAKVILLE, ON, Canada – Tim Hortons Inc. announced today (November 5, 2014) results for the third quarter ended September 28, 2014.
“We have strong momentum in our business, supported by early stage execution of our strategic plan. We are pleased with our ongoing growth and evolution which we believe is positioning our brand for long-term success,” said Marc Caira, president and CEO. “With our strategic transaction announced in August, we can build on our momentum and have the opportunity to participate in the creation of a global powerhouse in the quick service restaurant sector. We expect Tim Hortons to significantly expand its reach as a strong, independent brand within the new company.”
Consolidated Results
All percentage increases and decreases represent year-over-year changes for the third quarter of 2014 compared to the third quarter of 2013, unless otherwise noted.
Systemwide sales(4) increased 7.5% on a constant currency basis, as a result of same-store sales growth of 3.5% in Canada and 6.8% in the U.S., as well as new restaurant development.
Total revenues grew 10.2% to $909.2 million compared to $825.4 million last year. Systemwide sales growth was the primary driver of both a 12.8% increase in distribution sales and growth of 8.6% in rents and royalties revenue. Franchise fee revenues grew by 17.4% due to higher levels of restaurant development and increased renovations in Canada, which also resulted in higher associated franchise fee costs.
Cost of sales increased by 8.6%, due primarily to growth in distribution cost of sales driven by systemwide sales growth. Operating expenses increased by 10.2%, due to higher rent and depreciation costs related to new restaurant openings and increased depreciation related to renovations. G&A expenses grew by 7.5% due primarily to increased salaries and benefits resulting from increased performance-related accruals and fewer vacancies in the organization. G&A growth was moderated by breakage income recognized in the quarter.
In the third quarter we recognized $27.3 million of costs associated with the proposed transaction with Burger King Worldwide, Inc., an affiliate of 3G Capital (the “Transaction”) (as further described below).
Operating income was flat at $168.8 million. Adjusted operating income(3), which excludes the impact of $27.3 million of costs associated with the Transaction and $1.0 million of corporate reorganization costs incurred in Q3 2013, increased 15.5% to $196.1 million. (Please refer to “Information on non-GAAP Measure” below for a reconciliation of adjusted operating income to operating income, the most directly comparable GAAP measure.)
Net income attributable to Tim Hortons Inc. was $98.1 million, a decrease of $15.7 million. Net income was impacted by the full amount of the Transaction costs, as there was no tax benefit for these expenses. For the same reason, the effective tax rate increased significantly in the third quarter.
EPS of $0.74 was down from $0.75 in Q3 2013 due mainly to the $0.21 impact of the Transaction costs. Adjusted EPS(3) of $0.95 grew by 25.2% as a result of strong operating performance, as well as the cumulative impact of our recapitalization and expanded share repurchase program, which resulted in a lower number of shares outstanding. (Please refer to “Information on non-GAAP Measure” below for a reconciliation of adjusted EPS to EPS, the most directly comparable GAAP measure.)
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 December 5, 2014, to shareholders of record as of the close of business on November 20, 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.
Highlights
- Strong same-store sales growth in both Canada and the U.S. driven primarily by gains in average cheque
- Sales continued to benefit from menu innovations including the Spicy Crispy Chicken Sandwich and Dark Roast coffee
- Costs of $27.3 million associated with the proposed transaction with Burger King Worldwide, Inc., an affiliate of 3G Capital, had a negative impact of $0.21 on EPS
- Adjusted EPS(3) increased 25.2% to $0.95
