Tim Hortons Inc. announced its results for the fourth quarter and full-year ended January 1, 2012.


  • Same-store sales growth accelerated in both Canada and the U.S.
  • Fourth quarter adjusted operating income 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

"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 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 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.