Tim Hortons Inc. (THI)

THI 
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Tim Hortons Inc. (THI)

Q4 2008 Earnings Call Transcript

February 20, 2009 10:30 am ET

Executives

Scott Bonikowsky – VP, IR

Don Schroeder – President & CEO

Cynthia Devine – CFO

Analysts

Irene Nattel – RBC Capital Markets

Perry Caicco – CIBC World Markets

Michael Van Aelst – TD Newcrest

Turan Quettawala – Scotia Capital

David Hartley – BMO Capital Markets

Robert Mickey [ph] – National Bank Financial

Steve Kron – Goldman Sachs

Candice Williams – Genuity Capital Markets

Winston Lee – Credit Suisse

Keith Howlett – Desjardins Securities

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Tim Hortons 2008 Fourth Quarter and Year End Earnings Conference Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. (Operator instructions). As a reminder, this conference is being recorded Friday, February 20, 2009.

I would now like to turn the conference over to Mr. Scott Bonikowsky, Vice President of Investor Relations. Please go ahead, sir.

Scott Bonikowsky

Thanks, operator, and good morning, everybody.

We apologize for the delay. We’ve had a very large number of participants this morning and we wanted to accommodate as many people as we can. So, we appreciate your patience.

Welcome to our 2008 fourth quarter and year-end conference call. If you have not yet accessed the earnings material that we released earlier today, it is available on our Investor Relations website as always at timhortons-invest.com. A presentation supporting today’s discussion is also available on the website. You can access this and the other material associated with the call by clicking on the Events and Presentations tab and it is available for a period of a year.

Joining me on the call are Don Schroeder, our President and CEO; and Cynthia Devine, our Chief Financial Officer. After their remarks, we’d be pleased to take questions. Don is going to speak about the operating environment and our overall performance for the quarter and full year, and Cynthia will provide color on our financial performance and position, as well as speak to our targets that we’ve established for 2009.

Before we begin, please note that we are providing 2009 targets and potentially other forward-looking statements this morning within the meaning of the Private Securities Litigation Reform Act of 1995. And this includes discussions about future performance based on our current expectations and information. Various risks and uncertainties could cause the company’s results to differ materially from those expressed in our forward-looking statements, which speak only as of the date and time made.

More detailed information about these risks and uncertainties is contained in the Safe Harbor statement located in the earnings release that we issued this morning. You will also find additional risk factors described in our public securities filings, including our 2007 Annual Report and 10-K filed on our website under Regulatory Filings, and also in our 2008 Annual Report which I’d note for you that we plan to file on February 26.

All Tim Hortons results, I would remind you, are presented in accordance with US GAAP and reported in Canadian dollars, unless we otherwise note. Our discussion and the following presentation does include non-GAAP financial measures today. We will remind you that a reconciliation of the non-GAAP measure and it’s most directly comparable GAAP financial measure and other information required by Regulation G is also included in our presentation on our website.

And it’s now my pleasure to turn the call over to Don Schroeder, President and CEO of Tim Hortons. Don?

Don Schroeder

Thanks, Scott, and good morning, everyone.

In 2008, Tim Hortons grew our operating income close to 10% after taking into account the impact of an important decision we took to close a number of underperforming corporate restaurants in Southern New England and the related asset impairment charge, as well as management restructuring charge we announced in the second quarter. We also grew our same store sales for the full-year in both Canada and in the US in one of the toughest operating environments in memory. We believe this underlying performance is a testament of the strength of our brand, loyalty of our customers, and the soundness of our business model.

In the fourth quarter, system wide sales grew 8.2% on a constant currency basis and 9.5% on a currency unadjusted basis. In our core Canadian market where the company derives more than 90% of its revenue, the macro economic situation deteriorated significantly in the fourth quarter. In this environment, the company grew fourth quarter same store sales by 4.4%, the same rate of growth achieved for the full-year. Previous pricing in the system played a role in this growth, contributing approximately 3%. In addition, our 40% plus share of QSR traffic, the strength of our marketing and promotional programs, unparalleled customer loyalty and our outstanding storeowners helped us achieve these sales despite the challenging sales environment.

In the US, the economic situation showed continued signs of stress. Our brand is much less developed in most of our US markets and the company or the economy was under greater pressure. Our slight same store sales decline of 0.1% in the fourth quarter reflects that operating environment. We lost some store level transactions as pricing contributed about 3% to our same store sales in the US as it did in Canada. In the US, as I mentioned, our brand is not as developed and we don't enjoy the scale and competitive advantages at this stage in our development in many of our US markets. Given that it is a developing market for us, I was pleased with the team’s continuing focus on building momentum. It is not business as usual in our US operations and the team is adapting and innovating with the objective of profitably growing our brand. I would spend more time on our segments in a few minutes.

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